tl;dr: DeFi’s growth has been significant, the maturation of a complementary decentralized market could really put some gasoline on the fire.

I’ve been watching the evolution of the decentralized markets for predictions for a while now.

We may be hitting an inflection point.

Track Records Matter…Provable Track Records Matter More

If you look at the right side of the excellent chart below produced by the team at Hashed, you’ll see a section called “Prediction Market.” 

It’s appears as just a small piece of the DeFi ecosystem puzzle, but I would argue it’s a big deal for reasons that will make immediate sense to everyone.

Source: Hashed

Over the past few months, as Covid has made its way into our lives, we have each been subjected to the opinions of various “experts” making predictions about what will happen.

The point here is not to get political, it’s to get accountable.

When you turn on CNN, Fox, or any other channel these days, you are subjected to a barrage of talking heads making bold statements about what or will not happen.  That is great. Everyone is entitled to their opinion.

But wouldn’t it be nice to know whose predictions actually come close to what transpires?

And wouldn’t it be great if, when you hear someone’s prediction about the future, you could also have access to their track record of past predictions?

Who is the better predictor?

Any batter might get a hit, but would you bet on someone with a career .333 average or a career .100 in a clutch situation?

Decentralized prediction markets fill this need. The result will be stronger signals to the market about sentiment, allowing for more informed investing decisions.

In decentralized prediction markets (sometimes called ‘betting markets’) anyone can make a prediction about the future, just like today.

“I think Biden will win” or “I think Trump will win.” 

The difference is that in these markets, talk is actually cheap. Decentralized prediction markets force pundits to put up or shut up by staking value, in the form of crypto assets, behind their prediction.

So, when you visit Omen (a decentralized prediction market built using the Gnosis protocol) or Augur, not only can you see what the various predictions are and how people are “betting” that the future will play out, you can also examine the track records of every single participant.

Markets for a Low/No Trust World

Like crypto assets themselves, these types of markets are perfect for a low/no trust world.  Today, we “trust” people who make it onto CNN or Fox or into the NYTimes or WSJ, but we have no way of knowing if their track records are good or bad, which means we are flying blind in the face of their next prediction.

What’s worse, there are essentially no consequences whatsoever for being wrong. Maybe a little “egg on the face,” but that is it.

In a decentralized prediction market, if you are wrong, you lose money because you backed the wrong horse. 

That is fine, of course.

No one is perfect, but what it does is make bad predictions more expensive.