The Singularity of the Explosion of Prediction Markets: User-Generated Markets Introduce the Creator Economy

Source: Jarrod Watts

Compiled by: Odaily Planet Daily Golem (@web 3_golem)

Prediction markets could have ended the era of “the house always wins”, but unfortunately, most prediction markets are still profiting for themselves.

In this article, I will explain why prediction markets are currently unable to serve users, and why I believe the next stage of prediction markets is to achieve a creator economy through user-generated markets.

The key points I will cover include:

Exploring the transition of prediction markets from negative-sum games to near-zero-sum games;

How the introduction of creator economy and revenue sharing will drive explosive growth in prediction markets;

Live opportunities in prediction markets.

The dealer is dead.

Most forms of gambling, including sports betting, are negative-sum games where players lose money to the house. The expected player return rate (RTP) is set at different levels below 100% to systematically extract funds from players. Most people understand this, yet they are still willing to gamble, exchanging money for the dopamine we get from the anticipation.

Prediction markets can eliminate the house to change this situation by allowing players to engage in PvP in an open market. Prediction markets are zero-sum games, where winners take money from losers, similar to trading.

This is objectively better than traditional gambling/sports betting, although your moral standards may not agree, these products clearly have a huge market demand – it is always better for fairness to exist than to extract profits.

However, this statement falls apart when prediction markets start charging fees. Most platforms (except Polymarket) typically take about 2-3% from the players' entry amounts or expected profits.

The prediction market fees have turned it from a zero-sum game into a negative-sum game.

The result of charging fees on prediction markets is that they reintroduce a zero-sum game from gambling, which means that players will gradually lose funds to the casino/platform over time.

However, I believe there is a powerful alternative to leverage these fees to increase user engagement, which is to create a user-generated marketplace.

Prediction markets as a vehicle for the creator economy

I think prediction markets should:

Allow users to create markets without permission;

Introduce a revenue sharing mechanism that allows market creators to earn a certain percentage of commission.

Introduce a revenue-sharing mechanism for market creators.

Doing this can turn users into co-creators, allowing them to create new markets (and UGC around these markets), thereby driving the platform's growth without the team directly bearing the production costs. Roblox and Fortnite are typical examples of implementing this model—they both allocate part of their revenue to compensate community map creators.

In prediction markets, creators can create markets related to their community/niche, providing users with new ways to participate and earning profits from it. Because the application scenarios of prediction markets are almost limitless, it means they can be applicable to countless creators.

Although there are technical limitations, during the research process of writing this article, I discovered a GitHub repository that contains smart contracts for creating user-generated prediction markets. It also includes a variant of AMM to address some liquidity issues brought by user-generated markets.

Anchor generates prediction market

User-generated prediction markets will naturally evolve into real-time, fast markets created by streamers for their audiences. In these prediction markets, streamers can initiate votes, and viewers can participate and watch the results in real-time.

This allows creators to create short-term prediction markets where audiences can vote on questions like “Will I win this match?” Twitch has implemented this feature, but it uses its native channel points instead of USDC.

Twitch Live Streaming Prediction Market Example

This type of activation method is a win-win—hosts earn compensation through revenue sharing, while viewers become more engaged in the live broadcast. I believe this is a huge opportunity for future hosts and content creators.

Conclusion

Prediction markets have achieved incredible success, but the scalability of user-generated prediction markets remains a huge opportunity (which may also present technical challenges). The subsequent effects of users becoming ambassadors and creating content that directly promotes prediction market platforms are evident, and we look forward to the birth and implementation of products with this concept.