What is a prediction market?

Wikipedia says the following about Prediction Markets (PM):

Prediction markets (also known as betting markets, information markets, decision markets, idea futures or event derivatives) are exchange-traded markets created for the purpose of trading the outcome of events. The market prices can indicate what the crowd thinks the probability of the event is. A prediction market contract trades between 0 and 100%. It is a binary option that will expire at the price of 0 or 100%.
Prediction markets can be thought of as belonging to the more general concept of crowdsourcing which is specially designed to aggregate information on particular topics of interest. The main purposes of prediction markets are eliciting aggregating beliefs over an unknown future outcome. Traders with different beliefs trade on contracts whose payoffs are related to the unknown future outcome and the market prices of the contracts are considered as the aggregated belief.

A lot of people will simply call this gambling, and of the worst type, pure speculation. Maybe, they are right, but here is the thing. It makes more accurate predictions than any other known method.

Bullshit! I hear you yelling at me. Don't blame me, I'm not the one saying it.

In almost three out of every four cases, prediction markets are more accurate than polls, the next-best prediction method we have.
- Cornell University

How they work

All prediction markets boil down to placing a bet on the outcome of an event or question. Sometimes that bet is in money, and sometimes that bet is your reputation.

Reputation Markets

Prediction Markets coming in several flavors. Reputation (REP) and Money based. Reputation based markets do not involve monetary transactions when placing their bets. Instead, the PM has a points system where the users results are added to their total.

Here is what it looks like on Metaculus. Here they are asking for a probability and calculating your REP points based on the distribution of probability other users selected.

User Current score: 27
Win: +3
Lose: -3

Now not all bets will be evenly divide like this with wins and loses. In fact, most won't be. Since, how much you win or lose is based on what the consensus is on the bet currently is. That is to say, if you think differently on the potential outcome. You may win more if most other users thought the opposite. Or vice versa if you lose.

User Current score: 27
Win: +2
Lose: -4

They are asking you to assign the likelihood of the event. 30% chance, 50% chance, etc. Here, you are betting on how likely that event is.

Reputation based PMs like Metaculus and Good Judgement Open seems to be doing good. Earning reputation feels good as long as you have a community to support that social status. Though, social status only matters if you have a community that cares.

"I'm not internationally known. But I'm known to rock the microphone." You can practically hear the people shouting accolades at you now can't you?

Money Markets

Let us talk about the ones I really care about most. Ones where real bets happen. Having your own money on the line makes a difference on what bets you would place.

Binary options are perhaps the simplest form of all market plays. YES/NO that's it.

Option for a $100 looks like this:

Will Trump be re-elected in 2024?
Yes: 50$
No: 50$
Ends: 20 Jan 2025 1200 EST

Here there is a 50/50 payout, and you can buy options. If you buy here, you can yes or no for $50 and expect to get $50 ($100 payout - $50 buy) regardless of which bet you take. Here it is again, but at a later date. When the market has adjusted to the bets already taken.

"I like real money, more of that please." I hear you say.

Don't we all? More than that, I like making real money.

Will Trump be re-elected in 2024?
Yes: 40$
No: 60$
Ends: 20 Jan 2025 1200 EST

Here there is a 40/60 payout. If you buy here, you can buy yes for $40 or no for $60. Here are the results if the answer was YES. A yes bet would expect to get $60 payout ($100 payout - $40 buy). A no bet would expect to get $0 payout.

Here are the results if the answer was NO. A yes bet would expect to get $0 payout. A no bet would expect to get $40 payout ($100 payout - $60 buy). Regardless of which bet you take, there is always a chance you will lose. Because the result are dependent on a result in the real world.

Some prediction markets also allow a null result where the question asked is completely invalided and users are refunded. I feel it is better to just not allow questions that could be invalid to start with.

Why should I care?

Crowdsourcing done with PMs give the ability of forecasting to the common person. Making higher quality predictions that simply aren't possible even for a handful of experts in their fields.

It seems like prediction markets are dying off left and right. Especially ones where you can actually place real money bets. i.e. The ones with the best prediction rates. This is due to a number of reasons. Regulation, mismanagement, transaction fees, and failures to be truly decentralized. We can't just allow the best tools we have for knowing the future to die out.

Let's take a minute and morn a few we have lost along the way.

From Wikipedia:

On 26 November 2015, iPredict announced it would be winding up its New Zealand operations.

SciCast is currently (January 2016) on hiatus, after losing its main IARPA funding. It was expected to re-open in the fall of 2015 with the support of a major Science & Technology sponsor, but this had not occurred by January 2016.

In 2001, Intrade.com launched a prediction market trading platform from Ireland allowing real money trading between members on contracts related to a number of different categories including business issues, current events, financial topics, and more. Intrade ceased trading in 2013.

In July 2003, the U.S. Department of Defense publicized a Policy Analysis Market on their website, and speculated that additional topics for markets might include terrorist attacks. A critical backlash quickly denounced the program as a "terrorism futures market" and the Pentagon hastily canceled the program.

Nadex originally was known as "HedgeStreet" and was based in San Mateo, California. In December 2021, Singapore-based Crypto.com announced their intent to acquire Nadex and the Small Exchange from IG Group.[7] In March 2022, Crypto.com completed the purchase.

If we look at another PM, Augur the site has been pretty dead for a while. Though, they just made an announcement of a DAO and giving control to the community is the right thing to do. I always prefer DAOs in my solutions, but this is a real late start on getting one up and running.

This feels like, the team has half given up on making this project work. Almost as if they never originally intended to have a DAO to start with. I trust you to look into it and figure out if having a DAO will fix Augur and make it better. However, the way I see it -- It was the rise of other DEFI projects on the Ethereum network that killed this baby in the crib. Transaction fees kill unicorns, even adorable, cute ones.

Why we should build one Hive

• We are social and have community in our roots.
• Fast & Feeless blockchain.
• Decentralized in a way few blockchains could ever be.
• DAOs are already the norm here.
• At worst Hive is regulation resistant and at best it is unregulatable.

All of this is to say I've started brainstorming on @poeticmead which I plan to provide a token (MEAD) and a prediction market that can withstand the storms where other markets have gone to die.

I'm still working on producing a whitepaper. Wish me luck and if you have any insights, thoughts, hacks, other failure modes, or tokenomics that will/might make it better. Please comment and let me know.