AUSTIN, Texas — Will Monkeypox lead to the next major global pandemic? Will Russia and NATO engage in direct conflict before 2023? Will inflation rise above 8.6% this year? These are some of the questions a prediction market has a reasonable idea of answering.
Though future events are always unknown, you can make reasonable bets about what may happen based on research, data and an understanding of trends. Crypto-based prediction markets make this “bet” explicit, by offering an opportunity for anyone to stake money on what they think will happen.
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For example, one user raised the question whether NATO will expand in 2022. Right now, the open market is voting no – shares predicting NATO’s expansion are currently trading hands at 53 cents.
Though if these people are wrong, and NATO does expand, those that bought a “yes” vote (currently worth 47 cents) would have a greater economic return when the market closes and winners win the pot while losers lose their money.
"These are generally winner-take-all markets, and your probability of ‘crowd consensus’ is what people are willing to buy shares," Graubard said. He added that you can think about cents as a rough approximation of probability. "They’re saying there's a 53% chance that NATO does not expand."
Although the Commodity Futures Trading Commission (CFTC) may think otherwise – often shutting down prediction markets for violating regulations of binary markets – Eaddy and Graubard think these tools could do good for the world. If allowed to operate openly and publicly, they could help people make the right decisions.
"Blockchain technology will allow forecasts to be transparent, secure, immutable and more easily tracked,” Eaddy said.
“Some of the other accouterment with blockchain, like DeFi technology, yield farming and liquidity provision, will also help to get more users on the platforms and also help the platforms generate this sufficient liquidity and volume actually to produce good, high-quality information," he added.
At the end of the day, prediction markets are about accountability. Markets can reduce bias and opinions, they say, by allowing people to put “skin in the game.” You will only bet on the outcome you think will happen, not that you want to happen.
"Being accurate is more important than saying the right thing for a particular audience," Graubard said.
This has big implications for our messy, uncertain world, where trust in institutions is waning, Graubard said. It allows for new forms of trust to arise, primarily from the community on up. And, although prediction markets may or may not be just another form of crypto speculation, learning about the world is worthwhile.
"What's a better way than the process of finding out good information? I think having fun and also in the case of prediction markets, making money and forecasting."
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