And yet you found yourself clicking on this article. Why? Well, I guess you are either interested in my positions on prediction markets, or these elections aren’t so inconsequential after all? I do think so.

It is true that Portugal is not a country that comes to mind when thinking about main geopolitical events in this century. But it is a part of the EU, it also experiences the global move to the right. And in case the new right-wing wins, it can sabotage the inner workings of the EU. It can also destabilize NATO by refusing to collaborate on Ukraine.

By this definition every election in the EU countries is consequential. And it is - just look at Fico in Slovakia or Orban in Hungary. Both are a thorn in the EU’s side. And speaking of the latter, I am getting ready for the election in Hungary in April - Portugal can be a good test. So hop on and see if I got anything spicy out of this seemingly boring political stew.

The Political System

Before we go to the spicy stuff, it’s important to understand how Portugal’s political system works. It’s not a shocker as all European systems are similar with the core distinction being the power of the king / president vs the power of the prime minister.

In Portugal’s case the power is definitely tilted towards the prime minister and the legislature. The president has no executive powers, all of which lie with the government or with the parliament. When it comes to introducing new legislation he must either:

• promulgate,

• veto or

• send to the Constitutional Court.

However, his veto can be overturned with a simple majority. The president is also the supreme commander of the armed forces, but it is mostly a ceremonial title as it comes with no power when it comes to conducting foreign affairs.

However the president has one major power - he or she can dissolve the parliament at will (know as an “atomic bomb” in Portugal). Arguably a massive advantage that eg. the Polish president must envy now.

If I were to sum up the president’s role in governing the country, I’d call him / her a facilitator - while holding no real power, the president can either help govern or make it completely impossible.

Political Context

Portugal faces a classic European mix of an affordability crisis combined with huge migration problems. Migration is an especially important topic in the south of the country.

The country has experienced political turmoil - in the past 3 years there have been 3 snap elections to the parliament. The first one, in 2022, resulted from the socialist government not being able to pass the budget (the far-left block refused to back it). The second one, in 2024, resulted from a corruption probe into members of the socialist government, which led to the prime minister Antonio Costa’s resignation. The last one, in 2025, happened due to the “Spinumviva” scandal, which focused on then prime minister’s company Spinumviva and an apparent conflict of interest. A classic story of lucrative contracts with the government.

We now have a PSD (the main center-right party) minority government, that relies on the help of the far-right to effectively govern. And here we have our first piece of alpha - the country is tired of the old political class that changed places between each other in the last 3 elections, while underlying issues were not resolved. But first, the parties and the candidates.

Luís Marques Mendes (PSD)

Mendes represents the old center-right party, which has been one of the top 2 parties for the last 50 years or so (along with leftist PS party). Ex-PSD leader and a businessman, this is your bread and butter presidential candidate from the old school party.

I don’t think there is a use in writing anything about policies considering the limited power of the president. PSD is also the current ruling party.

Ultimately, this guy has a strong base of PSD voters combined with a rather weak popular support when we put his polling vs his party result from 2025.

Henrique Gouveia e Melo (Independent)

Independent candidate, admiral, was responsible for the COVID vaccination plan. A few months ago a strong favorite to win the election. But he based his campaign on attacking Mendes, which lost him a lot of support over the months.

Also COVID vaccinations were not as popular as Wikipedia wants us to believe, I believe he antagonized many people over this specific piece.

António José Seguro (PS)

The opposition candidate. After days of research I can’t say anything about this guy that is somewhat relevant. Bland, but good enough - there is a case to be made, but it is not a hero story arc.

João Cotrim de Figueiredo (IL)

Up and coming candidate from the Liberal Initiative. One of the two main contenders to utilize social media to his advantage. Both economically and socially liberal, offers a fresh alternative to the establishment and polarizing Ventura.

André Ventura (Chega)

Chega leader. Chage is the Portuguese AfD / FN / Vox / Konfederacja / FdI, pick your poison. Anti-immigration, anti-EU, you know the mix. Very adept in utilizing social media, but with extremely strong views that alienate a very large chunk of European society.

Opinion Polling

While polls tell us a story, it is not a definitive one. Looking 6 months back we can see how Melo lost his early advantage to Mendes. We can also see the rise of Ventura as well as Cotrim, with Seguro holding somewhat steady throughout the period.

Looking broadly at the polls, we have 5 candidates that are likely to succeed, with only 2 spots for the second round. And I know many traders die on the hill of polls, but when I see a situation like this, I mostly dismiss them. Considering the margin of error, as well as structural changes to the political party system in Portugal, there is no way these pollsters are weighing their raw data correctly. Their samples are most likely outdated and not representative of the population.

Cross tabs, while not always comparable on a 1:1 basis show significant differences between the pollsters. But they also offer valuable insights:

1. One pollster established that while Ventura got the most votes for the best debates performances, he also got the most votes for the worst performances. Ca. 30% picked him as the best while 44% picked him as the worst. It is strongly indicative of a ceiling for Ventura, a phenomenon crippling all new right wing parties and candidates in Europe.

2. Ventura loses every possible second round match-up. And this time the margin of victory (defeat?) is significantly larger than the margin of error. The ceiling from above prevents the Chega candidate from winning the popular vote. It’s simply too early for that.

3. We should expect a relatively high turnout. While self-reported voting intentions are always significantly inflated, pollsters report between 75% and 90% turnout. Close to 50% looks doable.

Prediction Markets

My strategy for the election is simple. The first round is highly contested and there is a high chance the whole election will be decided on the 18th. Thus I’m backing the underdogs and opposing the leaders

My first position is No on Ventura. I have around 9% of my portfolio allocated there as I agree with the pollsters that the ceiling prevents him from winning the popular vote anytime soon. Probably the only bond this election, outside of the necessity of round 2.

My second set of positions is backing the relative outliers

I got both at a lot lower prices (pre recent poll for CNN Portugal), but I still believe that especially Cotrim is a value bet now (I am a bit disappointed that I didn’t buy more though). My thesis for backing these two has 2 parts:

The first one is the polls - I don’t find them reliable vis a vis the closeness of the race. They are decent though on a longer time frame, where in aggregate they do capture trends. And Cotrim is trending upwards along with Ventura since the very beginning.

The reason they are rising is simple - the internet. These are the only 2 candidates than can utilize social media to their advantage. As one Portuguese journalist put it:

Cotrim and Ventura use the traditional campaign to make content for social media; others use social media to annoyingly publicize what they did annoyingly in the traditional campaign.

He is also likable, has popular ideas and is somewhat anti-establishment. But the core reasoning is around how he handles his campaign.

The second reason for Seguro, is that he wasn’t part of the whole negative campaign between Melo and Mendosa. He’s probably more lucky than smart though. First of all, both engaged in a negative campaign about each other because Portugal’s presidential elections almost always ended on round 1 - they expected that one of them would decisively win. Additionally, Seguro didn’t really run a great campaign, he just enjoys a base support from party base that happens to be around the threshold to advance to round 2. Thus my lack of enthusiasm in backing him.

At the current prices I wouldn’t back or go against Mendosa - my fair value is a range in his case. I wouldn’t also play with second round picks as I’m not confident enough with any candidate.

And when it comes to Melo, I won’t back someone who has such a downward trend in polls. But again, I wouldn’t oppose him at these odds - Ventura No for president is a lot safer bet for not far off worse odds.

Lastly there is a turnout market - it is skewed towards the higher read due to pollster data, but sadly the previous presidential election was an outlier (abysmally low turnout). Conducted during COVID, it offers little help in approximating current interest. This is also a market I am avoiding now - pollster don’t give me enough confidence to buy in the 90s while gut feeling is not strong enough to justify opposing in low 10s.

Wrap up

And that’s all for today. I hope you enjoyed this little escape from the geopolitical markets as I am about to flood you with such content considering Iran and Venezuela.

In the meantime though expect a video with 10 predictions for 2025 and daily commentary on X. Stay strong and see you soon!

When devising and deploying a strategy, you actively try to prevent the other side from understanding what are your end goals, while constantly revealing them through your actions.

