What is a prediction market?
Prediction markets are platforms where users trade on the outcomes of real-world events, offering a novel financial derivative with growing volume.Summary
Prediction markets are platforms enabling users to trade shares based on the outcomes of future events. Participants buy and sell these shares, with prices reflecting the implied probability of each outcome. Platforms like Polymarket and Kalshi have gained prominence, particularly around events like US presidential elections, driving significant growth in the Web3 sector. These markets utilize event contracts, including binary (yes/no) and multi-outcome options, with odds calculated as percentages of likelihood summing to 100%. When an event concludes, winning shares resolve to $1, while losing shares drop to $0. Popular event categories include sports, politics, crypto, economics, and entertainment. Outcome disputes are handled through internal compliance teams (centralized platforms) or onchain oracles (decentralized platforms). While regulated in some areas like the US (CFTC licensing), prediction markets still face legal ambiguities and risks such as capital loss, manipulation, insider trading, and regulatory uncertainty. Beyond speculation, they offer use cases in forecasting, risk management, and tracking public sentiment.
(Source：The Block)