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1/Prediction markets have been a staple in blockchain for years but have yet to truly take off. With the elections coming up and more innovations in the pipeline, could we see an awakening of a sleeping giant?
Let's dive in
Let's dive in
2/To put it simply, a prediction market is a financial market where participants trade on the outcome of an event. There are several types of prediction markets including binary, categorical, and scalar.
3/In binary prediction markets, the price correlates with expected odds and people buy "Yes" or "No" shares on a scale of .01 to .99.
For example, if I buy .5 Yes shares of Biden winning, then I think there is a 50% chance of him becoming President.
For example, if I buy .5 Yes shares of Biden winning, then I think there is a 50% chance of him becoming President.
4/If I am right, then the share I purchased for 0.5 turns into 1 unit of whatever currency of the market is denominated in. If I am wrong, then I lose what I put in.
Prediction markets are a straight-forward but powerful tool because every participant in it has skin in the game
Prediction markets are a straight-forward but powerful tool because every participant in it has skin in the game
5/By combining money on the line with the "wisdom of the crowd", prediction markets derive a number of individual perspectives to produce an honest collective outlook of a particular event.
6/The intellectual backbone of prediction markets comes from Austrian economist Hayek who described all types of markets as ultimately aggregation mechanisms for widely dispersed knowledge. Collective markets have the ability to see what individual biases are blinded to.
7/Prediction markets have come a long way since its beginnings. Some of the earliest documented ones in the Renaissance had people speculate on who would capture the papacy. Even in the late 1800s, people placed their bets on who would be the next American President.
8/It's fascinating reading about how banking houses in Rome would organize these markets and have messengers running slips back and forth with the latest odds. https://everipedia.org/wiki/lang_en/Gambling_on_papal_elections
9/One thing that has been evident throughout the centuries with prediction markets is that elections often prove to be the most popular because of how widely known they are in a society. No matter your age, education level, or creed, everyone is aware of an election going on.
10/Modern prediction markets began to sprout up in the 1980s when the University of Iowa organized the first high-profile market for the 1988 Presidential Election. But prediction markets would not fully blossom until the dawn of the internet.
11/That happened when InTrade was launched in 1999 and allowed participants to take positions on the outcome of events online. This greatly increased the efficiency of markets since traders were derived worldwide and resolutions/payouts were done swiftly compared to offline.
12/As expected, InTrade's prime came in 2008 and 2012 during those US Presidential Elections. In 2012 alone, the site has over 50m+ monthly page views in Oct and Nov and garnered over $200 million worth of wagers.
13/But 2012 would be the last election InTrade would take part in as they would shut down in March 2013 due to regulatory pressure.
It became clear that in order for prediction markets to succeed, they needed to find alternative justifications to legally exist.
It became clear that in order for prediction markets to succeed, they needed to find alternative justifications to legally exist.
14/In 2014, @PredictIt was started and came at prediction markets from an educational non-profit angle. Not surprisingly, the most popular market on the platform was for the Presidential Election in 2016.
15/In order to be regulatory clean, PredictIt placed several restrictions. There is a max of 5k traders per question and a cap of $850 per trade. A criticism of this is that they do not allow for the most efficient markets to shape and having no-limits would be more accurate.
16/Blockchain would become a suitable alternative in this regard and in 2014 prediction markets such as Bitcoin Hivemind and @AugurProject entered the discussion. In fact, Augur had Intrade co-founder Ron Bernstein as an advisor and raised $5 million in one of ETH's first ICOs.
17/Blockchains offer an ideal product-market fit for prediction markets. Mainly, its permissionless nature allowed markets to express themselves in their freest form. In addition, the brunt of responsibility is placed on market participants and not a centralized entity.
18/Furthermore, since there are no barriers to entry, it means that true global knowledge can be aggregated. In centralized prediction markets, important players who may have relevant knowledge are excluded by various barriers to entry.
19/But even six years after blockchain-based prediction markets entered the conversation with all its hype and promise, they have still yet to take center stage.
20/A detrimental factor in this has been usability. A problem that has plagued ETH-based prediction markets has been high network fees. I doubt the average person would spend tens if not hundreds of dollars to fill an order book when centralized alternatives are much cheaper.
