Where should the Chinese prediction market explore?

Human hearts are hard to measure, the Chinese hope for the West.

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The theory of randomness originated in gambling, and geometry naturally had a three-point disadvantage from the Greek sages.

The expression of quantifying uncertainty becomes the original proposition of probability theory, which is also the biggest difference between prediction markets and casinos. If you look through the documentation of PolyMarket, its defense argues that casinos have a house edge, and from the perspective of the law of large numbers, anyone who gambles for a long time will eventually lose.

Prediction markets are a two-way game of PVP, where Polymarket neither charges users deposit and withdrawal fees nor takes a cut from orders, completely avoiding its own disturbance to randomness.

Not enough, PVP is insufficient to make Market Price = Probability, we also need Expectation; only quantifiable expected returns can cover speculative costs. Only by predicting the market can we break free from the constraints of a casino and become a pure financial product.

Odds of Entertaining to Death

All authority, politics, and news are merely the gains and losses of digitization.

The monopoly of information does not come from obscuring the sources of messages, but rather from monopolizing their channels of dissemination.

Modern journalism originated from news control during World War II, and Schramm made communication studies an independent discipline by incorporating qualitative and quantitative methods from sociology and statistics, establishing journalistic professionalism as the unbreakable shield of the industry.

At the same time, with the continuous expansion of the voter base (women, black people, young people), polls truly begin to influence the future of politicians. How to infer the overall tendency of voters from a smaller sample space has become a commercially profitable behavior, which is needed by the media, needed by political parties, and even needed by opponents.

However, whether it's polls or news, they have long been a B2B business model, where media sells users'/the public's attention to enterprises, meaning that users are merely a part of the sale and cannot profit from the concentrated awareness and tendencies; this is akin to the anger towards platforms in decentralization.

Invasion of privacy is just an excuse, the key issue is that the platform does not pay.

As early as 2014, the academic community had begun to think about how to combine blockchain with prediction markets to break free from the traditional centralized platform's profit-taking model. Vitalik recalls that the first version of the prediction market, Augur v1, was born in 2015, which was a manifestation of this ideology.

Unfortunately, the Augur v1 whitepaper was built on a Bitcoin sidechain, and Ethereum at that time was not sufficient to support large-scale applications on-chain. Moreover, Augur's “excessive pursuit” of decentralization has kept it lingering among a niche audience, unable to generate positive externalities, ultimately fading into obscurity.

Image Description: Augur v1 Design

Image source: @AugurProject

By the summer of 2020, during DeFi Summer, beyond DEX and lending, new generations of prediction markets were being attempted by Jeff from Hyperliquid and Shayne Coplan from Polymarket, with a combination of Ethereum + L2 + governance centralization. Technological advancements made efficiency no longer an issue, but the lack of a sufficient consumer base was the real dilemma.

When the time comes, the heavens and the earth will work together.

• The global lockdown in 2020 led people around the world to adopt an online lifestyle, which naturally includes prediction markets;
• The 2022 World Cup marks a peak in global casino activity, with a global online gambling market size of $100 billion, a significant portion of which is contributed by the World Cup;
• The 2024 presidential election, Trump's excessive antics have made the plot twist and turn, unprecedented levels of drama, and the global celebration of 1% traffic is a windfall for Polymarket.

After the election, Polymarket maintained its market share in a stable situation through continuous financing, ongoing incentives (free offerings), and constant entry into the sports market. Just like Hyperliquid was able to maintain its market share after launching its token, Polymarket has already passed its most dangerous moment.

The next World Cup in 2026 will be a matter of life and death for Polymarket to determine whether it can grow into a giant in the online prediction market. The political uncertainties are too strong, far less safe and high-yield than sports activities.

Image description: Prediction ≠ Gambling. Image source: @zuoyeweb3. Here I want to explain why prediction markets are efficient. Taking Trump's campaign as an example, the total sample space is 240 million American voters, but in reality, only 150-160 million people will vote (effective sample space). Outside of the fixed red and blue states, the true determination of the presidency comes from a few swing states, and within the swing states, they can be further subdivided into different swing counties.

