Understanding why prediction markets are the next big opportunity favored by capital This time at KBW and Singapore Token, we encountered many founders of prediction market projects. @opinionlabsxyz @kizzymobile @fore_gate @Kalshi @TradeTapfun Let's talk about why "prediction markets" are rising as a new narrative and their integration with DeFi and GameFi. ♟️ First, the conclusion Prediction markets are actually one of the ultimate forms of the combination of information and financial games, representing the monetization of information. There are many points of intersection with DeFi, mainly reflected in four aspects: liquidity mechanisms, yield structures, risk hedging, and asset derivation. 🧠 1. The essence of prediction markets: Financialized "collective intelligence systems" Prediction markets are essentially a type of "collective oracle" based on market mechanisms. Users express their confidence in the outcomes of future events with funds, for example: "Will BTC break $130,000 by the end of October?" "Will Trump win the 2028 U.S. presidential election?" These predictions will form a trading market, where the price represents the market consensus probability. When the event outcome is revealed, the winners receive rewards. This may look like a game, but at its core, it follows a very standard derivatives logic — investors buy an "event contract," which is settled once the event occurs. 💧 2. Four main pathways of integration with DeFi 1️⃣ Prediction markets = New type of derivatives Similar to options or futures, prediction markets are essentially an "event-driven derivative asset"; This means they can be integrated into DeFi protocols, such as: - Introducing prediction market collateral in lending (Aave / Compound); - Adding "prediction pools" in DEXs (like Uniswap); - Using prediction tokens as yield certificates for LP Tokens. 💡 Example: @polymarket, @ZeitgeistPM, Gnosis are all working on assetizing events, allowing prediction tokens to be traded like options. ------------------------------------------ 2️⃣ Prediction markets provide DeFi with "real-world risk pricing" Many DeFi protocols lack "external risk parameters." Prediction markets can provide real-time risk data through market consensus, such as: "The probability that ETH's volatility will exceed 30% in the next week" "The probability of the Fed's next interest rate hike" This data can be directly used by DeFi risk engines for: - Automatically adjusting lending rates; - Changing insurance protocol premiums; - Adjusting asset weights in LP pools. 💡 Example: MakerDAO and UMA are both exploring using "prediction market prices" as oracle input sources. ------------------------------------------ 3️⃣ DeFi provides the infrastructure and yield layer for prediction markets The liquidity and market-making difficulty of prediction markets are high, making them prone to stagnation. DeFi modules can, in turn, support the prediction market ecosystem: Using the AMM (automated market maker) model to solve the pricing challenges of prediction markets; Lending protocols provide leverage for participating in predictions; Yield aggregators (like Yearn) consolidate prediction token yields into a new asset class. 💡 Example: Zeitgeist (on Polkadot) uses an AMM prediction market model; Thales (based on Optimism) uses DeFi staking + prediction structure to rebuild yield pools. ------------------------------------------ 4️⃣ Liquidity layer integration: Prediction markets ≈ New type of liquidity black hole When users bet on event outcomes, they lock up tokens; Project teams can embed these funds into DeFi, forming a "prediction as staking" mechanism; Users simultaneously earn prediction yields + DeFi interest, creating dual incentives. 💡 Example: Ajna Protocol (combining Lending + Prediction) Polymarket's USDC prediction pool can also be integrated into Curve / Aave for additional yields. 3. Future trends: From "betting on probabilities" to "defining reality" The integration of prediction markets + DeFi will ultimately turn "market expectations" into a tradable asset class. It can not only allow you to bet on outcomes but also: Hedge against policies, macro risks (like CPI, interest rates, war risks); Provide a more accurate "market oracle"; Become the information clearing layer in the AI era. ♟️ In summary: Prediction markets are the monetization of information, while DeFi is the intelligence of currency. The integration of the two makes "consensus" a new financial asset.