[A_D_E_P_T]

> I think prediction markets could serve a similar to a futures markets and have a functional purpose in the economy. It could be useful to generate real time estimates of the probability of some events that no one can control and have real economic consequences, like a hurricane.

Even though nobody can control them, some people can predict them better than others. (Meteorologists with good models and supercomputers, etc.) In general it's impossible to prevent the appearance of insider trading in prediction markets, and it's also impossible -- unless you massively restrict what people can bet on -- to prevent people from doing things for bets to resolve in their favor, which turns those "markets" into "bounties." (The same guys who theorized prediction markets were the ones who theorized assassination markets.)

They're fundamentally broken and the fact that they're allowed is a sign and symptom of a dysfunctional society.

[maxbond]

Insider trading by, say, having direct access to the particular wind vane that grounds the market and being able to manipulate it is a problem. Being better at trading because you have better models or better computers isn't per se a problem. Any more than it's a problem if someone is a better poker player.

In a broader context this may contribute to income inequality and regulatory capture, it can have negative externalities. But it isn't on it's face a problem. And the alleged positive externalities (realtime forecasts and a liquid market for hedging) are driven by such skilled traders.

Not all prediction markets are equally easy to manipulate. The bar was supposed to be (according to my hazy recollection) that a market had to be run in collaboration with an outside authority who, along with delivering a verdict that was already part of their normal duties, would help you exclude insiders from the market. That's a defensible position (not morally, tactically).

But "will so and so tweet about such and such" is a total joke. That's indefensible. That I do think that should never have been allowed or should be regulated as gambling. If there's no conceivable natural hedger, it isn't a real financial market and doesn't have a function (or the function is gambling, whichever).

Don't get me wrong, I think this turned into an end run around gambling regulations (that's certainly what happened with PredictIt), but I don't think that was always inevitable or will necessarily always be the case. That's a strong attractor for sure but it was pushed that way by the COVID era meme stock frenzy, the deregulation of online gambling, and ultimately competitive pressure from the sketchier markets. Once those forces were aligned it was inevitable, but it's possible that in 10 years there will have been a crackdown and tightening down of regulation and things will be very different. I'm not that optimistic, but it's a real possibility.

[trumpdong]

Coinbase CEO said all the words on Polymarket at end of Q3 earnings call: https://www.tradingview.com/news/cointelegraph:2eb9f98ac094b...

[TeMPOraL]

> They're fundamentally broken and the fact that they're allowed is a sign and symptom of a dysfunctional society.

There are two ways to view a market (prediction or stock): as socially accepted gambling for posh elites (and now every wannabe rich), and as a prediction engine that refines people's opinions, beliefs and information into a most accurate estimate possible.

If you take the first view, insider trading is dysfunctional and unfair. If you take the second view, insider trading is the entire point, it's how you get strong signal into the system.

Prediction markets were conceptualized by people taking the second view.

[maxbond]

You won't incorporate information from outsiders if they think they're going to get ripped off by insiders.

[TeMPOraL]

That's system working as intended. If there exist insiders with valuable information, engaging outsiders will just add noise to the signal.

(It's why I wrote about two perspectives - preferring outsiders to insiders only makes sense if the goal is to create a gambling venue.)

[maxbond]

And who will they be trading with?

[TeMPOraL]

Other insiders and people who think they know better?

For large/complex enough bets, you won't have a single group of people who know how things truly are - you'll have multiple groups of people who each have (or believe they have) a critical piece of the puzzle, possibly by proxy, that makes them think they have a crucial perspective - and those points of view will conflict, giving each such participant a reason to bet. Taken in aggregate, you get a system that pulls in all those perspectives and distills a single signal out of them.

[maxbond]

I don't think we have the same understanding of "insider". There are dozens to several hundred insiders at any one time. There aren't enough for them to reliably trade against ones another. To day nothing of how this system would fail when a company decided to raise capital. Like, is the CTO going to trade with the CEO because they have different views on the company? When they need to raise capital, are they going to get it from an accountant at E&Y who's auditing their books?