Therefore, polling in swing states is crucial, and mainstream polling organizations like Gallup will design more “scientific and reasonable” sampling methods for research, because it is impossible to survey all voters, and inferring the whole from a small sample becomes a huge challenge.

The paradox here is that there will always be a critical few who can influence the choices of the majority, while prediction markets can continuously study the various parameters of the sampled data, betting on higher probabilities before the actual outcomes occur.

In other words, it is not that prediction markets have a higher sampling ability for samples, but rather that they continuously adjust the parameters derived from sampling, and anyone's opinion is reflected in the real-time odds at any time.

In other words, Polymarket is a type of “cluster algorithm” that continuously samples the highest probability value from discrete data and cross-validates it with the final results to improve accuracy.

The odds are long/short, pricing of divergence/convergence, in the Polymarket market, the event is the basic unit, and each standard contract is minted as 1 USDC, corresponding to Yes + No = 1, for example, a Yes of 0.5 must correspond to a No of 0.5.

Assuming Alice and Bob's buying prices are 0.1 Yes and 0.1 No respectively, and the current market price is 0.5:

• • If Alice believes the future probability will exceed 0.5, when the final result is revealed, Alice nets 0.9U;
• • If Bob believes that the future probability will not exceed 0.5 and sells the share, at this point Bob locks in a profit of 0.5U, netting 0.4U.

Of course, the initial price generation and price fluctuations here require the participation of market makers, as well as the permissions granted by Polymarket to the market. Adopting a CLOB mechanism similar to Perp DEX, Polymarket also supports limit orders and other more complex strategies.

The mechanism of Polymarker is not complicated, overall it is 1, the price difference between Yes and No compared to 1 is its profit margin. For example, a probability of 93% represents 0.93 Yes + 0.07 No = 1 USDC. If it eventually reverses to No, then 0.93 becomes the profit from the upset.

Image description: Upset time

Image source: @Polymarket

After placing the bet, you can buy/sell at any time, becoming part of the market liquidity, which is also a more efficient market-making method than “buy and hold.” Yes/No are each other's sources of profit/loss, creating an extreme PvP market, where the platform only needs to facilitate fairness.

Of course, this article will not go into too much detail about oracles and their governance, the opening and closing of markets, the adjudication of disputes, and so on. Generally speaking, Polymarket is essentially a commercialized prediction product on the Internet, which just happens to use blockchain and stablecoin technology, and is not closely related to decentralization.

Entertainment lies in people, not in events.

The spread of monopolies is largely the result of a deliberate collusion between organized capital and organized labor.

Polymarket's current three main pillars are political elections (USA), news events (Events), and sports. Its biggest competitor, Kalshi, focuses on compliance and collaborates with Robinhood, Jupiter, and others, emphasizing that even if they don't make a profit, they still want to generate traffic.

Image description: Data comparison

Image source: @poly_data

Among the many emerging prediction markets, most aim to become the Blur to OpenSea, attracting retail participation through anticipated airdrops to complete their token issuance, with almost no possibility of directly competing with Polymarket or Kalshi.

This has little to do with compliance; Polymarket's compliance is a pricing issue, while Hyperliquid's compliance is a huge problem. The liquidity of the two is not even on the same level.

At the end of the day, the U.S. elections represent a niche market with American characteristics, while sports are a global mass market. Polymarket represents the usage preferences of young Americans; fragmented individuals may not place bets but might only watch eSports live broadcasts, yet this does not affect their betting on ball games.

Before Polymarket, Kalshi, and the NFL collaborated, the NBA took the lead in 2023 by partnering with DraftKings and FanDuel for sports betting. In addition to the NYSE's parent company investing in Polymarket, FanDuel also collaborated with CME, indicating that organized capital has already begun to take action.

