The State of Prediction Markets and Crypto in 2020 with Joey Krug
Aug 6, 2020
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Joey Krug, founder of Augur and partner at Pantera Capital, discusses the evolution of prediction markets, the current state of crypto, and the potential of Web3. Topics include Augur's updates, scalability challenges of Ethereum, regulatory hurdles for prediction markets, the perception of betting, exploring equity and popularizing capitalism, potential of decentralized social networks, and the problem with centralized oracles.
Decentralized prediction markets like Augur have the potential to become widely adopted and easy to trade on with the development of scalability solutions.
Liquidity is a key challenge for decentralized prediction markets, but even with relatively low levels of liquidity, they can provide accurate predictions.
Scalability is a major challenge for Ethereum, but the successful implementation of scalability solutions could lead to improved prediction market platforms and wider adoption of decentralized applications.
Deep dives
Prediction Markets and Augur
Augur is the first decentralized prediction market platform that allows users to create markets and speculate on the outcomes of real-world events. It eliminates the need for a central entity by leveraging the Ethereum blockchain for peer-to-peer trading. Prediction markets have been around for a while, but Augur's innovation lies in its decentralized nature and its potential to have global liquidity pools. With the development of scalability solutions, Augur and other decentralized prediction markets could become widely adopted, low-cost, and easy to trade on.
Challenges and Potential of Decentralized Prediction Markets
One of the main challenges for decentralized prediction markets like Augur is liquidity. The availability of liquidity plays a vital role in accurate pricing and widespread adoption. Liquidity can be affected by various factors, such as transaction costs and scalability issues. However, studies have shown that even with relatively low levels of liquidity, prediction markets can provide accurate predictions. As these markets evolve and scalability solutions are implemented, the scope of decentralized prediction markets could expand to cover a wide range of topics, including politics, sports, and current events.
The Role of Ethereum and Solving Scalability Challenges
Ethereum, as a smart contract platform, has played a significant role in the development of decentralized prediction markets. However, one of the major challenges faced by Ethereum is scalability. Currently, Ethereum can handle only a limited number of transactions per second, leading to congestion and high transaction costs. Various scalability solutions are being explored, such as layer 2 solutions and plasma side chains, which aim to increase transaction speed and reduce costs. The successful implementation of these solutions could pave the way for improved prediction market platforms and wider adoption of decentralized applications.
The Potential of Prediction Markets
Prediction markets are discussed as a way to incentivize people to make accurate predictions and to reveal their true beliefs. By offering individuals the opportunity to bet on certain outcomes, prediction markets can reveal different perspectives and clarify disagreements. Quantifying predictions can help align people's understanding and lead to more accurate assessments of future events. While there are concerns about the potential negative effects, such as market manipulation, the overall potential of prediction markets for improving decision-making and obtaining better data is highlighted.
The Evolution of Betting and the Future of Prediction Markets
The podcast episode explores the historical perception of betting as a form of speculation without any real value. However, over time, various financial instruments like stocks, bonds, and derivatives faced similar skepticism before becoming accepted and valuable tools. The guest argues that betting, including prediction markets, is likely to undergo a similar transformation where it will be recognized for its potential to bring positive change and improve decision-making. The guest envisions a future where prediction markets are faster, more affordable, and widely accessible, offering the benefits of decentralized prediction markets in a manner that feels centralized to users. While skeptical about the potential for decentralized social media, the guest believes that decentralized marketplace applications, like peer-to-peer ridesharing platforms, have a greater chance of success.
