First of all, I have to apologize to fellow Taoist friends. Last week, in the article "I invested in He Jinli Shengxuan Coin and lost two dollars in Polymarket", regarding how Polymarket determines the outcome of the issue, I relied too much on my memory, did not read the book well, and the information contained bugs. Details will be explained in this article.
This Friday (11.15) from 17:30 to 19:00, I will drift to the Prince’s Bookstore to play. Welcome to come and chat and buy books.
[Thanksgiving Offer] Anyone who becomes a "Daoyou Pro" with an annual fee will receive a signed version (Wealth Liberalism: The Multiverse of Money) worth 20 mg in addition to DHK airdrops, exclusive chat groups and many other benefits. (Blockchain Sociology: Reimagining Money, Media and Democracy) e-book + paper book set, while supplies last.
Opinion articles present diverse opinions and do not represent the position of (WEB3+)
Prediction Markets: Is a Cryptocurrency Bull Market Coming?
For most people, prediction markets are a brand new concept (repeat, the word "prediction" here is used as a noun, it is prediction markets, not predicting markets). Due to space limitations, we can only briefly introduce the basic concepts of Polymarket in the last issue, and we will talk about it again this week. , in addition to fixing bugs, it is also to explain the meaning and current situation of the prediction market more deeply.
In last month's "Briefly Talk about Mechanism Design: Show me the Incentive", I explained that "mechanism = code of conduct + incentive". I wonder if you have noticed that the prediction market is a typical mechanism. If the participants correctly predict a specific issue, every Participating shares can earn 1 magnesium (without deducting the purchase price). If the prediction is wrong, the entire amount invested will be lost. Before the result is confirmed, participants can sell the participating shares at the market price to stop profits or losses. As for other processes, how do they work?
optimistic oracle
Topic setting is a part of Polymarket that has not yet been able to decentralize. Users can make suggestions through Discord, Twitter, etc., but Polymarket decides whether to accept them or not. Each topic must be accompanied by at least two potential outcomes, such as "Who will win the 2024 U.S. presidential election?" The answers include "Harris" and "Trump", and the currency prices representing the two outcomes range from 0 - 1 mg, for example The average value is 0.525 mg, that is, a total of 1.05 mg, of which 0.05 mg is the platform's income; otherwise, if the total is exactly 1 mg, after the case is closed and "rewards based on merit", the platform will have nothing.
Each market also needs to set several additional parameters: the reward for establishing the result, such as 10,000 mg; the deposit required to establish the result, such as 100,000 mg; and the time limit of the challenge period, such as seven days.
This is exactly where the information in the last issue was wrong - the results were not determined by the Polymarket team, but by another mechanism designed to record the truth, called the "optimistic oracle".
For example, Alice paid a deposit of 100,000 magnesium to try to establish the result of Trump's victory. If no one challenges within seven days, she can get a reward for establishing the result. This mechanism is based on the basic assumption that "people are inherently good" and the data is correct, so there is " The name "Optimism" is the same logic as the Ethereum L2 Optimism that LikeCoin is about to migrate to.
But optimism does not mean blind trust. There is a challenge mechanism behind it to deal with bad guys and human errors. Just imagine, what will happen if Alice pays a deposit of 100,000 magnesium to try to establish the outcome of He Jinli's victory?
Of course Bob will come out and pay a deposit of 100,000 magnesium to challenge the result. The dispute process is adjudicated by the Optimistic Oracle Mechanism UMA (universal market access). Anyone holding UMA tokens can vote on the results. The winning party will share half of the 100,000 deposit, the remaining 50,000 mg, and 10,000 in proportion to their currency holdings. The reward for magnesium establishing the result is obtained by Bob. As for Alice, whether she cheated intentionally or made a mistake, she would certainly lose her 100,000 magnesium deposit.
UMA Optimism Oracle has successfully dealt with many issues, including the billions of magnesium bets this time. However, when the whales of UMA coins invest heavily in specific issues at the same time, whether it is possible to reverse the fact of cheating requires another long article to discuss. Let’s stop there.
Oracle in The Matrix (1999)
Market, everything is a market
In addition to the recent discussion of mechanism design, just five years ago, I wrote a series of articles discussing "basic market entry."
