Value Is Not at Settlement

Itô Dialogues: an essay series on liquidity, belief, and what markets actually price

The actual world is a process, and that process is the becoming of actual entities.— Process and Reality

Rembrandt van Rijn, "The Night Watch" (De Nachtwacht), 1642. Oil on canvas, 379.5 × 453.5 cm. Rijksmuseum, Amsterdam.

Liquidity is one of those words that sounds like financial jargon. Maybe it is even the flagship word of financiers.

Why not just say money?

Financial jargon exists for a reason, and that is because there’s a level of precision needed to differentiate the average normie perception of money to the laws and nature that govern it .

Liquidity is not money. Money can be liquid or illiquid. It is a property of money. A property that is important. Money does not disappear. It is exchanged. It is moved. Money is a zero-sum game. It exists even when it is not accessible. When it is not accessible, it is illiquid. Liquidity is just money being available. Now when something is used, it is not available, and vice versa. Therefore anything illiquid is invested, and anything liquid is not invested. That is an easy way of seeing it.

What is a market exactly?

A market is just a place to exchange goods and services, but what we think of now as “the market,” equities, futures, options, is one way or another an adaptation of the continuous double auction market developed during the golden dutch era. And continuous double auctions do something interesting. They let liquidity move around information. They let buy and sell meet each other continuously. They let beliefs hit each other until a price comes out.

People talk about price discovery and stuff like that, but what is that really?

It is just prices going. It is information becoming liquid. That is why market makers say they make markets efficient.

And yes, it sounds like a joke because people say, “But I thought markets make themselves efficient.” And then the answer is, “Yeah, but we are part of that.” And then someone says, “If you weren’t there, someone else would be there.” And then you can say that about any company.

Double Auction Markets

https://en.wikipedia.org/wiki/Double_auction

But the point is still there. In a regular market, a lot of the value add is flow, speed, efficiency of the buy and sell, the time between buyer and seller, the tightness of the spread, the efficiency of the market. The price moves because liquidity moves. But prediction markets are different because the thing being priced is different. In equities, you own something that represents a company. In futures, you own something that represents a future value or delivery. In prediction markets, you own something that represents the future itself.

A belief. A prediction. A bounded part of reality.

That is the microstructure difference. It is not really about the mechanism. The mechanism is not the important thing. The important thing is the representation of the asset.

A stock represents a firm. A future represents some future underlier. A prediction market represents a future state of reality.

Comparison of financial instruments

And the interesting part is that the outcome space is bounded. Yes or no. This happens or it does not. Because it is bounded, it becomes computational. It becomes almost like Boolean algebra. You can define very complex things from very small binary components. That is why prediction markets are interesting. You can decompose almost any market into smaller pieces. Or maybe not decompose exactly, but create a bunch of tiny markets from every process in the world. These tiny pieces can then be joined together to create new ways of measuring things that would have been almost impossible to measure before. You can price a company without its CEO.

You can price Tesla without Elon Musk. You can price the value of a research paper before citations catch up. You can price the value of an open-source repository before it has revenue. You can price the impact of a supply-chain break before the official data catches up. That’s the part. There are so many things we read, see, or hear, or that might come across a trading desk, or across a feed, where you are almost unable to quantify its true relevance, true signal, and true impact.

Like imagine being able to price the impact of a paper before everyone knows it matters. Or price academic impact without citations. Or price open-source value without MRR. Because there is an epidemic of fake GitHub stars, fake repo history, all of that. But we still know some repositories are actually valuable. They create economic output. People use them. They save time. They replace other software. They matter. But how do you price that? Right now, you almost can’t.

You can say, “I feel like this is working.” You can say, “This has value.” You can maybe put some multiple on growth or usage. But there is no real way to make that value liquid. And that is the key.

Difference in Market Value Composition

A lot of value exists before it can be measured. A lot of value exists before it can be sold. A lot of value exists before the official system knows how to account for it, this is a new thing, it wasn’t like this in the past back in 1975 over 83% of the S&P 500 were tangible assets in 2025 it’s under 8%, in the past most value was “physical” but that is not the reality of today, and will be even less the reality of the future.

So the conclusion is that value is not at settlement.

The average normie believes value is settlement and nothing else. The thing resolves, the payout happens, and that is where the value was.

But that is not right.

Settlement is not where value is generated. Settlement is just where the market stops. It is the final accounting. The value was actually in between. It was accruing the entire time.

Someone allocated liquidity into something. That liquidity became illiquid for a period of time. Then whatever happened to that allocation was either right or wrong. But the value was not created at the moment the thing settled. The value was created through the whole period where liquidity was locked, information changed, beliefs changed, and the market repriced that uncertainty.

That is the entire point.

Value is not asset-based until liquidity is allocated to it.

Before that, it is just some thing in the world. A belief. A repository. A person. A paper. A company. A supply chain. A future event….

It may have value, but that value is trapped. It is not transferable. It is not priced. It is not liquid. Once someone allocates liquidity to it, now the thing becomes part of the market. It becomes something that can be right or wrong. Something that can be repriced. Something that can be exchanged.

That is why this whole argument starts with liquidity. Liquidity is not just money sitting there. Liquidity is the thing that lets value become visible. It is what turns belief into price. It is what turns information into a market.

And yes, all of this is zero-sum in the monetary sense. Money is zero-sum. Markets are zero-sum. A Dutch auction is zero-sum. Prediction markets are zero-sum. Anyone who pretends otherwise is just confusing value and money

The money does not magically appear. It moves.

But the information revealed by that movement is not useless. That is the part people miss.

The game can be zero-sum and still produce information. The payout can be zero-sum and still reveal something about the world. The market can transfer money from one person to another and still create a price that did not exist before.

That is what prediction markets do. They make non-physical value liquid. They let us price things that do not have clean accounting, things that do not have obvious revenue, things that do not settle like commodities, and things that institutions do not know how to measure yet.

Because if it is not a physical thing, settlement is almost irrelevant. Cash settlement, physical settlement, whatever. For most non-physical things, the value is not the delivery. The value is the information becoming priced before the delivery

Settlement physicality vs pre-settlement

A lot of the world is non-physical now and even the physical world is settled in cash. A lot of value is intangible. A lot of value is belief, usage, information, reputation, coordination, timing.

Almost the entirety of the markets are settled in cash or they are settled in a concept, in a representation in a model And that value can be exchanged. It should be priced.

That is why prediction markets matter. Not because the payout at the end is the interesting part. The payout is almost the least interesting part. The interesting part is that they let liquidity attach itself to things that previously had value but no market.

They let information become liquid.