Just now! The big shot from a16z explained the prediction market: retail investors who still don't understand this tool will soon miss out on even the soup!

Friend, sit down. Today we won't talk about K-line charts or liquidation explosions, but something more fundamental — market prediction.

A16z partner Scott Duke Kominers, with an economics background, has been in Wall Street for twenty years. He said a sentence that I’ve been pondering for three days: predicting the market is essentially just an ordinary market.

At first glance, you might think it's nonsense, but think carefully—what does a market do? Allocate resources, deliver goods to those who need them most. In this process, it also has a largely overlooked ability — information aggregation. When buyers and sellers quote prices, supply and demand collide, and the price becomes the crystallization of the collective wisdom of all participants.

In traditional markets, if you buy oil and the price rises, you know demand exceeds supply, but you don’t know whether it’s because the Middle East is at war or Chinese factories suddenly need several thousand tons more. Where’s the advantage of prediction markets? They break this down to the extreme: issuing assets for a specific event. If the event occurs, the contract pays out 1 dollar; if not, it’s worth zero.

For example, today you could create a market on whether the Strait of Hormuz is operating normally. The contract price is $0.50, indicating a 50% probability. If you think the actual probability is 67%, you buy in. After buying, the price will push upward, representing your view being incorporated. Conversely, if someone thinks it’s too high, they short. Throughout the process, no one needs to guess — money talks.

This is much better than polls. Polls only tell you how many support or oppose, but due to sample bias and the spiral of silence, the results are often inaccurate. Prediction markets involve real money betting; if you’re wrong, you lose money. So participants will desperately dig for information, betting only on what they’re most skilled at.

Before the 2024 US election, some even used unconventional methods for polling, aiming to know a little more than others to arbitrage in prediction markets. What’s this called? Using incentive mechanisms to force information production.

But don’t rush — this system isn’t perfect. I wrote about this back in 2016: Brexit and Trump’s election, prediction markets got everything wrong. Why? Because at that time, participants didn’t see the undercurrent of populism. Insiders didn’t enter the market.

Even more frightening is insider trading. If insiders know the result of a papal election beforehand and bet on the prediction market, the market collapses. There are also cases of deliberately pushing up prices to create a false lead, guiding public opinion. Elon Musk’s tweets that caused Dogecoin to soar are essentially a form of opinion manipulation.

However, prediction markets have a self-correcting ability — if prices deviate too much, arbitrageurs come in to correct them. The key is in rule design. Who can participate? How are contracts set? How is arbitration handled? Solving these issues will make prediction markets the ultimate weapon for humans to fight uncertainty.

Think about it — a market that allows you to bet on any event at any time, isn’t it a hundred times more reliable than those communities that only shout orders?

My personal judgment: as infrastructure matures, prediction markets will, like the stock market back in the day, fundamentally change how we judge the world. The pricing logic of assets like $BTC and $ETH will also be infiltrated by this mechanism in the future. Don’t think it’s unrelated to you today; by the time you realize it, others will have already used collective intelligence to take your money from your pocket.

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