The Future of Prediction Markets Post-Election 2024

SALT LAKE CITY — As Kyle DiPeppe, an emerging voice in the prediction market space, reflects on the current state of crypto’s prediction markets, he identifies a significant milestone: November 5, 2024. This date marks the U.S. presidential election, a pivotal moment that will determine the fate of millions of dollars invested in bets across various political races. These bets have propelled Polymarket, a leader in the prediction market sector, to substantial success. However, once the election results are finalized, the prediction markets tied to these events will also conclude, leaving bettors with either gains or losses.

The aftermath raises an essential question: what will happen to prediction markets once the electoral cycle ends? DiPeppe posits that the dramatic increase in betting activity surrounding political events is unlikely to sustain itself. He estimates that around 90% of the trading volume in prediction markets is predominantly centered on political outcomes. This trend suggests that once the high-stakes environment of the presidential election dissipates, most of the trading activity will diminish, similar to past occurrences.

“Once November 6 hits, is there enough liquidity?” DiPeppe questioned, expressing doubt about whether market makers and other crucial participants will remain engaged in prediction markets once the political fervor subsides.

Transitioning Focus: The Long Tail of Prediction Markets

In response to this anticipated decline in interest, Hedgehog Markets, the platform DiPeppe manages, is pivoting toward a different model of prediction markets. This innovative approach prioritizes long-term engagement over the traditional binary shares-based model exemplified by Polymarket. Rather than focusing solely on high-profile events that require substantial liquidity, Hedgehog Markets aims to cater to a broader range of events that may not attract mainstream attention but have dedicated fan bases eager to place bets.

This strategy mirrors the popular sports betting platforms like DraftKings and FanDuel, which allow users to wager on various outcomes without the pressure of continuous trading. DiPeppe states, “There’s clearly people interested in sports betting. It’s all short-term, same thing with crypto: It’s a lot of memecoin, short-term trading.” Therefore, Hedgehog Markets is tasked with developing a market structure that aligns with these shorter-term betting patterns, ultimately creating a more sustainable ecosystem.

Custom Prediction Markets: A New Frontier

One of the most intriguing features of Hedgehog Markets is its ability to allow users to create custom prediction markets. This flexibility empowers users to design their own betting scenarios, fostering a sense of community and engagement. DiPeppe draws parallels to the success of memecoin factory Pump.Fun, where communities can quickly create and trade tokens for enjoyment. He believes that the same concept can be applied to prediction markets, where users can engage in betting for fun and entertainment.

However, the introduction of custom prediction markets is not without challenges. One significant concern is the potential for ambiguous outcomes that may arise from user-created betting scenarios. For instance, if a market is established regarding a sporting event’s outcome but ends in a tie, the resolution can become complicated. DiPeppe notes that traditional prediction markets often struggle with these types of scenarios, leading to disputes about how to distribute the winnings fairly among bettors.

To address these complexities, Hedgehog Markets proposes a straightforward dispute resolution method. If a custom market results in an unclear outcome, the platform will return the original stakes to all participants, ensuring that no one is unfairly penalized. This approach aims to simplify the betting experience and enhance user trust in the platform.

Insider Trading Concerns in Prediction Markets

Another pressing issue DiPeppe raises involves the potential for insider trading within prediction markets. The nature of these markets often leads to scenarios where individuals with prior knowledge can place bets that may skew the outcomes. For example, if a presidential candidate were to create a market regarding their speech content and then place a bet based on their insider knowledge, it raises ethical concerns regarding fairness and transparency.

DiPeppe asserts that while such situations can be problematic, they also serve a purpose in the broader context of prediction markets. The essence of these markets is to leverage trading as a means to uncover truths. If someone with insider knowledge participates in a market, it can lead to more informed decisions among other bettors and observers, thereby increasing the overall market’s integrity.

Conclusion: The Future of Prediction Markets

As the landscape of prediction markets continues to evolve, the challenge remains to maintain engagement beyond the political cycle. DiPeppe’s vision for Hedgehog Markets includes fostering a community-driven environment where users can create, share, and engage in custom prediction markets. By focusing on the long tail of events with dedicated fan bases and simplifying the betting process, Hedgehog Markets hopes to sustain interest and participation in prediction markets even after the intense political betting of 2024 concludes.

In a world where anyone can launch a token or create a betting market, the question remains: will communities embrace the opportunity to engage in prediction markets as they have with memecoins and NFTs? Only time will tell, but DiPeppe is optimistic about the potential for innovation and growth in this space.