Impending Changes in Crypto Prediction Markets Post-Election 2024

Impending Drought for Prediction Markets Post-Election 2024

SALT LAKE CITY — Kyle DiPeppe, a prominent figure in the crypto prediction market space, foresees a significant shift as the U.S. presidential election approaches. He believes that the fervor surrounding crypto’s prediction markets may face a critical turning point on November 5, 2024, when election day arrives. This pivotal date will determine the outcomes of countless bets placed on not only the presidential race but also numerous other political contests. The sector leader, Polymarket, has thrived on this very excitement, but once the dust settles on these political races, many bettors will face the stark reality of wins or losses.

The pressing question now is: what will happen to these prediction markets once the quadrennial “Super Bowl” of political betting concludes? According to DiPeppe, the likelihood of continued engagement among bettors diminishes significantly. He notes that approximately 90% of the trading volume in prediction markets is centered around political events, and this volume is likely to dwindle once the electoral cycle wraps up, mirroring trends from previous years.

Reflecting on this impending decline, DiPeppe pondered, “Once November 6 hits, is there enough liquidity” to sustain the interest of market makers and other pivotal players who facilitate trading on these platforms? His skepticism is palpable.

Innovative Solutions for Sustaining Engagement

In anticipation of a lull in trading activity, Hedgehog Markets — a smaller competitor that DiPeppe operates — is innovating to create a prediction market model that may endure beyond the political betting frenzy. Unlike Polymarket’s binary shares-based approach, which thrives on high liquidity and highly publicized events, Hedgehog Markets is focusing on what DiPeppe refers to as the “long tail” of bettable events.

This model appeals to fans who are eager to back their favorite outcomes without the necessity of trading their positions frequently. DiPeppe likens this experience more to sports betting platforms like DraftKings and FanDuel, where participants can place bets on odds and simply let them ride, rather than engaging in the frenetic trading typical of stock markets. “There’s clearly people interested in sports betting,” DiPeppe asserts. “It’s all short-term, same thing with crypto: It’s a lot of memecoin, short-term trading,” he elaborates. “So how do we cater with a market type that fits this shorter-term time frame?”

Empowering Users with Custom Markets

By moving away from a stock market-like trading framework, Hedgehog Markets gains the flexibility to engage users more effectively, according to DiPeppe. One of the platform’s key features allows users to create custom prediction markets. They can place bets on their predicted outcomes, hoping to attract someone willing to take the opposite stance. While Polymarket permits community members to suggest markets through its Discord server, the final decision on which markets to publish rests with the company.

DiPeppe draws inspiration from the successful model of the memecoin factory, Pump.Fun, where communities can create tokens almost instantaneously and trade them for enjoyment. He believes a similar sense of joy can be fostered within the realm of prediction markets.

However, the introduction of custom prediction markets is not without its challenges. One major concern arises when a market is established with uncertain outcomes; for instance, a betting market for a tie game where participants believed only one team could win. DiPeppe points out that resolving such scenarios can be complex. Returning the pot equally between opposing sides may seem fair, yet it could inadvertently favor those who bought in at lower odds while penalizing those who took higher risks.

Hedgehog Markets aims for a more straightforward resolution approach. In cases where a custom market ends in ambiguity, DiPeppe suggests that the platform could simply return the original stakes to the bettors, maintaining fairness.

Addressing Insider Trading Concerns

Another potential pitfall in custom prediction markets is the risk of insider trading. For example, consider a market predicting whether a presidential candidate will mention a specific word during a debate. If the candidate places a bet in that market based on their insider knowledge, it raises ethical questions regarding fairness.

DiPeppe offers a nuanced perspective on this issue. He argues that prediction markets are fundamentally about leveraging trading to uncover the truth. If someone with insider knowledge participates, it ultimately benefits other market participants and the general public by providing them with valuable insights. “Anybody could launch their own NFT collection, anybody could launch their own meme coin. Will communities want to do the same thing?” DiPeppe muses, expressing optimism about the future of prediction markets. He’s confident that there is untapped potential waiting to be explored.