The last few years have certainly shown that prediction markets are way more than just a flavor of the month. They are model that have created everything into a way to bet on something. This has involved an even stronger method to engage with events.
However, there are still plenty of questions about its significance in both cultural and economical contexts. Is the prediction market mode as inevitable as it feels, or is it just a powerful, surging factor that will meet certain regulatory hurdles?
Its nature, details, and impact have become clearer over time. As they continue to embed themselves into the cultural context of our day, they continue to attract more questions.
Are they feasible? Will they expand their financial overtures? Are they going to meet the regulatory axe sooner rather than later?
There is yet another question that many have been posing: Are prediction markets in an open conflict with traditional sports betting? Is one doing things ‘the right way,’ while the other circumvents certain conventions regarding gambling? As OmegaTipsters.com has shown, betting-driven engagement still attracts swaths of players, but will it remain so?
We will answer as many of these questions as we can in this article. We will present prediction markets to set the stage. Context is key, so we will discuss the relationship between traditional betting and prediction models for better clarity.
What are prediction markets, and where did they come from?
Prediction markets are platforms where users can set up smart contracts for which other users can buy stocks. They use a simple method of setting up a question or benchmark. Predictors can choose what they choose and buy stocks based on the current price.
These markets have several constituent details and mechanisms that give them their identity:
- Smart contracts: these are blockchain-based contracts that make it easy to work in a peer-to-peer format. They’re between users, turning each prediction market platform into a bazaar of options generated by these users.
- They work with stocks: when you join a prediction market, you buy stocks. Most of these markets have dual options, such as choosing between two competitors or between a ‘Yes’ or ‘No’ answer. The stock that you buy has value as long as the prediction market is active (before the event happens). The favorite outcome has lower-value stocks ($0.3) while the underdog has higher-value stocks ($0.7). The unit price for both stocks has a value of $1.
- The prices are user-based: like other markets, these prediction models have the traders dictate prices with their actions. If people are massively buying the stocks of an outcome/winner, their stock will be less valuable, but will have a better likelihood of hitting.
- Payouts are simple: once the event happens, the correct outcome/pick will turn its respective stocks into $1 per unit value. The stocks of the losing outcome will become null. As such, a $0.3 value will more than triple its value, while the favorite’s $0.7 stock will have a smaller rise.
How prediction markets entered the fray
In short, prediction markets are the direct result of the legalization of gambling and the cultural establishment of the blockchain. Since smart contracts became feasible and highly popular as a streamlined method to integrate gambling, things have moved quite fast.
Nowadays, the perception, substantiated by market share, is that this field is mostly a duopoly contested by Polymarket and Kalshi. Other parties are trying to get their piece of the pie, including legacy trader platforms that have tried to get into this dance.
There have been interesting developments on this front, some with a political twist. For example, Reuters announced Kalshi’s status as subject to Nevada Gaming Commission rules. On the other hand, Polymarket has benefited from support due to certain investments in its capital.
It’s also needless to say that both prediction market giants are very new, with Polymarket launching in 2020, while Kalshi starting out in 2021.
Traditional betting has been rising, but is it in danger?
Bloomberg reports that gambling stocks sag, especially as a symptom that manifests itself right before Super Bowl LX, the USA’s biggest betting convergence. This has proven that prediction markets are increasingly dangerous to the current iteration of online gambling.
There are several factors that contribute into the hand of this phenomenon. A Business Insider article heralds a prediction market bubble, showcasing the risks of a highly popular phenomenon whose evaluations and marketing-driven hype indicate a potential burst.
Moreover, there have been further erosions into the perception of sports due to their association with prediction market-style gambling. Recent concerns have risen even more, especially with factors like basketball star Giannis Antetokounmpo’s new Kalshi shareholder status.
The idea is simple: they are starting to converge within the very same space, but with different methodologies that pit betting and predictions against each other. There are chances to integrate prediction market models within the current gambling platforms, but the future is quite uncertain.
Explaining differences
The prediction market system is not very difficult to understand, which will make it easier to compare it to traditional betting. Apart from being gambling methodologies, they’re quite different, as we will explain.
Odds versus market-driven prices
As we’ve said, prediction markets work with stocks that have certain prices. They fluctuate based on how users trade stocks, such as selling or buying them. When certain information regarding the competitors appears in the media, users move stock, and that impacts the share price directly.
On the other hand, betting odds are prices set by the house. An online casino or sportsbook will set its prices based on factors like a proprietary calculation formula that includes the vig, which is the house edge in this instance.
You have user-driven price setting and house-driven settings. The pricing shifts depend on fluid market developments in the case of prediction styles, while betting platforms move their odds based on their own interpretation of context.
Contracts versus traditional bets
One of the most important elements that differentiates prediction markets and traditional bets is the idea of moving your money.
These contracts may be smart and blockchain-based, but you can always sell your stock, even if you are at a loss. You raise your wager on that outcome by buying more stocks, or to can opt out right away.
Sports betting may have factors like early cashout, but once you place a bet, there’s no turning back. There are high-profile instances, like bets being voided due to early injuries or other extraordinary events.
Payment integration
This is where we see the most convergence.
On one hand, we have the idea of using crypto as the core method in the case of Polymarket, which uses USDT, which is a cryptocurrency pegged to regular USD. On the other hand, Kalshi only uses USD, which you can deposit in several ways.
For the longest time, traditional betting has been all about regular payment methods via fiat currencies. However, recent developments have shown several new entries into various betting spaces. One of the most popular is the rise of crypto casino gaming, which has been a highly established dilemma for the industry due to crypto’s ambiguous status.
Closing Remarks
To come up with a proper answer to a question in the title, current betting companies can only hope to integrate prediction-style gambling models into their offering. If not, they will be in open competition, with the potential of their relationship turning conflictual.
We’re saying this because one would consider that the other is not doing things the right way, while the other can claim foul play rather than fair competition.
Overall, both styles try to achieve the very same goal: captivating gamblers. It doesn’t matter which type you prefer; we encourage you to gamble responsibly in any circumstance!
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