[Op-Ed] The Rise of Web3 Prediction Markets
![[Op-Ed] The Rise of Web3 Prediction Markets 1 Photo for the Article - [Op-Ed] The Rise of Web3 Prediction Markets](https://bitpinas.com/wp-content/uploads/2024/11/Web3-Prediction-Markets.png)
By Ryan Sze Tho
Recent polls for the 2024 U.S. Presidential Elections indicate a neck-to-neck race between Donald Trump and Kamala Harris. Every few days, these polls update to show a front-runner, only for that lead to be overtaken by the slimmest of margins. As I follow the election (and the prediction markets for it), I can’t help but notice how the Web3 market is feverishly betting on who will be the next US President, with over US$1.5 billion worth of bets placed.
This is an opinion article contributed by Ryan Sze Tho, Investment Manager at aelf layer 1 blockchain. See author bio at the end of the article.
This surge in interest surrounding prediction markets does not seem to be merely a fleeting trend, but a transformative shift in how we anticipate future events.
- Web3 protocols like Polymarket on Polygon, Drift on Solana, and Azuro on Gnosis have gained significant traction, particularly during this high-stakes US election.
- Even traditional platforms, such as Interactive Broker, have recently announced forecast contracts for retail investors.
These prediction markets have become so influential that major news outlets now report their odds alongside traditional polls, signalling a shift in gauging public sentiment and forecasting outcomes.
At their core, prediction markets are platforms where users bet on future event outcomes, leveraging the “wisdom of the crowd” principle.
- This approach suggests that collective predictions from large, diverse groups often outperform individual expert opinions.
- Participants buy shares in potential outcomes, with prices reflecting perceived probabilities.
- This mechanism creates a dynamic, real-time indicator of market sentiment, capable of signalling trends before they materialise in broader contexts.
With a cumulative betting volume of over US$1.5 billion on Web3 prediction markets, I find myself wondering: what’s drawing users to these blockchain-based prediction markets? Is the promise of a “trustless environment” truly delivering significant benefits, or is Web3 simply offering an alternative market overlooked by traditional systems?
I posit that both are true.
Issues like data falsification and allegations of voter fraud among political commentators contribute to inaccuracies and erode trust in traditional systems.
- By recording each poll, vote, or bet on-chain, blockchain’s distributed ledger ensures transparency through immutable smart contracts.
- This fosters trust among participants and reduces the need for centralised oversight.
- Also, blockchain eliminates intermediaries often required in traditional markets, as smart contracts facilitate the distribution of transactions, record-keeping, and rewards across the network.
That’s not to say Web3 platforms aren’t borrowing from the traditional playbook. While political events have historically driven spikes in prediction market activity, these platforms are now expanding their focus to sustain user engagement beyond electoral cycles. Platforms like Polymarket are emulating their Web2 counterpartsโsuch as Betting.com and Kalshiโby diversifying into sectors like sports, entertainment, science, and technology. This strategic expansion allows users to speculate on a broad array of topics, from movie release dates to scientific breakthroughs, thereby broadening their appeal and utility.
However, the rise of prediction markets is not without challenges.
- Regulatory uncertainties pose significant hurdles, as governments grapple with classifying these platforms within existing legal frameworks.
- Past popular prediction markets like Intrade, once a leading platform, were shut down due to financial investigations and irregularities, highlighting the precarious balance between market demand and regulation.
In the financial markets, prediction markets often represent zero-sum situationsโa dollar won by one participant is a dollar lost by another. Unlike traditional investments, bets in prediction markets do not create new value; they merely transfer existing value between participants. This leads to another challenge: participants typically expect quick outcomes and are highly invested in one side of the wager.
However, prediction markets often deal with longer-term horizons, and unless the event is a major national or global event, these markets may lack the community engagement and excitement commonly found in sports betting.
Moreover, while the “wisdom of the crowd” has proven effective in many instances, it is not infallible. Herd mentality can lead to distorted probabilities, and the overrepresentation of certain demographics within these platforms may skew results, undermining the diversity that fuels accurate predictions.
Despite these challenges, I’ve seen firsthand the remarkable potential of prediction markets.
- During the ongoing 2024 U.S. elections, some prediction platforms adjusted their odds in real-time based on unfolding events, often outpacing traditional news outlets and polls with accuracy. Such instances underscore their capacity to assimilate information fast and reflect it in market sentiments.
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As I look ahead, I believe the success of prediction market platforms will hinge on their ability to adapt to changing user interests and global circumstances. Enhancing predictive analytics through machine learning and artificial intelligence could significantly refine their accuracy, making them even more valuable tools for forecasting.
By aligning with emerging trends and leveraging innovative technologies, these platforms stand at the forefront of a new era in forecastingโit’s not just about predicting outcomes; it’s about shaping a more informed and responsive society. As we embrace these advancements, I believe that prediction markets will become indispensable tools for navigating the uncertainties of tomorrow.
About the Author
![[Op-Ed] The Rise of Web3 Prediction Markets 3 Photo for the Article - [Op-Ed] The Rise of Web3 Prediction Markets](https://bitpinas.com/wp-content/uploads/2024/11/Ryan-Sze-Tho.png)
Ryan Sze Tho, Investment Manager at aelf, is leading strategic investment initiatives and overseeing portfolio management for the Layer 1 blockchain. In his role, Ryan is responsible for identifying and evaluating investment opportunities that align with aelf’s vision of driving blockchain innovation, synergising AI with blockchain tech, and promoting scalability.
Ryan’s foray into the Web3 industry began at Kucoin Exchange, where he served as the Investment & Research Manager at KuCoin Labs. At KuCoin Labs, Ryan was pivotal in leading end-to-end investment deals and negotiations. Post-investment, he was responsible for developing market penetration strategies for an investment portfolio with a combined AUM of over $100 million.
Prior to his tenure at KuCoin, Ryan held significant roles at TotalEnergies, a global leader in energy, where he was a Senior Risk Analyst before progressing to the role of Financial Controller. Earlier in his career, Ryan worked at OCBC Bank as a Credit Risk Analyst, where he was responsible for managing the bank’s credit risk portfolio.
Ryan holds a Master of Science in Quantitative Finance from Singapore Management University, and a Bachelor of Commerce in Accounting & Finance from the University of Western Australia
This is an opinion article contributed to BitPinas: The Rise of Web3 Prediction Markets
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