Shorting prediction markets

Original Title: Shorting Prediction Markets

Original Author: SpecialistXBT

Original Source:

Reposted by: Mars Finance

I am not a gambler, nor do I understand the thrill of watching candlestick charts with a racing heartbeat. But when CNN and CNBC both announced they would display digital odds from prediction markets during live news broadcasts, I felt as though we were being toyed with by a new kind of “truth.”

Crypto bros preach: traditional polling will be replaced, experts are the high priests of a bygone era, and only odds built on real money can reflect the wisdom of the crowd and the reality of the world. However, the trading logic cultivated by prediction markets is exactly like the “beauty contest” described by Keynes: you no longer care who is the most beautiful, you only care about “who others think is the most beautiful.” The very concept of beauty is thus “dissolved,” like Duchamp’s urinal in an art museum. Prediction markets will continue to accelerate, derail, until more and more clear-headed people begin to “short” this frenzy, to “short” the narrative of prediction markets themselves.

Exchanges and casinos are two distinct worlds. Farmers worry about falling grain prices, downstream food processors worry about rising prices, so they come to the derivatives market to find someone willing to take on the risk. Because their needs differ, trading is able to flow.

However, in the context of prediction markets, such natural hedgers do not exist. This results in a market where, aside from market makers, only smart money with inside information and doomed-to-lose gamblers remain. If a counterparty with an informational advantage is willing to trade with you at a certain price, that trade is probably a losing one for you. Once the “dumb money” is depleted, liquidity dries up rapidly. Because insider trading is allowed to exist en masse, prediction markets—without a continuous influx of gamblers to provide capital—are unsustainable new Ponzi schemes.

In natural systems, a thermometer’s reading does not change the temperature; no matter how we bet, Halley’s Comet will return on schedule. But in social systems, probability itself has the power to “distort reality”; the observer’s greed can alter the reality being observed.

Ethereum can use staking and slashing mechanisms to ensure the “economic security” of the blockchain network, but prediction markets cannot guarantee “social security” at all. On the contrary, they may even reward destruction.

If a billionaire places a massive bet on an extreme event, he is essentially funding that outcome and using the market’s probability signals to create panic or consensus. Huge amounts of capital can form a massive potential energy, sweeping up media coverage and influencing public confidence, forcibly collapsing an uncertain outcome into what the bettor desires.

Kaito, which aspired to be an information distribution hub, ultimately became a broadcaster outputting only noise. Prediction markets claim to be telescopes that offer insight into the future, but cannot stop themselves from becoming billboards that manufacture the future.

Many believe that with relaxed regulation and capital inflows, prediction markets will be the next big trend. But things always go too far.

People are gradually realizing that we are at the peak of a “gambling culture” cycle.

Comprehensive financialization only leads to emptiness. One day, people will tire of this high-frequency dopamine stimulation and return to real-life experiences. We will begin to turn off the screens, go hiking, touch real soil, read physical books, and build deep relationships beyond the screen.

To “short” prediction markets is not only to go long on “human subjectivity,” but also to go long on “life.”

Since we can’t return to the past, perhaps the only way out is to stop wasting time at the virtual gambling table and turn to walk into the sunlight.