It’s tempting to end this article right here - after all, it’s a pretty decent alpha. But this is only half of the story. After all, concealing your true intent is not that simple:

1. You can’t write the opposite to what you want to do as it would quickly reveal your true intent.

2. But neither can you play midwit reverse psychology games.

And when it comes to strategy in a democracy, there are people who don’t have access to classified versions and rely on the public one to act, for example your lower level soldiers and politicians. Additionally, it aims to put the population at ease, showing roughly what is the plan going forward.

Ultimately, your National Security Strategy (NSS) needs to be vague enough to not reveal your hand to your opponents, but also detailed and true enough so your military, politicians and population can act accordingly and understand what is (roughly) going on.

Masking Intent

Since the watered-down version of the NSS we see is the child of the real one (if you think there is no 10x more detailed classified version, we need to have a serious conversation), inevitably some details will slip. For an average observer they are invisible, but a curious eye can draw a decent sketch based on the clues.

And that’s what I will do today. There is no use in commenting what is in the NSS - it’s obvious to everyone even remotely interested in global affairs. But there is plenty of value in catching the clues and drawing a picture.

What This NSS Isn’t

Before we go to to my thinking, I believe it’s best to go through some of the commentary that surfaced after the publication and scrutinize it. Some of these “geopolitical analysts” are nothing more than propaganda mouthpieces and it shows.

1. The US Is Abandoning Primacy / Engaging In Offshore Balancing

This is a popular opinion in Poland, propagated by one of the most popular “geopolitical analysts” there (iykyk). In essence, he claims that by showcasing prioritization, the US admits that it can no longer uphold the hegemony and chooses to support regional champions to balance regional adversaries (what he calls offshore balancing; in English of course, to sound more cosmopolitan).

It’s all fine, except it is total bullshit. Yes, the US chooses to support regional partners to use them to balance regional adversaries. It’s hegemony 101. And it is something the US has been doing for decades:

• MENA: Israel

• Asia: Japan, South Korea, Australia to some extent

• Europe: NATO

The main priority of US hegemony is preserving freedom of navigation control over the “freedom” of navigation, not spreading democracy. And to preserve it, the US must sometimes threaten or engage in war halfway across the globe. But the US always knew that it cannot fight multiple major wars at the same time.

It’s quite the contrary - the US is very much interested in maintaining its hegemony, that is why the US prioritizes. It’s just the enemy that is in fact major, because it was left unchecked.

2. The US Is Abandoning Europe

Is it? Last I checked Europe is ahead of the Middle East in the order of priorities. But first things first.

The deal was always simple - security for political alignment and assistance. NATO countries enjoy safety for aligning with the US on security issues and assisting from time to time. Now the US demands just that: “Align with us and we will protect and support you”.

Well, almost. Outside of the fact that the US first supported the war in Ukraine and now it doesn’t. But priorities change and the message from across the pond is understandable:

We can’t support this war effort right now, either do peace on somewhat fair terms or support it yourselves. But we’d rather you focus on different stuff that we could help you in.

Trump is right in saying that Europe is wealthy and should be able to afford its own defense. The mighty Soviet Union is no more and the EU represents the most developed block in the region. There is no demand that Europe should be strong enough to counter China. But Russia is a fair ask. Especially in a brokered peace.

Seeing other priorities, Trump would rather work on Russia to abandon China. But he’s good enough with Europeans fighting, as long as they are the ones paying for it. Because while it deepens the Russian relationship with China, it also weakens both countries. Which isn’t half bad if your second main priority is dominance of the Indo-Pacific.

3. The US Is Doing A 180 Degrees Change

In the end, the US is just adjusting its strategy. It’s not a pivot, it’s a refinement. After all, even during the Biden administration the focus shifted away from the Middle East towards Europe and China. They also tried to reign in Venezuela (although unsuccessfully).

The difference now is that the change is happening quicker. And it’s out in the open rather than hidden behind a veil of distractions.

But the one stark difference between the two administrations is immigration - while the previous one believed (or was paid to believe, unimportant) that illegal immigration is OK as it boosts the labor market, the current one feels it impacts social cohesion too much (and they are most likely right).

Sure, Trump is an unhinged showman with signs of getting too old for the job. But let’s be honest - he’s not the mastermind, he’s the (formerly) witty performer. And overall, the strategy is coherent and makes sense. It tries to address the problem directly and proposes a clear set of goals to succeed. It’s more than we ever got.

And while it’s beyond the scope of my analysis, I think it’s a sign of progress. There are a lot of holes and gaps in the strategy (as I will show later on), but it is the first one to truly realize the size of the problem and to try and solve it

Sacrifices Must Be Made

I took it on myself to read previous National Security Strategies and one thing is clear - while the previous one already recognized the threat from China-Russia axis, it treated it as yet another “pain in the ass” that needs to be handled, rather than a systemic risk to the entire global order. It clearly states the problem the US is facing and sets proper context for further propositions.

The current doc is also different in structure, signifying that it was build from ground up. Both developments are great progress, but we are in 2025 and the global supply chain war started in 2013. The US is late to the game. Thus it chooses priorities.

The new strategy is made from first principles. At its core it recognizes that the US is not omnipotent. It never was. But it establishes clearly that the US seeks to maintain its global hegemony - from technological leadership, through making energy the US main export to ensuring stability around the globe. The core concept of American primacy is alive and well.

What is gone is the presumption that The post cold war order would remain stable forever. That no nation would seek to advance, especially above the US. That the west can forever enjoy overconsumption through cheap eastern labor.

It turns out that goods do not self-appear in the store. China realized it years ago. The US realized it in 2024. Europe is still in denial. But the world moves on.

First Priority - Western Hemisphere

Its foundation lies in “America First”. But it treats “America” very liberally - it means the whole Western Hemisphere, rather than the US, or even North America. The idea behind such an anchor is simple - it’s a belief that a country cannot project strength outside if it’s weak inside.

Trump won the election on that, on the combination of economy, migration and drugs. And the truth is neither can be solved without controlling the whole hemisphere.

Economy

American nations are a natural trading partner for the US. The relative proximity, shared history and abundance of resources + human capital make for a perfect mix that is difficult to find anywhere else in the world. Yet majority of South America is ridden with both economic and societal issues. It is split ideologically, underdeveloped and ridden with team east influences.

Argentina wanted to partner with China to sell its beef. Brazil burns the Amazon to create new soybean fields to undermine the US farmers. Venezuela is a clusterfuck of Chinese, Russian and Iranian influences. Colombia and others are home to cocaine industry, while Mexico grows marijuana and imports fentanyl produce from China.

Central America, outside of El Salvador, is ridden with crime, from simple gang violence, to sophisticated human trafficking networks. Panama wanted to sell canal ports to China!

You can’t develop manufacturing, mining or general trade cooperation in such an environment.

Migration

What would push you to cross 100 km through wild, tropical jungle? Source: FT

Drugs, violence, human trafficking, poverty, instability. Would you want to live in a country ridden with any of them? I suppose not. It’s no wonder that millions of people were looking to go to America. And they got help ;)

The previous administration thought that it can prop up it’s economy by importing cheap labor (or worse). But it forgot (or worse, knew) that by doing so it destroys the social cohesion, prime example being western Europe. Trump administration has a different approach. It wants to enable these countries to prosper, contingent on US energy exports. Based on a simple logic that when a country prospers, there is no outsized emigration.

Drugs

How do you really solve a problem like Kensington? Source: City & State Pennsylvania

Kill hard drugs and legalize soft ones. Trump’s policy in one sentence. The administration sees cocaine, fentanyl and alike as a threat to national security. Any country harboring cartels dealing with these drugs can expect chaos. But at the same time Trump sees marijuana as an opportunity.

An opportunity not only to get some votes in the midterms. But an opportunity for American farmers to grow a highly profitable plant, able to be sold across the region as well as in Europe, where medical marijuana is legal in most countries. Weed is no soybeans, but it gives US farmers a much needed lifeline in a decoupling from China.

Solution

What we see near Venezuela is just the beginning. The US will steamroll through the whole hemisphere (enlist & expand as they call it). First, team east must be eradicated, which means taking control over Venezuela, and by extension Cuba. By the end of next year, neither will look the same.

Then the US will look towards Colombia, Honduras and the likes - the countries that sit on the route between South America and the US. In Venezuela, Cuba and all of these countries the playbook is well-known and tested. El Salvador was the pilot project.

