The current world of prediction markets is anything but open. Several large companies control a large share of the entire market and dictate the rules by which participants must abide. Additionally, these platforms severely limit prediction markets in ways that restrict new possibilities for the industry. Instead of having a free flow of information and transparent process, prediction markets are lacking the openness necessary to grow and thrive in a fair, provable manner.
The beauty of open markets
According to the Organization for Economic Co-operation and Development (OECD), open markets are foundational to generating and growing wealth among participants:
“Trade and market openness has historically gone hand-in-hand with better economic performance in countries at all levels of development, creating new opportunities for workers, consumers, and firms around the globe and helping to lift millions out of poverty.”
Unfortunately, many markets which are touted as open in today’s world aren’t as open as we would like to believe. Take the stock market as an example. While it appears that anyone is open to purchase shares of a stock, in reality, the market is much more complex. In fact, when it comes time for an initial public offering (IPO), only a few insiders and financial institutions are able to purchase shares of stock before they hit the open market. These investors can front-run the rest of the public and profit as a result. So, while individuals sit at home and purchase stocks thinking that they are participating in an open market, what they are really doing is feeding into a market that is controlled by large institutions and wealthy individuals.
This is exactly where blockchain technology fits into the picture. Instead of working within a legacy system that rewards the wealthy and isn’t fair to all market participants, blockchain networks are completely decentralized, and thus, completely open and transparent. No longer do participants have to guess at how markets operate and function because, with blockchains and decentralized networks, all information and data is readily available for anyone to view. Additionally, decisions are not made by a controlling entity, and instead, by the entire network as a whole. This means only decisions that benefit the entire network will be passed.
One way to increase the openness of markets and thereby make them more equitable for everyone is to remove intermediaries. This is already happening in the DeFi space, where blockchain protocols are eliminating intermediaries that currently exist in financial markets. Instead of banks and financial institutions controlling things like credit and lending, DeFi protocols are processing transactions based on the laws of mathematics and cryptography. This has been hugely beneficial to eliminating human biases and opening up financial markets more than ever.
The same can be said of prediction markets. Currently, intermediaries exist that lead not only to inefficiencies but restrictions of the market. Users in many localities and jurisdictions can’t participate in certain prediction market platforms, and intermediaries like payment processors make the entire market more inefficient. By utilizing the same blockchain protocols as the current DeFi industry, prediction markets can eliminate the barriers to entry for its participants, and make the entire market more efficient.
Create your own market
When we open up markets to the public, we create an environment where everyone has the opportunity to use their knowledge and skills to their benefit. Historically, market creators in prediction markets have limited the scope of these markets to only a few areas. Sports was the first and most widely used case in predictions, and now politics is seeing an uptick in usage within these markets as well. However, because closed platforms control these markets, they are still severely limited and restricted.
At Prosper, we thought: what if we open up prediction markets so that anyone could create their own? This way, instead of a centralized platform deciding on what would be included, users themselves could create markets and drive participation based on their own knowledge.
This creates a theoretically infinite market for predictions that anyone can participate in. Believe you have insight into the weather in China? Create a prediction market. Want to hedge against the price of a certain stock declining? Create a prediction market. As long as the underlying information in the market is provable, a prediction market can be created.
Transparency is key
The only way to maintain transparency in this new paradigm of open predictions markets is to do so via decentralized networks. Through the implementation of blockchain technology, we can create prediction markets that are not only open but are verifiable and trustworthy as well. This will help combat the fraud and opaque nature of existing prediction platforms which have not only let down their users but at times defrauded them along the way.
Prosper is the world’s first open, transparent, and verifiable, open prediction market. This all culminates in the most open prediction market in the world, where anyone can not just be a market participant, but also create their own prediction market. In this new paradigm prediction markets will expand to heights not yet seen.
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The Endless Possibilities of an Open Prediction Market was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.