About prediction markets and how wallfair will revolutionize the entire industry
Blockchain meets Prediction market made simple
“Prediction markets are a vehicle for aggregating relevant information about the expected outcome of a future event.”
Prediction markets date back as early as 1503, in which people would bet on the successor of the pope/papal. (1) Prediction market researchers, such as Rhode and Strumpf, found records of election betting in Wall Street from 1884 with an average betting turnover per US presidential election equivalent to over 50 percent of the campaign spend. (2) Considering the Trump-Biden election in 2020 as only “one possible” event in a prediction market and knowing that the total election spending (on this event) nearly hit $14bn, the massive potential of prediction markets becomes obvious. (3)
Although prediction markets are filled with tonnes of possibilities and potential, today there are still no real-world applications for easy trading on future outcomes of events available to the masses. Existing applications struggle with market design flaws, don’t allow easy trading, and are hardly accepted by traders due to missing widely dispersed events that in the past led to market liquidity problems and market failure. Hence it is no wonder that we face a market environment where the average volume on prediction markets in the past was less than a million USD trading volume per day on all platforms.
“The average volume on prediction markets in 2019 was less than a million USD trading volume per day mainly due to painful user onboarding and missing market liquidity.”
With the rise of blockchain and the ($13bn dollar) decentralized finance (DeFi) industry (4), in 2018 crypto enthusiasts around the world started to challenge the centralized nature of prediction markets and thought about more decentralized market frameworks which could be used to solve the liquidity problem in prediction markets by connecting them to the emerging world of DeFi liquidity pools.
Although crypto communities, such as Gnosis, Agur, Omen and Polymarket put tremendous work in the design of more decentralized market frameworks and automated market makers, existing trials to deploy these frameworks failed to gain user acceptance and mainstream market adoption. To summarize, at its best, current decentralized prediction markets are still built for a group of crypto enthusiastic programmers but not for the average person who would like to easily trade desired outcomes in the future. The recent Coinbase IPO and trend towards more regulated crypto exchanges, however, has shown that decentralized financial markets indeed have the potential to move crypto markets towards the masses.
“At WallFair, our mission is to make decentralized prediction markets
available for the masses.”
To have prediction markets become reality, hence, we believe that a combination of blockchain-based technological innovation and easy to use marketplace is needed that:
- allows access to billions of people;
- is build on a robust framework for prediction markets;
- empowers event creating that is backed by sufficient liquidity to handle mass events
- involves financial market experts and game designers that understand the complexity behind modeling prediction markets.
Utilizing the power of existing decentralized protocols for prediction markets and connecting them to billions of users can improve the effectiveness of market failure, market access and market liquidity. Technological innovation that doesn’t claim to reengineer the wheel and utilizes the power of existing protocols which seamlessly function with existing crypto exchanges, such as Binance or Coinbase, is the only way to ensure a sustainable and secure market framework.
As we envision to go this journey together, we think that it is important to share with you our core beliefs around this initiative:
- We believe that prediction markets should be accessible to everybody;
- We believe that no company nor shareholder should “own” a prediction market and that individuals can create own events;
- We believe in mobile first and in simplicity; so that prediction markets only work for users that can sign up and place a bet in under 2 minutes;
- We believe in the connection to more decentralized liquidity pools which allow for issuing a utility token that meets the requirements of cheap and fast trading on future event outcomes in prediction markets;
- We believe that more open and decentralized prediction markets will create immense economic opportunities across financial markets in the world, particularly for Asia;
- We believe that people increasingly trust distributed forms of market governance which provide maximum of security without compromising on simplicity;
To fulfill our mission, within the last couple of years we have extensively studied the power of decentralized prediction markets to make it available to the masses; we call our mission “blockchain meets prediction markets made simple”. This mission has allowed us to bring not only crypto enthusiasts but rather a team of experts from the betting and gaming industry together that long have understood the potential of decentralized prediction markets.
Where most crypto prediction markets today are still focused on decentralized market mechanisms, we believe that is not so much about building more sophisticated decentralized protocols and technology but making them available to real-world users that want to enjoy making predictions on future outcomes in their everyday lives.
Building WallFair, we have learned that blockchain is the easy part. We believe that building future prediction markets requires complex dynamic market making and liquidity farming to provide users with a maximum of instantly bettable positions in the order book. Decentralized liquidity, event creation, event settlement and event filtering require careful game theoretical design. And all the underlying technology needs to be embedded in a UI that suits the fancy of the masses.
(1) Vaughan Williams, L. and Paton, D., (2015), Forecasting the Outcome of Closed-Door Decisions: Evidence from 500 Years of Betting on Papal Conclaves, Journal of Forecasting, 34 (5), August, 391–404.
(2) Rhode, Paul, W., and Koleman S. Strumpf. 2004. “Historical Presidential Betting Markets.” Journal of Economic Perspectives, 18 (2): 127–141.
(3) https://www.cnbc.com/2020/10/28/2020-election-spending-to-hit-nearly-14-billion-a-record.html
