CM 005: A PM Year in Review
Looking back at the key developments and notable markets of 2021, and the big trends into 2022.
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💰 Welcome back to Crowd Money, the monthly newsletter covering real-money prediction markets (PMs). Two weeks we release our podcast; in the last episode we sat down with John Phillips, co-founder and CEO of PredictIt to discuss the history of prediction markets, the benefits of crypto versus fiat marketplaces, and John’s plans for PredictIt in this new, more competitive prediction market environment.
In Crowd Money 004:
⏪ Rewinding the past year in prediction markets;
💡 The trends in prediction markets we see continuing into 2022.
Prediction Market Rewind 2021
As a result of the kinetic activity prediction markets experienced this past year, we thought it would be an interesting exercise to, in traditional forecasting, look backwards.
In this issue we will map out the year chronologically, in month-long intervals, and record the big prediction market stories of the year, almost like a scatterplot. Then, with all of our data plotted, we will be able to look at the bigger prediction market picture, and discern trends which might shed some light on what we can expect for prediction markets in 2022.
(We’ll probably miss some major events, but we’ve done our best to capture the stories, articles, and events that had a meaningful impact on the prediction market sector. If you think we missed a major one, let us know in the comments!)
The Economist Merges Prediction Markets and News
The Economist has long been an advocate for quantified forecasting and, later, prediction markets. They host forecasting challenges on the prediction platforms Good Judgement Open and Metaculus, their most recent being World Ahead 2022 and Global Trends 2022 under the banner “trustworthy news”.
The magazine opened this year with an article called “What to expect in 2021 according to prediction markets” where they presented engaging infographics depicting crowd-sourced predictions on events for the coming year. We are excited to find collaborations like these, as we view the relationship between forecasting and news to be one of most significant untapped wells of innovation in the sector.
Polymarket’s Inauguration Markets Close with ~$40M in Trade Volume
Two of the largest (if not the largest) markets in the prediction market books closed on Polymarket in January:
$8.6M in trade volume: Will Joe Biden be inaugurated as President of the USA on January 20th, 2021?
At roughly $38.8M in trade volume, these markets had over 1 billion shares traded. This vastly surpasses the largest markets on either PredictIt (21.4M) or Kalshi (450K) and makes up a significant percentage of total shares traded on the Polymarket (4-5 billion).
Kalshi Raises $30 million in Series A
It is pretty crazy to think that Kalshi we know now – one of the biggest names in prediction markets with Forbes 30 Under 30 recognition – raised the round that funded their recent rise just this year.
A whopping $30 million from names such as Sequoia Capital, Charles Schwab, Henry Kravis and firms including SV Angel, Neo, and YC Continuity, it was clear back in February that Kalshi was bound to thrive. Add to that their approval by the Commodity Futures Trading Commission (CFTC) which came late in 2020, and you have the recipe for a successful startup, and hopefully a successful marketplace.
Vitalik Buterin on Prediction Markets from the 2020 Election
Vitalik Buterin, creator of Ethereum, has been a long-time fan and advocate of prediction markets. In February, with Joe Biden’s inauguration completed and the United States presidential election receding in the rearview mirror, Vitalik published an article titled “Prediction Markets: Tales from the Election”.
Vitalik’s input and what he shared in the article is invaluable - we won’t spoil his content but he covers his personal trading activity, market dynamics, futarchy, and other fascinating topics that you will want to explore. This is one of the strongest prediction market analyses of the year.
Suez Canal Crisis Creates Alpha Opportunities in Prediction Markets
Back in March, the 400 meter-long container ship Ever Given ran aground in the Suez Canal, disrupting traffic in the waterway which is a critical thoroughfare for global commerce and trade. While the situation was worrying for large swaths of the world, especially those tied to the shipping and supply chain sectors, the Suez Canal situation also presented an interesting opportunity to generate alpha.
On Polymarket, trading volume reached nearly $500,000 for the market “Will the Ever Given be dislodged from the Suez Canal by March 30?”. The Suez Canal question brought prediction markets and forecasters to the fore, as their analysis has real-world business applications. And the Suez Canal blockage also drove more people to prediction markets which, we believe, is most important. If you want to learn more about the crisis and how it traded, we interviewed Peter Wildeford, through Global Guessing, on our podcast The Right Side of Maybe, to learn about how he accurately forecasted and profited on this event.
No News is Good News?
There weren’t any game-changing prediction market stories in April that we could come across or recollect. Polymarket did receive a lot of recognition, however, from companies like CoinDesk, Gemini, and Yahoo. Additionally, PredictIt was referenced in news coverage regarding early 2022 election odds.
Augur Moves Into Sports
If you have listened to the Crowd Money Cast, you will know that market topics are of great interest to us. When we have interviewed the founders of new prediction markets, we often ask about the rationale behind a given set of market topics. In the past we’ve been bullish on e-sports as an interesting area for market creation.
