1confirmation Newsletter - Issue #103
2024 is the Year of Prediction Markets
Prediction markets are breaking out as June was Polymarket’s highest month in volume, surpassing over $100M. Below is a discussion on prediction markets Nick did with Laura Shin’s Unchained Podcast.
Below the podcast episode you can also found a recent article about the mainstream use case of prediction markets that Nick recently shared on X.
SKIN IN THE GAME OR STFU
It’s hard to know what is true today.
We know the U.S. government often captures corporate media (see the CIA’s Operation Mockingbird) and social media (see the Twitter files) to spread lies for their own interests.
Elon taking over X has been good in that there’s less censorship and top down narrative control. But on X it's easy for anyone to make up their own false narratives and the algorithm tends to reward popularity over truth. Community Notes addresses this to an extent, but X has a long way to go in helping people distinguish between truth and lies.
If you talk to young people today, they feel this problem deeply. They know the popular narratives created by corporate media and social media are often untrue but they have no idea how to tell what is true and what is not. So they usually just default to following what is popular.
Markets are the Best Source of Truth
A prediction market is an open market that enables anyone with knowledge on a future outcome to contribute that knowledge in the form of a bet where they make money if they are correct and lose money if they are wrong.
For example, "Will Joe Biden drop out of the 2024 U.S. Presidential election?"
Talk is cheap. It's easy for experts to run their mouth about Biden dropping out at no cost if they are wrong. But in a prediction market there is an actual financial cost if you are wrong. At present, you can buy YES shares of that market on Polymarket for $0.81 per share. If you buy YES that means you make 23% profit if Biden drops out and you lose 100% if Biden stays in the race. The aggregate of independent perspectives with skin in the game believes there is a 81% chance that Biden will drop out.
The Biden dropout market on Polymarket has long been the best way to get a realistic picture of Biden's participation in the 2024 election. Back in October 2023, the market indicated there was a 26% chance that Biden would drop out. Meanwhile the NYT and the rest of corporate media continued to spew lies about Biden's mental state.
During the debate on June 27th, 2024 Polymarket continued to be the leading indicator for the reality of the Democratic Party. The market immediately reacted to Biden's blatant lack of mental acuity and the market price of him dropping out of the nearly doubled.
Markets Are Superior But Not Perfect
If Biden does not end up dropping out with the odds now at 81%, does that mean that markets are a poor source of truth? Not at all. Markets at scale reflect the current reality as represented by a wide variety of participants with skin in the game. They do not always accurately predict outcomes. Market participants can be biased and irrational. And there's a lot of new information that can be introduced that could change the outcome.
The point is markets are a better source of truth than both a group of pre-selected elites (old media) and profit seeking algorithms (new media) and will play a key role in bringing more truth to the world in the coming years. Especially at scale with global liquidity, which onchain payment rails enables. In the crypto industry, we've been waiting for mainstream use cases where people didn't even need to know it was a crypto use case. We now have one playing a major role in the future of the United States of America 📈🇺🇸