Concept

Product-focused prediction markets designed to provide leveraged return outcomes, ease-of-use and social engagement.

Longer Description

Prediction markets are mostly well-understood to be platforms where participants can buy/sell shares tied to the probability of some specific future event. The idea being these markets leverage the collective wisdom of participants willing to risk capital tied to their views of various outcomes. Presumably putting your money where your mouth is. Participants can trade shares based on their conviction (or where they think risk/return is worth it) and as new information comes available, market prices change & reflect the prevailing aggregate consensus. Thus far these have most commonly cropped up around election results, geopolitical events & pop culture.

Development over the last decade:

Early Platform Period (2010-2015) – early versions of betting on political election events or economic indicator results (Intrade forced to shut down because of regulatory issues/challenges)

Intro of Crypto-based Prediction Markets (2015-2018) – Augur was built on Ethereum during this period and allowed users to vote on almost any type of event they wanted; very clunky back then, v2 had a few different options (binary, up to 8 choice outcomes, scalar, i.e. 0-100) but was difficult to use (one of a few reasons it failed)

Better UX But Still Niche (2018-today) – PredictIt became popular for US political events, operating within some regulatory constraints, Polymarket launched and gained traction as a decentralized version of these; there are a handful of others (Manifold, Kalshi, etc)

Nobody has quite won this market but it’s been interesting for a lot of reasons – gambling becoming more socially acceptable, breadth & depth of data available has exploded, 24/7 markets, alternative financial systems, etc

Other Thoughts

Biggest problems continue to be:

• User experience (all of these sites are pretty rough relative to today’s standards) — for wider appeal we need to see either mobile app development or optimizing for mobile UX browser experience
• Capital efficiency – huge issue today; if users have to lock up capital in a binary outcome event (will Biden be re-elected for example), there is significant opportunity cost (both financial & psychological)
  • users can’t earn anything on that money until the bet settles days/weeks/months later
  • in theory they can trade out of it but this is not how PMs are used in practice (for the most part)
• Often returns are “not worth it” for a lot of users – earning 4% return on a 3 week time horizon isn’t appealing for the capital that users earmark for this
  • related to how casual sports betters are highly interested in very long-odd parlays
• No social component/integration still – realistically you should be able to spin up your own micro-markets with small groups/friends/group chats for measurable events (private & semi-private games) — this alleviates some of the liquidity problems and provides a platform for casual users to easily create/settle a higher volume of PMs
• There is an interesting angle in which the prevalence of AI bots can be the unlock that helps take PMs more mainstream — Vitalik wrote a bit about this recently but the TLDR is effectively this:
  • “AIs are willing to work for less than $1 per hour, and have the knowledge of an encyclopedia - and if that's not enough, they can even be integrated with real-time web search capability. If you make a market, and put up a liquidity subsidy of $50, humans will not care enough to bid, but thousands of AIs will easily swarm all over the question and make the best guess they can. The incentive to do a good job on any one question may be tiny, but the incentive to make an AI that makes good predictions in general may be in the millions. Note that potentially, you don't even need the humans to adjudicate most questions: you can use a multi-round dispute system similar to Augur or Kleros, where AIs would also be the ones participating in earlier rounds. Humans would only need to respond in those few cases where a series of escalations have taken place and large amounts of money have been committed by both sides.”
  • this thinking moves toward the idea of “getting to truth” which is interesting on a larger scale but moves beyond the ethos of this thesis