The US will get control either through a military intervention (Venezuela) or by coercion (Cuba, Colombia, Honduras, etc.), install a new government and brutally crack down on any kind of crime. Thousands will go to prison overnight, just like in El Salvador. And then the US companies will start to invest. Of course, it will take months to years rather than ays to weeks.

The toughest nut to crack will be Brazil. But from what we already see, the process of turning it towards the US has already started. Tariffs and sanctions are being dropped in return for shortening Bolsonaro’s sentence from 25 years to less than 2. It’s a gesture of goodwill while the real negotiations are being conducted.

Final aim: the western hemisphere will be a region generating stable demand for US exports while offering attractive investment opportunities. It will also act together on security issues, from the Panama canal, to the Arctic (we shall hear more about Greenland soon).

Second Priority - Indo-Pacific

This part is different to the first. The western hemisphere was clearly presented as the US playground, where it alone sets the rules. Indo-Pacific is a region of clashing interests. Trump presents here a deal to both China and main allies:

1. The main allies must assume part of the trade imbalance so the US is able to re-shore key industries.

2. China can maintain the current position in the pecking order, but it needs to significantly increase domestic consumption and stop its “unfair practices”. It also will also not trade with team west when it comes to high tech and critical industries.

3. The US must form a strategic alliance with India.

4. The US and allies must bring as many middle and low-income countries to team west.

5. China will not seek to control South China Sea or any other critical part of the region.

The US also establishes 2 red lines in the document:

1. The status quo around Taiwan shall not be challenged.

2. No country can control and establish a toll on any sea route in the region.

The strategy is very direct when it comes to the obvious - courting India and protecting sea routes. Because there is no universe in which the US willingly gives either one to China (especially India since the two are natural enemies).

Thus we shall focus in where it is lacking in any detail. While we have a rough idea when it comes to the plan for China, allies and India, we know nothing about 1 bit of the deal - bringing “global south” to team east. This is the real war being waged in the Indo-Pacific - it’s a war for resources and human capital.

South East Asia

Per ASEAN, the South East Asian countries boast a population of over 680 million people. More than whole South America, roughly the same as Europe. And there, population is still growing rapidly, especially in Indonesia.

World’s main nickel producer (Indonesia), rare earths (SEA countries accounting for 20% of global reserves), ca. 50% of global tin reserves, plenty of oil, coal, bauxite (reserves) and other strategically important resources. Proximity to key trade routes (especially Indonesia, which could single-handedly block access to south China).

And yet, the NSS only mentions Thailand and Cambodia out of the whole region. And not in the main body of the document, but in the introduction when mentioning conflicts that Trump ended (unsuccessfully it seems). You could argue that South East Asian countries are mentioned collectively as part of the Global South, where the US argues a new strategy of development financing is needed, but to say it’s vague is an understatement.

In my opinion this is done by design. While “geopolitical analysts” focus on Taiwan policy, relationship with India or increased military burden sharing for Japan and South Korea, they entirely miss the theater in which the fight for Indo-Pacific will happen.

But this is the topic worthy of a standalone article, especially in the context of the Thailand-Cambodia war as well as the situation in Myanmar. Expect it by the end of the year!

Third Priority - Europe

To the shock of the old continent’s elites, the NSS doesn’t really focus on Europe. Instead, it chose to lecture its nations about morals, values and civilizational pride, amplifying the growing rift between once great allies.

But under the veil of emotional reactions lies a simple reality. Trump administration believes that Europe faces a far more dire issue than Russian aggression. There is a clear parallel to the situation in the US - Trump sees migration and wokeness as public enemy number one, and there is plenty of both in Europe.

Trump wants to see Europe undergo the same changes as he is implementing in the US. More conservative governments, focused on fixing internal issues before turning the focus to the outward.

That is why he is pushing for peace with Russia. He sees it as a strategic pause, allowing Europe to get rid of illegal migrants, fix the military and emerge stronger. His speeches and the NSS is pretty clear in suggesting that this alone might discourage Russia from breaking peace a few years down the line.

Fourth Priority - The Middle East

Trump sees the region as solved. Israel is strong enough to counter Iran, but at the same time weak enough so it does not dominate the region over Turkey and Saudi Arabia.

Turkey, while mostly autonomous, is a NATO ally. Saudi Arabia was just designated a major non-NATO ally. And Iran is too weak to cause any trouble for the foreseeable future.

As long as energy exports are under US influence, the region does not require constant attention.

Fifth Priority - Africa

Here the administration remains somewhat misguided. It rightfully doesn’t see a reason it should have a prolonged commitment, but it is lacking when it comes to the real solution.

It proposes to upgrade the relationship with some nations, from aid-based to trade and investment-based. However, if they choose to do so, they will be swiftly met by Russian and Chinese resistance.

Africa is definitely a region that got too little attention in the strategy, which might be connected to the fact that Europeans, for whom Africa is a natural place to secure business, are not seen as trustworthy at the moment.

Holes, Mistakes And Outlook

All strategies sound great when you put them on paper. The real question is though, how can the adversaries react to it to counter it? How can team east derail the efforts of the Trump administration?

First and foremost, team east should (and will) focus on Africa. While the US is busy in the western hemisphere and Europe is fighting the existential war with Russia, China and Russia should incentivize and coerce African nations into team east. From development financing to military coups, we already see it happening.

This way, team east can secure resources and demand for its exports. And this will cost Europe dearly. From continued instability and migration to pressure on main trade routes to Europe to resources, that were and should be under European control.

Second priority is Europe. Russia sees the rift between European nations and the US and is using it to its advantage. Contrary to popular western reports, domestic situation in Russia is pretty good and it is more than capable of fighting a prolonged war in Ukraine. It is also adept in hybrid warfare, destabilizing European nations. It is in team east’s interest to maintain maximalists demands during peace talks while engaging with America. Best case scenario - Europe is left alone to deal with Russia as this is the scenario in which NATO can and will be tested.

Third priority is a dual one. On the one side, team east should try its best to lure South East Asia away from the US. And it can buy itself time to do so by forcing the US to commit to western hemisphere for too long.

Ultimately team east will aim to overstretch the US capabilities, forcing it to do what it has explicitly written it will - to prioritize. It will aim to win Africa and severely weaken Europe. It will do what it can to prolong engagements in the western hemisphere. But the ultimate fight will be for the South East Asia.

And to give you a teaser for the upcoming SEA deep dive, it’s not all about Thailand-Cambodia conflict. I’ll also cover Myanmar, and most importantly the Strait of Malacca & Indonesia.

Prediction Markets

I am holding both short and long-term US x Venezuela military engagement Yes

Western hemisphere being the main priority of the current administration combined with the current US military posture in the region makes me confident we will see a proper military engagement in the region eventually and I’m keeping my position, rolling them forward a bit as the time goes.

I am also holding a small amount of No ceasefire between Thailand and Cambodia by the end of the year:

I will dive deeper into the region (so keep in mind both my sizing will change and my positioning can change) a week or so from now, but as we currently stand, we are poised to see more action in SEA in the foreseeable future.

Also coming soon, we shall have more markets around the region. From pure trade arrangements to more fluffy stuff like strait closures, treaties signed and alliances made.

I also aim to use the insight around Africa to counter elections in specific regions, of which I will keep you posted.

Wrap up

I do hope you enjoyed this piece. For me it was quite a journey - it made me realize how different, more obscure regions around the world impact global foreign policy and the cold war between team east and team west.

I’ll most probably put it in the name, but this is a part 1, a prelude to my deep dive on the Indo-Pacific. 12 months ago I was still exploring next frontiers. Now the whole situation is more clear.

Stay strong and see you soon!

Yes comparing two identical, high volume, non “out of bounds markets” real money markets are better than play money markets. However play money markets have some really good (underrated) benefits.

• Being a discovery mechanism for new real money markets

• Listing “out if bounds” markets like assassination markets / death markets, pope markets (listed on Polymarket but not Kalshi)

• Provide more value information in longer tail markets (50 unique forecasters is better “wisdom of crowds” than 3 traders betting a total of $2k)

• Benefit from not being able to fall down the spectrum into gambling

• Can approach significantly longer term markets 10, 20, 30 years which real money markets cannot reasonably

They Can Go Where Real Money Can't

Probably the biggest advantage? Play money markets can touch all the forbidden topics that real money platforms absolutely cannot deal with:

• "Will anyone attempt to assassinate Elon Musk in 2025?"