The enforcement against NBA match-fixing is nothing more than the noise from the Supreme Court's 2018 granting of legal status to “sports betting,” which cannot possibly hinder the steps of PL and Kalshi. Unfortunately, the scale of sports betting is limited and the future is unclear.

The dilemma of Dongfang Maotai is the same; the virtualization and atomization of young people is an irreversible trend. Moreover, events, in their view, are merely dull old games. Besides those who like or dislike Trump, there exists a vast group of people who do not pay attention to Trump.

Not only defending Shanghai together in cyberspace, but also the American Marun sings lines from “Squad 2”, though they may not intertwine in reality.

Beyond the generational emotions, casinos and black-gray industry shell companies have become the least problematic in predicting markets, with Polymarket valued at $15 billion and Kalshi at $12 billion already reaching peak valuations.

Organized capital only invests in certain political, news, and sports activities. What else will young people gathered in cyberspace be interested in for the future of prediction markets?

Don't try to understand Generation Z, create space for Generation Z; traditional marketing will backfire.

Organized labor does not necessarily only have the demand for economic value, or to put it another way, what is the most expensive thing in the 21st century?

It is emotional value, a projection of one's own emotional needs. For example, the pursuit of an overseas identity is an excessive success of the household registration system, so much so that some people suffer from its aftereffects. The success of family planning is not reflected in the decline of marriage rates, but in the fact that the younger generation actively chooses to become the last generation and believes this is a form of resistance rather than obedience.

The atomized individuals do not have a decreasing emotional need for the collective; rather, it is growing in secrecy. Look at the packed conferences, where what is being listened to is not the panel, but the authentic interactions of lonely individuals.

Globally, the only entertainment figures that can engage young audiences collectively and invest their energy and finances are entertainment figures, not events. Taylor Swift's pre-marital test of divorce in the U.S. would definitely yield a better conversion rate than Trump's if we connect Xiaohongshu and Instagram.

Moreover, during the explosive popularity cycle of a star, drama is a daily occurrence, with fans tearing each other apart and unfollowing and refollowing, just like the evergreen products related to Disney films; stars can create a secondary market.

This is not a fantasy; the gamification of finance has become a global consensus, with the film and television whirlwind selling T-shirts, Mr. Beast registering MrBeast Finance, G.E.M. investing in AI startups, and Kanye's meme sales.

This will be safer than celebrities selling NFTs or pumping the market, as people bet on people. Even insider information will be internalized as part of the market because people have their own thoughts. The core is that fans do not care.

Fan wars among K-pop groups have already become the norm. The key is to win; economic losses and gains are not important, but satisfying one's emotional value is the most important. Prediction markets can be seen as a financial projection of fan economy.

One can even build more advanced hedging strategies based on this. If one buys 'No' before the release of a certain movie, it is equivalent to hedging against the public opinion risk of one's brother/sister. After all, whether a movie is good or not, and whether it can make money, has already begun to show signs during the filming process.

Financial entertainment is not about becoming entertaining, but rather it has already become highly entertaining. In this fragmented world, some are cheering for obtaining licenses for prediction markets, while others are debating that prediction markets are not gambling. Some people are already looking for new markets.

The Trump family has invested in Polymarket, while outsiders are still entangled in their issues; it's more practical to make some money together.

Conclusion

The end of globalization is the gradual decoupling of goods and services, and we have now begun to enter the stage of service trade. However, Homo sapiens are inherently social creatures, and if we simply “localize” the U.S. elections into the Thai elections, it actually holds little significance and instead reduces market capacity.

Seeking consensus in a fractured world can lead to unique characteristics, especially for Chinese entrepreneurs. Politics and sports are both high-risk choices, while underground operations always face bottlenecks. The entertainment industry, on the other hand, is the entry point that minimizes risks.

CZ may face inquiries from the Western world due to his Chinese identity, but at least predicting how many inches Kardashian's butt is won't endanger national security.