Although the authors Glen Weyl and Eric Posner did not mention it in the book, broadly speaking, the prediction market is also a radical market, covering areas that are not traditionally considered commodities, and are even considered not to be considered commodities. , through marketization, we do not rely on central places to find the optimal solution; putting it back into the context of the prediction market is to marketize public opinion polls.
In a democratic and open society, various public opinion surveys are conducted over a long period of time, such as the support of leaders and cabinet members, national identity, happiness, etc., so that the government and relevant organizations can formulate policies based on the wishes of the people and avoid backlash. The government's accumulated emotions are like individuals regularly measuring their pulse, blood pressure, blood sugar, cholesterol and other indicators. If problems are discovered, they should be dealt with as soon as possible, otherwise it will be too late until it is discovered that a serious illness has occurred.
Of course, the more ill some people are, the more they refuse to test physiological indicators. Even if the test is done in private, it is convenient to make false reports and deceive themselves and others.
For a society willing to face data head-on, prediction markets provide efficient and often more accurate and agile mechanisms to supplement the shortcomings of traditional opinion polls.
The past election is the best example. When most mainstream media data showed that the two sides were evenly matched, and even predicted that Harris would win, Polymarket was one of the few alternative polls that accurately predicted the election results and could quickly respond to the latest situations such as shootings and debates.
Regarding the positive significance of the prediction market, Vitalik, the founder of Ethereum, has just written an article to discuss, and expanded the topic to a field he calls "info finance" (such as "prediction market", here refers to "information Finance", rather than "financial information"), if you want to understand more deeply, don't miss Vitalik's article.
Real bull market
Although many people and I only took Polymarket seriously after this election (or even didn’t know it yet), prediction markets are not new. Not to mention the ancient conceptual research, even if it is implemented, it has already been implemented in the last US presidential election. There is Polymarket and the corresponding prediction market; much earlier, in 2015, one of the first-generation applications of Ethereum included the on-chain prediction market Augur, which has been operating to this day.
What’s even more interesting is that as early as 2011, Taiwan’s “Future Events Exchange” has been established, and it was officially launched as a prediction market. Unfortunately, because it does not involve “real money”, the market cannot become a market and cannot be scaled up. I originally wanted to attach link, only to find that the website has disappeared, and the last Facebook update was in early 2023.
On the one hand, it is avant-garde and radical, on the other hand, it is very conservative and well-behaved. This is the Taiwan I know; do these conservative genes and laws protect the island from making mistakes, or hinder destructive methods other than semiconductors? Innovation, I don’t know, I hope fellow Taoists can tell me.
This time Polymarket successfully broke out of the circle and entered the private sector. The eye-catching election accounted for 80% of the total bets on the platform. Of course, it was the proximal cause, but the increasingly mature underlying layer, that is, the distant cause of the blockchain was equally important; if Polymarket had not taken advantage of the new The technology makes the interfaces such as account registration, deposits and withdrawals extremely smooth, and it can handle a large number of large-amount bets without causing problems such as transaction congestion and insufficient liquidity. No matter how eye-catching the topic is, it can only be like CryptoKitties, highlighting the blockchain Not ready yet.
Just like other markets, blockchain is not a necessary condition for market prediction. For example, Kalshi is a prediction market regulated by the Commodity Futures Trading Commission and implemented based on the traditional system.
It has long been a cliché that blockchain is open and transparent, cannot be tampered with, and can be checked at will. However, these advantages have been outweighed by disadvantages such as complexity and difficulty in use, high transaction fees, and low throughput. The success of Polymarket this time marks the "application of web3". Bull Market”, aside from prices, it’s time for blockchain and cryptocurrencies to reflect their value.
p.s. First time posting photos of the article making of. In addition to various tea restaurants, sometimes I will also be more "formal" and write in the library. I won’t tell you anything, otherwise it would be embarrassing if no one responded. This is the Mou Lu Siyi Library of Chung Chi College next to the Weiyuan Lake of the Chinese University. More than four years ago, when the epidemic was raging, I wrote some chapters of (Blockchain Sociology: Reimagining Money, Media, and Democracy) here; five years ago today, I was also nearby.
Opinion articles present diverse opinions and do not represent the position of (WEB3+)
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