We weren’t following prediction markets at this time, but looking back Augur’s move into sports looks quite prescient. Having spoken with Smarkets CEO Jason Trost about his platform’s primary focus on sports, and the actions of others, it’s clear that Augur’s move into the space, being a crypto-based market and before the other USDC and fiat marketplaces, could pay large dividends.
Reality Cards Launches Real-Money Beta
Reality Cards, an NFT-prediction market, launched their real-money Beta in May. As we covered in the second newsletter (featuring an interview with their CEO), “each event contract has a unique NFT for each outcome. Unlike other exchanges where you purchase “Yes” or “No” shares for a particular prediction market, you rent an NFT. Each potential outcome only has one NFT associated with it.”
June was fairly dormant on the prediction market front, with this article on the New York City mayoral election race being the one brightspot as it was one of the few compared market behavior across multiple prediction market platforms, not necessarily to identify arbitrage opportunities, but rather to corroborate crowdsourced information! Polymarket and PredictIt markets moved in sync when information released that injected confusion into Eric Adam’s primary hopes.
Needle in the Haystack
July was another quiet month, but there was this interesting article we uncovered by Clear Chain Capital, a research house, on the potential of decentralized prediction markets to change the way we do social media.
Kalshi Launches Beta
Kalshi, the first (and so far only) prediction market approved by the CFTC, launches their beta.
Crowd Money Launches
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TechCrunch Covers Kalshi
TechCrunch writing about Kalshi might not sound like a big deal on its face – Kalshi is a Y Combinator alumnus which raised a large Series A. As long as they don’t make a big blunder, TechCrunch articles should be expected.
But for a company so reliant on reaching a critical mass of trading volume, and in such a new sector with competition for market share, a win like that is big. It brought eyes to Kalshi, and in turn prediction market platforms writ large, and it also showed us our first example of this sector being recognized not just as the next step in prediction markets, but as a true FinTech disruptor with major Silicon Valley support. This was a success for Kalshi and all prediction market platforms, especially those looking for favorable valuations.
Hedgehog Markets Launches No-Loss Betting
In September former Crowd Money Cast feature, Hedgehog Markets, launched their no-loss prediction markets where users stake USDC to participate in tournaments on topics ranging from cryptocurrency to the English Premier League. This was a big story to us because it presented a new incentive structure of trading that we hadn’t seen tested on platforms to-date. And as we’ve written in depth about subsidizing prediction markets, these are markets that we have since participated in, and watched from afar.
The Pomp Letter Writes About Prediction Markets
If you follow cryptocurrency market behavior, or personal finance in general, you have likely come across Anthony Pompliano. He is an investor, an entrepreneur, also the writer of The Pomp Letter, a newsletter on business, finance, and technology which has accumulated a readership of nearly 200,000. After some time advertising Polymarket on his YouTube shows and podcasts, he posted an article from the Polymarket team about crowdsourced information and markets relating to COVID.
Reddit launches Prediction Tournaments
We are making a forecast that, if you’re reading this newsletter, it is very likely that you have engaged with the social media and news platform Reddit. The content on Reddit is as much informative content as it is addictive non-sense, and the company’s new prediction tournament feature may only exacerbate this.
In October, Reddit announced that its prediction tournament feature, which had been in Beta for some time, was being released to the whole platform. Reddit’s massive user base, community-organized platform (remember, community can be a significant incentive to forecast), and internal currency framework make this experiment especially exciting.
CFTC launches investigation into Polymarket
In October, Bloomberg reported that Polymarket was under investigation by the CFTC to determine if the platform was “letting customers improperly trade swaps or binary options and if it should be registered with the agency.”
Polymarket is the biggest prediction market at the moment in terms of liquidity, trading volume, and even brand recognition; the company had plans to raise at “a nearly $1 billion valuation” before the probe. This story is one that several other prediction market platforms are watching, as a slight to the front-runner in the space could spell both trouble, and opportunity. The significance of the story, and the murky circumstances around Polymarket’s being reported in the first place, all make this one very important and also very interesting to watch.
Facebook sunsets Forecast App
In somewhat quick and surprising news, Facebook (now Meta) announced in October that it was sunsetting it’s prediction platform application, Forecast. The reasons behind the move were not clear at the time of the announcement, but given Facebook’s recent moves towards web3 and the metaverse, prediction markets simply may not be a priority right now. Having used the application prior to its sunsetting, there were some exciting findings to glean.
Zeitgeist PM Launches Beta
Finally, Zeitgiest, a crypto-based protocols for prediction markets and futarchy launched their beta in October. Their prediction market is testing a novel Rikiddo-scoring rule for its automated market maker.
New crypto-based protocols for prediction markets are releasing every few months it seems, with Gnosis being the subject of discussion in our Crowd Money 004 issue, and this story suggests that exploration of market dynamics, scoring rules, and market makers is still in its early stages. As the sector continues to fractalize and eventually consolidate, projects like this will likely take center stage, so while they remain relatively under the radar today, their importance could become evident in the coming months.
