Even if you have been deeply immersed in your favorite online world, there is a strong possibility that you have heard something about prediction markets. These quasi-gambling apps and platforms are attracting significant media attention, and there is genuine concern that they may be used to ‘game’ these financial markets for personal gain.
Ironically, they are not officially bets but classified as trades for legal purposes. However, backing a hunch with real money was once largely an activity that took place around sporting events. However, the rise of prediction market trading on exchanges like Kalshi and Polymarket has spread to include real-life events, culture, and politics. This means that inside information (or insider trading) could give some traders an advantage. The US Senate has unanimously barred senators from trading on prediction markets, and US Army Special Forces Master Sgt Gannon Van Dyke has been accused of using classified information to trade on Polymarket in relation to the capture of Venezuelan leader Nicolas Maduro.
It seems as though news and real-life events have been gamified to such an extent that virtual worlds are happening in real time around us. It all feels a little surreal as the real and the virtual overlap and interact. Kalshi and Polymarket have been offering trades on the release dates of titles like Grand Theft Auto VI, and prediction markets have been brought into eSports. Reality is being monetized, with a significant impact.
Many US citizens who have previously been barred from gambling now find that they can trade on real-world events, despite gambling being banned in their state. Unsurprisingly, many people are confused, so what are prediction markets, and how are they legal?
To make things clear, prediction markets are legal trading platforms where users buy and sell contracts tied to real-world events with binary outcomes. The market is very broad, and users can trade opinions on events such as sports, politics, economics, gaming, movies, and pop culture. If you think you know what might happen on a particular topic, the chances are you will be able to take a financial position on it. This is now a possibility because prediction markets are not conventional gambling platforms and are regulated at a federal, rather than state, level.
If you have a hunch about the outcome of an event, if you bet on a sports book, you are betting against the bookie who sets the odds. The gambling platform makes money from ‘house edge’. The more likely the outcome seems, the shorter the odds. Prediction markets do not have a bookie, and users trade YES or NO contracts with other users. Each trade has two sides. If you buy YES, someone else is selling NO. The platform is a marketplace that settles the result once the event’s outcome is determined. Prices move with supply and demand. Users can trade out before the event resolves as long as someone wants to buy their YES (or NO).
Prediction markets are not ‘just another sports book. They let traders enter and exit positions while trading is open. With accurate information, a trader can base their decision on more than just gut feel; however, there is still a huge degree of luck involved and it is important to understand how the market work. While someone might feel certain that something will happen as they predict, events have a funny knack of turning out differently from what might have been expected.
It is easy to see how gaming has influenced prediction markets. The whole concept of gaming has come into the limelight, and it seems no area is off-limits. Many state regulators are unhappy about prediction markets. The more conservative ones, like Utah, are objecting on the grounds that they do not want their citizens involved in speculation. The liberal states that have legalized gambling are more concerned about losing revenue! Prediction markets are hot topics everywhere right now.
While players in some states have been able to bet on e-Sports, this is now an opportunity that is open to all US citizens. Technically, it is not betting, but for most people, it is hard to tell the difference. Prediction markets will let players and viewers trade on the outcomes of matches, transforming all spectators into active participants. eSports fans are able to take a financial stake in the action. While this has been the case for a while in states like New Jersey and Pennsylvania, where sports betting is legal, Californians and Texans can now have a similar opportunity.
While no major commercial video games currently include prediction market mechanics in the games themselves, it can only be a matter of time before this is given consideration. After all, some games already feature casinos and other iGaming-type options. It is not uncommon to find simulated markets in gaming, including features like virtual stock markets, fantasy trading systems, and in-game speculation on events. Clearly, these are not real-money prediction markets, as they are not tied to real-world events, but virtual prediction markets cannot be far off. There have been academic prototypes, but these have not been commercially released.
However, you look at it, the virtual and the real crossover and influence each other even while operating in their own distinct spheres. Developers can get away with narratives and events in games that could not be replicated in real life – that is the joy of fantasy and fiction. The thinking behind the systems influences the real world, and the real world influences gaming narratives and mechanics. Most of us are quite happy to keep the two realms separate, but AI can do a scarily good job at blurring the lines.
As sports games mirror real-world events where prediction markets already thrive, we may see virtual markets featured in these types of games. Sporting titles already have player markets, auction houses, and skill-based progression, so prediction markets might be the next logical step. It is also likely that what happens in one gaming genre will happen in the others. As Sandbox/UGC Platforms like Roblox and Minecraft allow creators to build, it is likely that these creators will be among the first to experiment. With massive user bases, they could also have a significant impact
It is certainly exciting times ahead for both industries as they intersect and diverge. You might want to trade on which gaming sector will be the first to plunge into the prediction market realm.