Ah yes.

Prediction markets, in their regulated or unregulated (or Lightning-based version! @mega_dreamer) form, are all a zero-sum transfer of wealth -- from dumb money to smart money.

Always wasAlways was

So when market-making firms and high-frequency traders #1479098 play around on Kalshi and Polymarket (and one or other soldier insta-trading geopolitical contracts!), we can be damn sure there are retail losses and bagholders on the other end:

Retail investors regularly get angry about [high-frequency/market making trading]. But retail investing is still, you know, good. It is still positive-sum: Retail investors are in aggregate putting their money into companies and profiting from overall economic growth. It is possible, likely even, that (1) big electronic market making firms make billions of dollars off of retail stock investors and (2) those retail stock investors also make billions of dollars themselves. It is nice to play a positive-sum game.

Here's our beloved Matt Levine outlining precisely what feels so odd about them compared to general "investing." There's growth, and market makers skimming off the top can still provide convenience and investors bettors benefit:

Big electronic trading firms also increasingly make markets in prediction markets. What conclusion can you draw from that? The extremely obvious one, surely?

pretty shocking:

But what happened to their real-world use, insurance and hedging risk etc?

One important argument for them is that they are hedging markets, insurance, that people buy event contracts to hedge some real-world risk. In that context, losing money on an event contract is fine: It means that your real-world risk didn’t come true, you are better off than you otherwise would be, and the prediction market allowed you to responsibly take a risk you otherwise might not have taken.I am sure that this has happened once or twice on prediction markets, though it is always worth emphasizing that “prediction market” means mostly sports betting.

All just a grifting facade.

Not sure how I feel about all of this. It's very voluntary and, mostly, pretty harmless... still pretty iffy. ("Scruffy" is the term Levine uses in the newsletter, lol)

newsletterhunt: https://newsletterhunt.com/emails/293213