“It’s just spinach in disguise.” —— Many people have said this after the recent explosive financing of Prediction Markets. 🙄
Big mistake 👉 a16z, Paradigm, Sequoia are crazily investing #Kalshi (valuation $11 billion) and #Polymarket (valuation $15 billion), and what they are betting on is definitely not the next spinach.
🔥 The capital market is wagering billions of dollars on a new global financial infrastructure: event derivatives exchanges (DCM) / prediction markets.
👁 Main difference 1:
Price formation mechanism: market vs. bookmaker.
🎲 Spinach: The odds are a black box. Set internally by the platform (the bookmaker), incorporating a “House Edge.” Regardless of the outcome, the bookmaker adjusts through algorithms to ensure they make a profit most of the time.
📈 Prediction Markets: Transparent order book. Just like the New York Stock Exchange, prices are formed by the supply and demand matching of buyers and sellers. The platform does not set probabilities, does not bear risks, and only collects fees. The price itself is the market's consensus on the probability of an event occurring.
👁 Main difference 2:
Participant structure: information arbitrage vs. emotional speculation.
🎲 Spinach: Liquidity is “consumption-driven.” Driven by the preferences and emotions (supporting favorite teams) of ordinary users, along with gambler’s fallacy.
📈 Prediction Markets: Liquidity is “information-driven.” Participants include macro traders, researchers, and information arbitrageurs. They are here for price discovery and informational advantage. The essence of liquidity here is “information liquidity.”
🏷 but liquidity is the core competitive advantage.
#Kalshi The head of the crypto department said: “If there is no liquidity, there is no market.” Prediction markets combine regulated financial architecture with decentralized liquidity pools through tokenization, aggregating on-chain, off-chain, domestic US, and international liquidity, thereby establishing a strong competitive barrier.