• “Will Milei survive to the end of his first term as president?”

• “From which government will the next assassinated head of state be from?”

It's not that real money platforms don't want to offer these markets - they usually can’t! Each platform has these weird regulatory blindspots, but play money markets can cover basically everything. There are of course moral grounds for potentially not trading or creating these markets, but you cannot deny that they do not produce at least some valuable information.

Money != Better Predictions

Here's a situation that happens all the time:

• On a play money platform, you get like 50 different people making predictions on some niche topic

• On a real money platform, there might only be 3 traders who put down a total of $2,000

Which one do you think actually gives better information / predictions? Often it's the play money one! Diverse viewpoints beats having a few people with money on the line.

Which market do you think is more informative

• Will there be any reported human-to-human transmission of highly pathogenic avian influenza H5N1 globally before 2026? Via Metaculus, play money but with >125 unique participants, >30 thoughtful / insightful comments that are well researched

• Will there be human-to-human transmission of the bird flu? Via Kalshi, real money but only $25k in all time volume, ~$150k in open interest, 3 meaningless comments, and I would estimate less than 20 unique traders

Falling down the slippery slope of gambling

Real money prediction markets are constantly fighting not to just become gambling sites. This creates all these weird pressures:

1. They need questions that get people excited to trade, not necessarily the most impactful / informative ones (note the limited markets and activity on AI risk and Health)

2. They have to focus on short-term stuff so people don't have to wait forever to get paid. Kalshi has now started paying interest on all cash and open positions and its likely that Polymarket will (hopefully) soon have a yield bearing stable. But getting paid only ~3%/yr on a 10 year market isn’t to attractive.

3. They can't afford to keep running markets that nobody's trading on. It does not look good to look at a Polymarket for information, see there is only $750 in volume this both makes you not want to trade it and not trust the information it provides.

Play money markets don't have these problems. They can just focus on what predictions would be most useful, not what will make money. They can keep a market open even if only a few super-knowledgeable people are participating.

The Super Long-Term Stuff

This is the advantage nobody talks about enough. Play money markets can handle questions that won't resolve for decades:

• "Before 2025, will an AI system be shut down due to exhibiting power-seeking behavior?"

• “What will the population living on Mars be in 2050?”

• “What will the world population be in the following years?”

Try running a real-money market on a 30-year question! It's basically impossible. The platform probably won't even exist that long. Play money platforms don't have to worry about any of that. You can get decent estimates for long term markets today.

They Work Together

The smartest way to think about this isn't "real money vs. play money" but how they actually complement each other

• Play money markets come up with new ideas and cover weird topics

• Real money markets give super strong incentives for accuracy when the conditions are right

• Both types give us different kinds of useful information

Play money markets can generally act as a decent discovery mechanism for real money markets.

Polymarket’s and Kalshi’s market listing teams have been working overtime lately and as their respective platforms grow will reach a point where they will need to sacrifice the quality of their markets. Both Kalshi and Polymarket have been thinking about this, Kalshi now has a market builder as part of their platform and Polymarket is likely working through something similar.

I wrote previously that it could be interesting for Polymarket to offer something like a pump.fun derivative in which anyone can create any market, a AMM bonding curve is seeded, and if the market reaches a certain volume/open interest/unique number of traders it “graduates” onto the main Polymarket platform (and moved into an orderbook, which aligns with AMMs and Orderbooks; The future is hybrid).

Manifold for instance started is a play money market and then tried its hand at adding in real money markets via sweepstakes (note, this is now being shut down likely do to limited traction and also crackdown on sweepstakes law). While this was live it was pretty cool there would be various markets that had both play and real money markets, play money markets sometimes would get good enough traction and then transition into a real money market. I think this was the first time that a real money and play money market existed together on the same platform. More people should try this (if you are please send me a note)!

Overall I really like play money markets as they allow for differentiated markets that are very hard to offer on real money platforms and serve as a great discovery / scaling mechanism.

Kalshi, Polymarket, and others, please consider pairing your platform with a play money market!

In a broad summary

1. Launch $POLY to cut down on market maker incentives and own your own dispute resolution

2. Turn on the fee switch!

3. Add yield to your collateral

4. Build a scalable parlay system

5. Launch an Index Business

6. Have an OTC / Pro Trading Interface

7. Look more like a news platform

8. Incorporate other instruments like dated futures and perps

9. Expand your user created markets

10. Launch private company valuation markets

Launch $POLY

The high level here is use it to replace the USDC market-maker incentives and replace UMA with your own dispute resolution.

You guys spent ~$6m in USDC incentives that can/should just be some token inflationary rewards.

For example Aevo (who has slightly smaller but similar exchange volume to Polymarket post election) is distributing 100k Aevo per week to stakers (~0.52% of their token supply per year). Pulling their average token price over the last year thats about ~$4m in incentives that they have paid stakers, so assuming a similar token price (which in my opinion is extremely conservative) you’d be paying out ~0.76% of your token supply per year in incentives (not bad!). The obvious difference here of course is that Aevo has a vote escrowed staking model and this would be for paying market-making incentives but paying out <1% a year in token inflation is significantly better than paying $6m in USDC. Also given your last funding round the % amount you’d be paying here would be significantly less since Aevo is only worth $150m fully diluted and your last round was $350m.

The second reason, and more important is, replacing UMA dispute resolution with your own process. Potentially this could be as simple as forking / using the UMA protocol but with $POLY. The benefits of simply forking are clear (1) you own the dispute process (2) your token will likely have far better distribution than $UMA (3) if traders have problems with the dispute process they can purchase $POLY and play a role in the process and that directly accrues to your protocol rather than UMA.

Alternatively you could try out new types of dispute resolution. As Michael pointed out this could take the form of using platforms that have multiple layers, he suggests the following

One example is @Truemarketsorg model, which combines council voting, token-holder governance, and attester validation. Other potential solutions like @opinionlabsxyz include reputation-based voting and randomly selected juries with equal voting power, both of which could mitigate controversies and improve market integrity.

Note Michael also has a great post on the future of prediction markets, check it out!

I have also thought that adopting something like peer prediction as described in the old Upshot One whitepaper would be super interesting. Here’s their abstract

Reaching consensus on answers to subjective questions is, today, practically achievable via trusted sources or expensive mechanisms. This greatly limits the potential of many applications (e.g. dapps, content moderation, insurance, fact-checking). We propose a protocol for solving this problem that combines cryptographic sortition, mutual information games, and subjectivocracy. In our protocol, agents of a decentralized network stake capital to answer questions. A random subset of these agents is scored based on a recently invented peer prediction mechanism called Determinant based Mutual Information. This mechanism is dominantly truthful for a constant number of questions and agents, so it can efficiently yield a plausible estimation of correct answers. Controversial answers may incite forks in a native token and history of answers to reflect differing views of reality. Application-specific fork-choice rules may then be used to determine the correct reality. This paper explicates the above protocol and analyzes its robustness and security.

Their protocol was for coming to “accurate” NFT valuations but the premise would be the same. Token holders stake, are shown two random settled markets and have to choose which was was more “accurately” settled, they are then paid for answering and paid more if their answers fell in line with the average. Given that Polymarket disputes are only occurring at about a 2% rate you can imagine that most settled markets you are shown it’ll be relatively a toss up which market a disputer chooses as “more accurately settled”… but as soon as there is one that is wrong it will bubble up extremely quickly.

In fact the ~2021 Upshot One website even showed that their peer prediction protocol could be used for prediction market resolution

After launching $POLY replacing your USDC incentives and bringing dispute resolution in house there are many other interesting things you could add to your tokenomics that will be mentioned in the various other sections.

Turn on the Fees

You are averaging ~$750m-$1.25b in volume a month. That's roughly around $9b in volume a year.

Aevo charges 0.05%/0.08% on perps and 0.25%/-0.1% on pre-launch perps for taker/maker orders.

Kalshi charges fees that scale based on the price of the contract you are buying.

fees = round up(0.07 x C× Px (1-P))
P = the price of a contract in dollars (50 cents is 0.5)
C = the number of contracts being traded
round up = rounds to the next cent

this would be something like 6.4% in fees on a contract trading at 10% scaling down as the price of the contract goes up. The full fee schedule can be found here

Pretty expensive, especially considering most markets are long bets, but not as expensive as sportsbooks take!

