The other side of the prediction market

Author: David Hoffman Source: Bankless Translation: Shan Ouba, Jinse Finance

Since the U.S. election, the prediction market has been at the core of attention in both the cryptocurrency space and the mainstream society's understanding of emerging financial technology.

Even though the astonishing trading volume in the 2024 U.S. elections has become a distant memory, the trading volume in the prediction markets continues to reach new highs as the American football season kicks off.

As a platform that allows users to speculate on real-world events, these products are developing at an astonishing pace. Currently popular events have garnered far more attention than usual — politics, sports, and pop culture dominate the trading volume on these platforms. On the surface, this is indeed full of interest.

From this perspective, the prediction market technology has constructed a model of "entertainment finance": users can freely speculate on any popular cultural event that becomes a "current hotspot."

However, this technology has another little-known aspect - it can serve as a truth-discovery mechanism against authoritarianism, using financial incentives to counter dictatorial control. Prediction markets are essentially "truth machines": under the premise that a free market can price the truth, it can incentivize the truth to quickly come to the forefront and become the focus.

If someone holds information that is not known to the public, predicting the market allows them to take advantage of the arbitrage between "what they know" and "public perception." As market pricing is determined by marginal trades, as long as the prediction market platform operates efficiently and is not subject to scrutiny, the world's "marginal truth" can be presented and transmitted with high fidelity.

In light of this background, we can clearly see two entirely different paths that prediction market platforms may take:

1. Consumer-oriented "entertainment finance" speculative gambling platform;
2. A "counter-authoritarian truth platform" with resistance to censorship.

All prediction markets may possess two attributes, and in this binary opposition, we can see the long-standing contradiction between the cypherpunk ideology and consumer user experience (UX).

What kind of platform do we actually need? Is it a tool that can reduce the number of clicks and make it easier for users to place bets on large events? Or should it optimize the "permissionless, censorship-resistant" access experience, allowing dissenters under authoritarian regimes to communicate secrets to the world?

The truth is often uncomfortable

The concept of the "Ministry of Truth" in this dystopian context precisely reveals the authoritarian regime's emphasis on "defining truth and falsehood" — they long to control the boundaries between truth and lies. This is also why governments should not interfere with the media and journalism, as freedom of speech is crucial for a free society.

Prediction markets are a fusion of "opinion" and "market": the quality and effectiveness of their platforms depend on whether society can freely use them as "opinion platforms."

If we can only bet on the outcomes of major events through prediction platforms, but cannot make predictions about the results of major elections, then its value to society will be severely diminished.

Prediction markets should not become a Roman Colosseum - merely for entertaining the masses and distracting people from the realities of the empire; instead, they should become a "global arena" where sovereign nations and individuals can compete on an equal stage.

Some may say, "David, don't be so alarmist. Sovereign states won't interfere with prediction markets; that's too unrealistic."

History proves that the truth will bring punishment.

WikiLeaks, as a platform that connects "truth and individuals," was born from the backdrop of "truth being edited, filtered, and covered up by national influence." The content that mainstream media dare not report - the embarrassing hypocritical actions, civilian casualties, and military misconduct - is directly presented to the public through WikiLeaks.

To suppress WikiLeaks, the United States once cut off its banking channels through "financial repression". Thanks to donations in Bitcoin, WikiLeaks was able to continue its operations. Both Bitcoin and WikiLeaks represent the "weapons" of individuals against the tendency of state authoritarianism.

We must never forget: prediction markets are tools for individuals to fight against a "power structure that far exceeds their own abilities." Like encrypted communication, cryptocurrencies, virtual private networks (VPNs), and zero-knowledge proof technology, it is becoming a new member of the modern "sovereign individual" arsenal.

Therefore, in the process of the widespread adoption of prediction markets by society, we must ensure that these tools continuously strengthen their role in "protecting individual rights and sovereignty" rather than weakening it.

The truth is often uncomfortable.

A free market cannot exist without freedom of speech.

Arbitrarily drawn boundaries will destroy credibility.

History has shown that telling the truth can lead to punishment.

A market lacking the support of truth will inevitably fall into irrelevance.