21/Another reason is volume & liquidity. PredictIt is still king and is set to have hundreds of millions of shares traded. Liquidity is one of those factors that is a chicken-egg problem, only liquidity bequeaths more liquidity. Unless that is solved, then the issue will persist.
22/A new prediction market that I'm proud to be apart of is PredIQt which operates in a similar fashion to its blockchain predecessors. On PredIQt, users create, participate in, and resolve markets in a decentralized manner using $IQ tokens https://prediqt.everipedia.org/markets
23/Yet where PredIQt begins to differ from its contemporaries is in its network bandwidth. Because it's built on EOS, there are no network fees which allow for order books to populate much more easily.
24/Because PredIQt is a new platform, the biggest challenge it faces is attracting more users. In my opinion, if we keep building a user-friendly product as well as providing incentives (maybe some yield farming 
) then people will be more likely come and keep coming back.
) then people will be more likely come and keep coming back.
25/The election is the Super Bowl for prediction markets but how can they stay relevant into the post-season?
I see meta-DeFi markets as an ample opportunity to demonstrate how prediction markets can remain active even after the "big game."
I see meta-DeFi markets as an ample opportunity to demonstrate how prediction markets can remain active even after the "big game."
26/The first reason is the nature of the participants in DeFi. They welcome risk and are looking for more wholesome fun ways to hedge or double down on their portfolio.
Also, statistics such as TVL and fully diluted market cap make it clear on what markets can be created around
Also, statistics such as TVL and fully diluted market cap make it clear on what markets can be created around
27/Currently on PredIQt, some of its most popular markets are in this area including what the combined market cap of $VIG + $DAPP + $IQ will be at the end of October as well as what the TVL in DeFi will be (also at the end of October). https://prediqt.everipedia.org/market/149?ref=desebdeseb11
28/The DeFi prediction market that attracted the most attention to PredIQt was about the TVL in PASTA.
The market attracted commentary from @rleshner and was featured in a CoinDesk article covering the protocol. https://www.coindesk.com/staked-yam-defi-protocol
The market attracted commentary from @rleshner and was featured in a CoinDesk article covering the protocol. https://www.coindesk.com/staked-yam-defi-protocol
29/Which brings me to my next point, if prediction markets are to truly be successful they must become a catalyst and platform for conversation. In other words, they must be social. @balajis recognizes this. https://twitter.com/balajis/status/1276597717561556994
30/Twitter has proven to be a solid stepping stone to this but an ideal solution would be sociability native to the platform.
PredicIT uses Disqus for its markets; Its comments section is extremely active with posts appearing every minute on some. Yet Disqus is still 3rd-party.
PredicIT uses Disqus for its markets; Its comments section is extremely active with posts appearing every minute on some. Yet Disqus is still 3rd-party.
31/The most ideal solution would be a native comments section. PredIQt recently implemented this and now users can discuss any market on top of the market.
32/In conclusion:
-Prediction markets are a formidable tool for judging the outcome of events
-Regulations and low liquidity have prevented prediction markets from reaching their full potential
-Blockchains offer a solution to regulation but currently struggle with liquidity
-Prediction markets are a formidable tool for judging the outcome of events
-Regulations and low liquidity have prevented prediction markets from reaching their full potential
-Blockchains offer a solution to regulation but currently struggle with liquidity
33/Cont.
-The Presidential Election is the Super Bowl of prediction markets
-DeFi-related markets may be the spark that brings more users to prediction markets
-In order for prediction markets to succeed, they must be usable, social, and fun
-The Presidential Election is the Super Bowl of prediction markets
-DeFi-related markets may be the spark that brings more users to prediction markets
-In order for prediction markets to succeed, they must be usable, social, and fun
34/Thank you to everyone who has read this thread 
As I stated before, I work with the @PredIQt_Network. If you are interested in helping spark the prediction market revolution, I invite you to join our Telegram. See you there 
https://t.me/prediqt
As I stated before, I work with the @PredIQt_Network. If you are interested in helping spark the prediction market revolution, I invite you to join our Telegram. See you there https://t.me/prediqt