Interactive Brokers ForecastX currently charges zero fees for their markets but $0.1/contract on CME event contracts (their contracts are $100 in size not $1) so their fee schedule looks something like this

much more reasonable then Kalshi’s fees and pretty much in line with Aevo pre-launch future’s fees.

If you were to charge $0.01 per contract on $10b in volume you’d be making about $100m in fees or charging something like the the pre-launch rates (0.25%) on all contracts regardless of price you could make roughly ~$25m. This is a pretty rough estimation as it doesn’t account for different fees for the maker/taker volume split of which you are already incentivizing at extremely high rates.

For the last few years the zero fees have been great for Polymarket’s growth and potentially turning them on could frustrate some users. This seems relatively easy to fix by simply accruing a high percentage of the fees back to token holders (maybe those staked to your dispute resolution platform!). At a $350m FDV $25m in fees would represent about a 14x PF Ratio

Add some yield to your collateral

You have like ~$100m in open interest right on unresolved markets now but it was ~$500m during the election. Kalshi gives users 3.75% interest on cash deposits clipping something like ~0.5% depending on the rates. IBKR ForecastX also pays out interest on deposits but only when you have it in active event contracts. Offering some yield on cash deposits is extremely important for event exchanges as it helps to incentivize longer term markets and have them priced more accurately (there is a discount rate or time value of money applied to the longer term markets that hopefully 3.75% can help pay for).

This is actually something that would be extremely helpful to Polymarket as your markets have consistently trended shorter with an average of 21 days and a median of 4 days.

This is potentially most attributed to the large growth of growth sports markets, but is likely also indicative of mention markets and other “will X happen by Friday markets” that are popular on the platform.

Simply replacing USDC as the collateral on the platform with something that is yield bearing like Ethena or the various Ondo offerings. It is likely that you could partner with someone like Ethena to launch your own stablecoin with them in which you keep some percentage of the interest and pass the rest to the user for longer term markets. Alternatively you could just add a new yield bearing stable as collateral alongside regular USDC and show some banners offering current USDC depositors to switch.

Conservatively assuming ~$100m is the average open interest throughout the year (and rates stay about the same, which is seemingly likely throughout June based on your Dashboard) and you did some partnership with a stablecoin provider in which the Polymarket protocol earns ~0.5% on the collateral that would be an roughly ~$0.5m (or ~$2.5m at $500m in open interest).

Add in some Parlays

The growth of sports betting tells us one thing, people love betting on parlays, are bad at it, and the book makes 56%+ of their revenue from it.

Polymarket needs to launch parlays. Right now Polymarket Sports offers straight bets (and it's seen decent volume there!). The exchange sports betting model is becoming pretty popular with Polymarket, Kalshi, Novig, Sporttrade and others all using the exchange model. Outside of Novig very few sports exchanges actually offer parlays. This makes sense it's kinda opposite of what sports exchanges are meant to do (remove the house and focus on offering tight spreads on straight bets).

In the past you have offered conditional markets that are something like this "If the Chiefs win the Super Bowl, Mahomes has 2+ TDs". The interesting thing here is that there are two separate markets here that are linked together into a new market and they all trade on separate order books. Meaning there are 3 markets in total one for each straight bet and one for the parlay. It would be nice to have the liquidity unified (everyone that wants the one of the straight bets and the part of the parlay that matches that straight bet in the same orderbook). In practice this can't really work without a third-party "house" (although if someone has some crazy AMM design that can do this and pair it with an insurance fund, please reach out).

Let’s walk through why you either (1) need a house or (2) a separate orderbook

- Event A is trading at a 10% chance (+900 american odds)

- Event B is trading at a 15% chance (+567 american odds)

- Event A and B parlayed 10% * 15% = 1.5% chance (+6567 american odds)

A user could buy $100 of event A to win $900, they could buy event event B with $100 and win $567 or you could parlay event A and event B for $100 to win $6,567. If this was using pure sports exchanges (no house) and there was no unified book (ie the markets traded separately) there would not be enough to pay out the bet. This is generally where the house steps in.

Novig, a sports exchange launched parlays a few months ago but do so with a third party.

Offering parlays with a separate orderbook in the way that you have in the past (markets like “If this then that”) is not scalable. At any given time you have over 10k+ markets available for trading… thats a lot of potential parlays. Building a more flexible and scalable parlay system would allow me to (1) trade crazy markets like a Trump mention with a LeBron o10.5pts and (2) greatly increase trading activity.

You should launch parlays for big events on their own orderbook as you have been doing and then also launch “custom parlays” which would allow for a user to pair just about any market offered on the platform with any other. This could work with some combination of a insurance fund that potentially $POLY holders could stake into. OkBet has a pretty interesting whitepaper (telegram link) on this but generally the idea is

• you have a reserve pool anyone can supply into

• outside of constraints like market correlation you can pair just about any markets with each other up to 10 markets to create a parlay

• if the payout for that wager is >10% of the reserve it cannot be placed

• if the parlay hits the loss is socialized through the reserve fund, else the initial wager is distributed to the reserve stakers

There is a lot more thought that needs to be put into something like this but this would give you a huge profit center and an extremely unique product in offering a huge selection of parlay-able events

Launch a Forecast Index Business

In a Truflation kind of way you could have a really strong forecast index business for Fed Rates, Weather, etc. You can browse their data feeds here.

Metaculus recently launched this with their AGI readiness index (and it seems like they will be launching more forecast indexes) which is pretty cool in that they aggregated a few markets to come up with a single value that AI Safety folks hopefully appreciate.

You already have the start to this with the various election and fed rate dashboards you just need to split them out into individual indexes and list them like data feeds.

The easiest one to the think about is having a forecast index for Fed Rates. As of 2/9/25 the March Fed Rates dashboard looks like this

You could take the average of the ranges and calculate the implied rate based on the probabilities.

This easily displays the forecasted index for the Fed Funds Rate after the March meeting in a very digestible (and tradeable) way. In fact platforms like Kalshi already somewhat display it like this, it’s just you have to trade the individual brackets not the index.

It seems like a relatively low lift to calculate the implied rate across all of your bracket markets which include many financial, economic, and other indicators. As Polymarket becomes the information market it will be important to have easily referenceable future indexes.

You are already cited constantly and used as an index. Build a business around it

OTC / Pro Trading Interface

I don’t even have to be a whale to need to carefully scale into a $10k position on just about any given longer tail market because of the liquidity. Large traders like Domer consistently mention that they trade point and click on the platform, no automation, no advanced charting or order management systems.

Platforms like Aevo used to have OTC interfaces (mostly focused on getting quotes for their option products), Kalshi has quietly rolled out an RFQ endpoint, and long standing platforms like American Civics Exchange are an OTC event contracts exchange and if you briefly browse the Polymarket discord you will see tons of requests to do OTC deals.

I think this could be a relatively low lift, hire a few people and spin up a Telegram channel(s) where traders can get quotes across markets on large sizes and you can help to manage getting in and out of the position. I think that there is also a portfolio construction aspect of this to, some large traders might simply say “I would like to hedge <enter any middle east conflict>” but not bother with reading through tons of different markets, parsing the resolution criteria and finding a set of markets that fit what I want. Seemingly PolyOTC could handle this.

This could also come in the form of simply having a more pro trading interface. It would be pretty nice to have some portfolio management tools, be able to see historical pnl as a chart, be able to view markets with a trading view style chart,etc.

Okay now for somewhat less immediately actionable items that can be worked on in a somewhat longer form roadmap.

Focus more on being "News"

You already have the Oracle and Boring News which are great distributions and plenty of people who regularly pull up the exchange to check the odds and get context to the news they are reading.

You should make your homepage look more like a news site as that is what the large majority of your users are coming for. Simply show latest news articles based on trending markets!

Platforms like Metaculus show News Match on various markets as you can see here. This is a nice way to surface trending news alongside your market odds.

There’s a lot more I think you can do here and many of the concepts of in-context news are what I am trying to tackle at Adjacent News (which will rebooted / have a v2 launch soon!)