🎵 Powell on my mind
Many different prediction sites had questions on whether Jerome Powell would be renominated as Chairman of the Federal Reserve--Kalshi (its biggest market so far!), PredictIt, Smarkets, Polymarket, and the superforecasters at Good Judgment Inc. Some of these forecasts were featured in outlets such as Axios.
While all the predictions were right, the superforecasters performed the best.
Prediction Markets versus Omicron
With the emergence of Omicron came a number of questions on prediction markets and platforms aimed at providing information about the variant’s potential impact on the pandemic wrt cases, boosters, treatments, and more. We love seeing these markets used in ways that provide useful information for a large percentage of people, even if some of the questions might have been too difficult given the information environment.
Google Prediction Markets
Google kicked off December with, potentially, the most interesting prediction market news of the year: prediction market creation on Google Cloud (h/t Scott Alexander). Google has long been known to use prediction markets internally to determine revenue and cost projections, as well as project timelines. Now they are offering their learnings to businesses as a service, helping them build prediction markets tailored to their organization.
And as if you needed more reasons to be excited about this, the ceiling is massive for the undertaking. Google Suite could be a great home for prediction markets – businesses already rely on Google Suite to organize, community, and make decisions; prediction markets may be the next tool to join those other offerings. And second, while this is just a B2B offering now, Google’s massive search monopoly could make prediction markets, or even simply prediction polls, extremely commonplace. When you type in an actor’s name, their Google-generated information appears before IMDB. What is to say that prediction market polls won’t sit on top of NFL game links?
2021 Trends in Prediction Markets
It always helps to take a step back when you want a clearer picture of a situation. And that is definitely the case when it comes to prediction markets. Examining these stories from afar, some interesting trends appear.
As a whole prediction markets are growing, in trading volume and in brand recognition. The rise of NFTs and Web3 as a whole has brought along with it new funding sources for crypto-focused projects, especially in FinTech. So with Kalshi already securing funding, as with Polymarket, activity from the Hedgehog Markets and Augurs of the world is expected next year. The growth in prediction markets has also been catalyzed by its increasing coverage in the news, from the Economist story we mentioned at the top of this issue, to Axios’ repeated use of PredictIt market data when leveraging local elections. And with the 2022 United States midterms approaching, that growth is sure to compound next year.
Big Tech Joins In
There is a very interesting story to observe relating to big tech companies and prediction markets. This year we saw Facebook sunset their prediction market IoS application Forecast, just before Reddit released their Reddit Polls feature to communities with at least 10,000 members. Then, at the close of the year, Google announced their prediction market play, a B2B market creation service. So what’s going on?
Well, Facebook tried a B2C mobile application play, which likely didn’t work because if not enough people are trading on web-based forecasting platforms, the audience on mobile is miniscule by comparison. And without being fully integrated into the Facebook suite of services, the app had little value for users. On the other hand, Facebook could be sunsetting the project now to release a new iteration in the future. Nevertheless, Reddit took Facebook’s failings and iterated – they introduced their prediction markets as a part of their core offering, and also made it their own, using their own internal currencies and culture. While this release is still new, it may be the wiser B2C play, so we will see how it plays out.
And then there is Google, who unsurprisingly went B2B instead of B2C. Now this provides them the luxury of not worrying about whales or liquidity, because the “trading pool” is fixed. And their company is already tied into thousands of businesses who rely on their suite of products to make decisions and organize their business. Prediction markets may very well be the next addition to their Google Suite, or perhaps (in addition to or instead) prediction markets will be used to enhance Google’s search. It might even become a B2C play in the future, but the potential is limitless.
With Facebook, Reddit, and Google all touching the sector this year, we would imagine companies with similar profiles will join in next year. Think companies with a hold on a large network of businesses, or a large network of communities/individuals, preferably online. Microsoft could be a prospect, with Microsoft Teams growing and a mass of individuals through their gaming operations. Twitter is another easy prospect for prediction market introduction in the next twelve months. So stay tuned for an exciting and busy 2022.
Without conducting a thorough examination, it is unclear whether the mainstream media actually covering predictions more in 2021 or whether we are simply more aware of the coverage since we are involved now. However, a cursory one makes it appear that media outlets are citing prediction markets and platforms more often than they have in the past, while also directly engaging with them. We believe this is likely to continue and even accelerate in 2022, but we are also likely to remain short of the coverage level we feel is ideal.
To wrap this issue, instead of discussing our traditional scientific and technology-related discoveries of the month, we want to share what we’re looking forward to in the prediction market sector for 2022. Enjoy!
Andrew: I will be watching the increasing activity of big technology companies in the forecasting and prediction market spaces. It feels like prediction markets are on the precipice of more mainstream adoption and attention, and the scale and resources of those companies will likely be a key component to reaching that goal.
Clay: I’m looking forward to the question quality—a core component for a healthy prediction ecosystem—continuing to improve on prediction markets and platforms which is something I forecast happening next year (spoiler alert for next month’s issue).
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