New Instruments and Market Types

I was recently browsing Parcl after not following it closely for a while and was very surprised to see that alongside their real estate and rental markets they also now offer markets on housing sale data and various majors like SOL, BTC, ETH.

This is interesting in that the housing sale data perpetual futures are almost exactly something Polymarket could have if they created an index out of various housing indicator markets (which you don’t have but should, Kalshi has them).

It was also interesting to see Parcl expand into regular perp markets, I think this is a nice way to round out their offerings. For Polymarket offering markets like these would round you out as the everything exchange but also present interesting trades all within your platform. For example there are plenty of MicroStrategy (now just strategy.com) BTC purchase markets or markets about the Bitcoin Reserve. You could pretty easily put together some pair trades across the perp and event markets.

As mentioned in the forecast index section the next step after having indexes on implied probabilities of your economics bracket markets is to launch markets on those indexes.

Lets go back to the Fed Rate market from above. The implied rate rate after the March meeting is 4.31% using that and applying the same methodology (calculating the implied rate on the midpoint of the various brackets) we end up with

May:

June:

From there you can get a nice forecast index chart of what the Fed Funds rate looks like in the future based on the implied probabilities of the bracket markets.

Right now these markets need to fit into the bracket type so that they still work within the Gnosis Conditional Token Framework. Potentially expanding the exchange to support dated and perpetual futures could be extremely interesting as you could take your (potential) Index Business and offer markets directly on them. In this case there could be dated futures for each March, May, and June Fed Funds Rate along with a perpetual future market that would represent the current rate.

Regardless if you expand into other instruments like dated and perpetual futures to offer products like these you could still license out your Indexes for other futures exchanges to launch products on.

As Ondo brings tokenized equities on-chain you could also list these which of course would present interesting pair trades with various markets

User Created Markets

This seems like this is something that everyone wants but pretty much only exists in Manifold or alternatives like PlayMoney which are great for many reasons but still no one falls into the “permissionless market creation and real money trading” prediction market camp (If you are building this shoot me a DM!).

Right now Polymarket has creator markets which are nice because they preserve the overall quality of their markets. (You don't want to have tons of "will I go to the gym" markets that are all over Manifold) But are still limiting in that I cannot go to Polymarket with a question I might have, launch a market, and in a short period of get a good general forecast.

I’m not entirely sure the best solution here because simply turning on permissionless market creation would severely degrade the quality of markets on Polymarket. I do like the current creator market setup but would maybe add in a form or something so people can apply to create.

An extremely interesting alternative (that I am not entirely sure is a good idea) is a pump.fun derivative Polymarket Launchpad. This would simply be

• Permissionless market creation user locks a certain amount of initial liquidity, market is launched

• When the market has reached a certain volume it graduates, the user gets their initial liquidity back and the market is listed on the primary Polymarket website

This allows for anyone to create a market, creates a nice expansion on your creator market program that can highlight really good market creators, is a great way to scale your market creation to make sure you are listing what’s hot in the news cycle right now (rather than having your listing interns be 24/7 online), preserves the quality of your markets on the main site, and is likely another great way to generate fees (see pump.fun fees).

Private Company Indexes

The last few years tons of companies have tried many different ways of wrapping private companies into something that can be easily tradable like an ETF. Public equities are somewhat likely going to be tokenized and listed on CeFi exchanges (like Ondo), which maybe then leads into private companies valuations being tokenized as well.

Prediction markets are great for this you can simply have bracket markets on the next expected valuation of the company. For example here is a market for Kalshi that I created.

You don’t have to spend a lot of time on our part of Twitter before you see people expressing interest in shorting the latest vaporware startup or wanting to get into private rounds for companies they really believe in. Offering private company bracket valuation markets seems like a pretty easy and effective way to do this.

Even better than bracket markets, and once again nicely paired with the proposed Index business, you can create an index for a given private companies valuation which can then freely trade as a long dated future on their next funding round.

I think of this as a crunchbase on steroids, I get market distilled information on the value of a private company and I can participate in the market if I would like.

Here are some other little things that would be nice!

• Unify your APIs or at least deprecate / move to legacy some of them. There's 2 documented (CLOB and Gamma) and one that's undocumented. Just let me get everything from a single API!

• Dashboards should have the ability to be user created. User created content has network effects. It also seems useful that I can put together a set of markets on an issue and share it out with friends

• Expand your mobile app into all markets not just the 2024 election. This kinda relates to the point above about being more news focused. Also incorporate dashboards into the mobile app

Thanks for reading hopefully a few of these are actually incorporated!

Here’s a quick look at the following platforms

Polymarket

• Real money (USDC on polygon)

• Deployed on the Polygon blockchain

• Tons of markets, highest volume and liquidity prediction market

• Disputes resolved via UMA

• They are rolling out creator markets slowly!

Kalshi

• Real money (USD, can fund from your bank, also support crypto now)

• Regulated by the CFTC (congrats on winning approval for election markets)

• Good amount of markets, slowly increasing volume and liquidity but still a very small number relative to Polymarket

Manifold

• Anyone can create a market

• Started as just play money (mana) but now thanks to sweepstakes law there are “real money” markets alongside pure mana markets (btw manifold is looking for market makers)

Metaculus

• A forecasting platform

• No money involved (in fact some of the users are extremely against betting)

• Not just anyone can create a question but it is generally more open than say a CFTC regulated exchange

• Anyone can forecast (also they are rolling out notebooks/community pages were anyone can propose questions)

Note there are plenty of other prediction market and forecasting platforms, but I think generally any new platform fits into the archetype of those listed above

There are a few distinct types of users, all of which have a shared interest in trading prediction markets or forecasting events yet don’t overlap in many of their other values or interests. Sometimes there is so little overlap that power users of one type have never heard of the popular platforms of another type.

Nate Silver’s book “On the Edge” very nicely describes all of these people as “the river”. You can read my book review here

Forecasters

The start of prediction markets was rooted in Robin Hanson’s Idea Futures and some of the first platforms being the Good Judgement Project or Iowa Elections launched in the early 2000s generally attracted the type of person that “just want’s to know what is right”.

If you are interested in the history and future of event markets, Ramblings on Event Markets is a great start along with the history of corporate prediction markets from and Dan Schwarz

They approach forecasting events in an extremely academic way, often debating the difference between a 62% chance or a 65% chance of a specific geo-political event.

Forecasters are very focused on improving their calibration and being down to the decimal accurate which contrasts with the other user types that seem to focus on simply being directly accurately.

Forecasters generally focus on longer term predictions currently these are markets like

• AI Risk

  In Byrne Hobarts recent book Boom he brings up an interesting point how the crazy focus on AI Risk might actually be an existential risk in itself

  AI safetyism has become so dominant that the obsession with alignment between humans and AI could, by inhibiting accelerated progress in the field, become an existential risk in itself

• Geopolitical Events

• Longer term elections

2020 was a great year in terms of Metaculus and general forecasting relevance given their forecasting work on Covid-19. You can read a pretty detailed year in review here of forecasting.

Also extremely cool Metaculus partnered with the CDC to produce the report 2024-2025 Respiratory Disease Season Outlook. Here is how the report was conducted

This respiratory outlook incorporates expert opinion from 19 subject-matter experts specializing in COVID-19, influenza, and RSV epidemiology, infectious disease modeling, disease surveillance, and risk assessment methods. In partnership with Metaculus, CDC designed a questionnaire and process for soliciting views from experts on the upcoming fall and winter respiratory season. Experts each answered a series of questions on the expected hospitalization burden posed by each disease, as well as on key drivers for a season with a higher peak hospitalization rate.

Crypto Bros and Sports Bettors

These are largely one in the same, highly skewed younger male and with a large risk appetite. This type of user generally focuses on shorter term markets (betting on the game an hour before it starts, betting on the election a few days before). They like the thrill of risking a little many times to potentially earn many multiples.

If you are looking for a good general overview of this demographic and their behaviors. It kinda really helps that sports betting is so heavily regulated because we know a lot about the user types.

Blockchain based prediction markets like early Augur, Polymarket, Omen, GnosisDAO, etc. have always been something that a few startups will try every few years generally alongside crypto market cycles which also happen to generally run next to 4 year election cycles.

Each cycle the total volume and active user floor increases by a few multiples. There are tons of news articles about their relevance leading up to the election… and then the election is finished and they fall out of the news cycle hard (Polymarket sees a 84% drop in volume post election 2024).

Polymarket became so relevant during the 2024 election that Trump’s team was looking at it on election night, many people I know (including myself) went to sleep multiple hours before the election was called because the Polymarket odds had already shown a Trump win. Post election Polymarket’s CEO was raided by the FBI.

Polymarket has now focused in on offering sports markets (these are nice because there is no vig or house and you can trade in and out of your positions like a regular market). And I assume (based on this other prediction market) their token launch.

Tradfi

This is an interesting category where crypto bros like the thrill of hitting a trump win (EC) and trump win popular parlay with +400 odds and forecasters like thinking about updating their priors on whatever global conflict is top of the news cycle. Tradfi simply likes trading markets.

Event markets now let participants express view directly on an event.

Kalshi has been around for a little bit around ~4years since they were part of YC19 but they really didn’t get ton’s of attention until they took on and won a huge court case against the CFTC to allow the listing of regulated presidential election markets.

For the 2024 election you could trade CFTC regulated contracts on

• Kalshi

• IBKR

• Robinhood

You can still trade political, economic and other markets on Kalshi and IBKR there are thousands.

Liquidity across non political markets is always quite poor so Kalshi onboarded SIG to market make on their platform. They pretty much make markets for the economic indicator markets. You can see which markets SIG trades on here.

Where Polymarket saw a 84% drop across the platform. Kalshi’s most popular market after the election only received around $3m in daily volume (their election markets were doing over $100m). You can check daily volume by markets with this tool.

Even though Kalshi, IBKR and others have been dominated by presidential contracts (even more than crypto prediction markets) I have a strong belief that they will continue to grow organically until the next election and become more integrated into traditional portfolio’s.

In fact about 2% of a general diversified stock portfolio is almost a direct bet on the election and there were tons of proxy stocks for a trump win like DJT, Oil, etc. People want to bet on events, they maybe just don’t know you can do it in a direct way yet.

Charles Schwab is also an investor in Kalshi so I would say its high 80% chances that for the 2028 election Schwab offers event contracts on their platform (theres no market for this yet, but there should be!)

There’s also this element of the forecasting / prediction market wars. Especially Kalshi between Polymarket right now. Everyone is fighting for the attention of the traders while all offering pretty similar products.

I think if you are building a prediction market or forecasting platform you should do one or multiple of these

• Offer Parlays

• Focus on a specific niche - just economic markets, just sports (like Novig),just politics, etc.

• Unify everything

• Offer a continuous market either perps or date futures things like CPI or the Fed Rate don’t need to be bracket markets

Overview

Prediction markets have a very interesting history. Not sure if this is the first that they were ever written about but Robin Hanson is generally seen as the father of prediction markets. He first wrote about them in Idea Futures in which he describes how policy makers should turn to betting markets rather than experts for decision making (later this became Futarchy).

Here is a list of many more Hanson publications.

A few years after Hanson’s initial Idea Futures post multiple big corporations picked up the idea. Companies like Microsoft, Eli Lilly, and Hewlett-Packard have run experiments in which employees trade around new drug candidates, approval of drugs, etc.

Google ran internal prediction markets to “forecast product launch dates, new office openings, and many other things of strategic importance to Google”. After 2 years of continually running their internal markets Using Prediction Markets to Track Information Flows was released, detailing many biases and outcomes. They have their application public on GitHub.

Even crazier in 2005 the Pentagon set up a prediction market website in which terrorist attacks and assassinations.

The Pentagon is setting up a stock-market style system in which investors would bet on terror attacks, assassinations and other events in the Middle East. Defense officials hope to gain intelligence and useful predictions while investors who guessed right would win profits.

- Betting on Acts of Terrorism

Prediction markets have gone through many iterations been tried in a number of applications from private corporations, open on blockchains, to the government.

Although, outside of U.S. election cycles and certain internal company markets they have never really caught much mainstream interest. Liquidity, Regulation, Duration of the predictions all play into this.

Sports betting on the other hand has always been popular and with recent regulation changes seen tremendous growth. Sports betting benefits from short duration bets and “always on” liquidity provided by the House.

Sports betting and prediction markets are one in the same, they are both Event Markets.

Forecasting Events

The idea of forecasting events has been very popular with the EA (effective altruism) community for a while and now more so with the e/acc (effective accelerationism) community. Basically the slate star codex / astral codex ten, scott alexander, LessWrong type. Ironically perfectly described in scott alexander’s Bay Area House Party Substack Series (Every Bay Area Party, Another Bay Area House Party, Even More Bay Area House Party)

While different than EA, e/acc seemingly only became popular and mainstream after SBF ruined the EA name in 2022. Notably SBF offered conditional markets on FTX and FTX’s Future Fund made donations to the popular prediction market manifold.markets.

The forecasting community is niche but very popular. In fact prediction market site manifold.markets recently held their first conference Manifest. Here is some coverage on it in the New York Times.

Superforecasting by Philip E. Tetlock and Dan Gardner details the government funded Good Judgment Project. The yearly tournament poses between 100 and 150 questions on geo-politics*.* You can join challenges at gjopen.com/challenges, some of them have close to 100k forecasters participating.

Far easier to follow is the Annual Forecasting Contest held by Astral Codex Ten. In this contest a variety of 50 questions were asked. Rather than yes/no the questions asked for a probability that an event happened. Here are the results from the 2023 competition. I look forward to these competitions each year.

Forecasting for the most part is pure reputation based and forecasters take pride in getting probabilities exactly right year after year.

Of course there are individuals that want to wager actual money on their bets, thus there are a variety of prediction markets (which of course bring traders, funds, etc.).

There is not a better overall prediction market FAQ than this one from astral codex astralcodexten.com/p/prediction-market-faq. It would be a helpful read before continuing, why they are accurate, clever use cases, and common objectives are covered in it.

Futarchy and Impact Markets

I first read about this ideal in Radical Markets (here’s a pretty good summary) which among other things (like Harberger Tax’s and Quadratic Voting) the concept of a Futarchy is presented.

Robin Hanson describes the ability to vote on your values, but to bet on your beliefs in his post on Futarchy. The idea is simple in a Futarchy government betting markets would say what policies are past and what we do. Hanson expands on this in the paper Shall we Vote on Values, But Bet on Beliefs.

In "futarchy," we would vote on values, but bet on beliefs. Elected representatives would formally define and manage an after-the-fact measurement of national welfare, while market speculators would say which policies they expect to raise national welfare.

- Futarchy: Vote Values, But Bet Beliefs

Here’s a podcast transcript of Hanson detailing Futarchy in 2021. It is worth a read.

The two largest scale examples of a Futarchy are GnosisDAO and MetaDAO (follow futarchy.guide if you are curious) both of which are blockchain based DAOs. Outside of onchain examples it’s quite hard to find physical real-life examples. In 2021 Vitalik wrote about a few here but none of them really seemed to take shape. I feel like Zuzalu (a “pop-up” city launched with help from Vitalik) or Praxis both have a good shot at being one of the first to do so. (65% chance if Praxis actually launches or in one of the next Zuzalu cohorts either experiment with governance like this)

Impact markets on the other hand have seen decent traction. Generally impact markets allow for a fund of money to be distributed across a set of projects / initiatives according to various voting types. Sometimes there is matching (see Gitcoin Quadratic Funding) other times it’s based just on individual contributions. If you want to explore impact markets, social impact bonds, and retroactive funding, I highly suggest diving into impartial-priorities.org/toward-impact-markets along with Impact Markets the Annoying Details.

There are a variety of funds like

• Impact Market

• Astral Codex Ten Impact Fund

• Manifund

and they have actually funded some pretty interesting and impactful things. For example in 2024 ACX was able to fund research on lead-acid battery recycling in Nigeria, the building of anti-mosquito drones, and the use of ultraviolet lightbulbs to kill airborne germs.

News driven by Markets

One of the most exciting areas of prediction markets to me is the idea to drive news based on actual market odds. I first saw this in the baseratetimes.com. With the slogan of News through prediction markets they aggregate odds across various markets, pair the event with news articles from popular sites and report the actual odds.

Given sites like Kalshi have predicted events like Fed rate cuts more accurate than CME Fed watch and better than most analysts, news driven by odds can give highly accurate news.

On prediction site manifold.markets’s public roadmap they are considering “newsifying” manifold along with the ability to view prediction markets through tweets (most of us get our news through twitter anyway).

It seems like there is still a gap in predictions into news in actually generating content, assigning probabilities and creating an entire news organization based on the public market.

Prediction Market Construction

Problems

Designing a prediction market is quite interesting especially relative to traditional markets. Prediction Markets are binary options they resolve to one or another outcome. Due to this they often struggle to garner decent liquidity. A good thought exercise is what would have happened DraftKings launched without being the house, I bet they wouldn’t have had as successful of a time with their sportsbook.

Once again Robin Hanson has a good take in his Issues in information market design

Sidenote: I feel like prediction markets have bad marketing, information market or event exchanges seems nicer

He details some problems are

• Markets need to reach a critical mass of traders to be “accurate” only a handful of traders won’t tell you much and is easily manipulated

• Event and price manipulation, insiders can easily manipulate an event their way (this is actually a good case for regulation)

• Settlement, for sports markets money-lines are easy, did the Mavericks win last night? For some events the settlement outcomes can get muddied and the rules need to be hyper specific

• It can be very hard to gain interest in trading both sides of a market, tough to attract market makers, and thus liquidity becomes a problem. Hanson details a solution in Combinatorial Information Market Design

Design

When considering constructing a prediction market there is a lot to consider

• Will you use real money? Tokens? What about regulation?

• How will traders interact with your market? Via an Automated Market Maker, an Orderbook, RFQ/OTC?

• What source will your outcomes settle against?

• How will you support new markets? Will you support single/one-off events? What about series events? At what frequency?

After re-launching an internal market during COVID-19 in 2020, Google details what it takes to operate a prediction market in creating a prediction market. They mention the primary goal of a prediction market is to “incentivize the right people to forecast accurately, thereby producing a consensus forecast that is more accurate than any individual”. In order to do so they make the case of good UX, incentives, and strong feedback loops. In my mind we have not reached good UX until its not uncommon to overhear something like “let me tail your interest rate bet for next month”. Prediction markets need to have a similar appeal to sports betting.

More tactically there have been many attempts at differentiated prediction market design

• Gnosis launched Omen and conditional tokens with the idea that a token has (2) components YES and NO, you can mint a token and sell your NO shares to exclusively have YES exposure to the event. These tokens can trade on any exchange as they are ERC-20. This is very much so the Augur design (which was shut down in 2020)

• Polymarket first launched with an AMM which somewhat worked. If you already dislike impermanent loss wait till you try liquidity providing something that has an expiration date (like a binary option). Polymarket now has an orderbook. (Sidenote: primitive.xyz has an interesting approach on AMMs for assets with time bounds, read RMM-01)

• Most other markets Kalshi implement a standard orderbook

The orderbook versus automated market maker debate is something I have been interested in for a while, see Ramblings on AMMs and Orderbooks and Ramblings on DeFi Derivatives so we will detail these designs more.

Orderbooks

A majority of prediction markets today use an orderbook. Makers post bids and asks which is filled by takers just like your traditional markets. Orderbooks are always the best option in large cap, very liquid markets. They facilitate the tightest spreads and give the most flexibility to traders.

Given how nascent many of these markets are the spreads are often enormous 10-15% isn’t unheard of. Prediction market exchanges often need to have their own market making group to make the markets decent to trade on. For example Kalshi has a Kalshi Trading arm. With more clarity on regulation (CFTC regulated markets really helps) more traders and more liquidity will help facilitate tighter spreads. In the future maybe we see niche market making firms exclusively focus on trading prediction markets.

Automated Market Makers

When a market is new, niche, small and low liquidity often utilizing an AMM curve can be very helpful. Liquidity providers generally provide passive liquidity to an AMM allowing traders to always have a price to sell into (Just in Time liquidity is also a thing).

For a new meme coin AMMs can make a lot of sense and a super basic constant product function (CFMM) likely fits the use case well. For market’s that have fixed bounds (0 / NO and 100 / yes) this doesn’t make as much sense. Here is good paper on impermanent loss in CFMM’s like Augur look like.

After the launch of Uniswap V3 and the introduction of concentrated liquidity prediction market teams (along with many other teams) began exploring what event trading would look like. This is detailed in the Maniswap V3 design document where they explore binning Uniswap’s ticks to match discrete percentage increments.

manifold.markets recently put out a fantastic overview comparing different liquidity solutions in it they compare orderbook, CFMM, and concentrated liquidity approaches with and without fees.

With the success of various vAMM based perpetual DEXs like drift.trade, perp.com, and up and coming overlay.market it feels like one might be able to launch a successful prediction market on the same model.

Something notable across all prediction markets is the lack of leverage available. If you want to make a $100 prediction on something 12mos in the future that $100 is locked up for 12mos. This is something interestingly noted in compound.vc’s thesis development sheet. The ability to have leverage in prediction markets (like most other markets’s) would lead to better capital efficiency for the end user and likely more longer term bets.

Yet another FTX aside, in September 2023 Bitmex launched prediction markets for recovery rate of FTX funds, SBF’s sentencing, and approval of the BTC ETF.

Comparison to Sports Betting

Sports betting has been popular for a long time (especially in Australia about $34b wagered annually) but with recent regulation shifts in the US betting is on pace to hit over $100b in wagers. It is a extremely large market.

The interesting thing with sports betting versus say a political prediction market like betfair.com is that sports betting markets have a House. This is the casino, book, or company that runs the sports betting market.

The house includes what a *Vig* or House Edge to every line that they set. This is so they can turn a slight profit no matter the outcome of the bet.

Example: Odds are 50:50 for a match so the American Odds should be +100 / -100. With the traditional vig you can expect to see these odds for a 50:50 match to be +110 / -110. That way books can guarantee a profit either way.

Market

This is a weird difference from traditional markets in which there are (2) participants makers and takers where market makers fight to earn the spread between bids and asks and thus provide a tighter spread making the market more efficient.

In sports betting the House sets the spread statically and usually at 10% (!!).

Novig recently announced their seed round to make sports betting markets function more similarly to traditional markets (only in Colorado for now). Rather having static house vig baked into the odds, Novig allows for any market participant to make or take orders on the exchange. The idea is that traditional market makers (Jane Street, Citadel, etc.) eventually will step in and make sports markets.

How odds are displayed between sports betting and prediction markets is also interesting. Sports betting generally follows American (+120), decimal (2.2), fraction (6/5) or implied (45.45%) odds. Anecdotally American odds seem to be the most popular among retail (especially as odds are now discussed by sports announcers and plastered over ESPN). Prediction markets on the other hand default to quoting in implied odds. Perhaps prediction markets could benefit from showing all (4) types of odds.

Regulation

Another stark difference between prediction markets and sports betting is regulation. Sports betting is highly regulated state to state (full list of SEC rules here, my favorite excerpt here is that riverboat casinos are also subject to US Coast Guard regulations). Prediction markets on the other hand have had a much harder go. Kalshi is the only prediction market so far to get CFTC approval for a variety of their markets (and they had to raise $30m to do so).

Even Kalshi is still in a regulatory battle, they are suing the CFTC for the blocking of various election markets. This is kinda crazy to me because look at this market for if the Boeing CEO is gone by the end of 2024 rules. How does that get approved but election markets don’t.

It seems like traditional sports betting platforms might have a better go than prediction markets in actually launching prediction markets. Some stats sports books allow for political betting already.

See what Hanson had to say

To get an Idea Futures market approved as a security in the US, you'd need CFTC approval. But they require expensive review, require you to set up a physical pit for trading there, and are sure that there is no point to markets where there is not substantial hedging demand. (Respected academics can sometimes get exceptions though.)

- Robin Hanson

Towards a Event Exchanges

I believe that either (1) someone will create an all-in-one event exchange or (2) a sports betting company will purchase/launch a prediction market and we will have a complete, fully featured market to trade the outcome of any event (70% chance either happens by 2026).

Eventually I see event exchange’s markets referenced by the news in a way that benchmark prices are referenced from things like CME benchmarks (95% at least one major news outlet will regularly report sourcing a prediction market).

Resources

Many more resources can be found in the following repository https://github.com/0xperp/awesome-prediction-markets.