Debunking 5 prediction market myths: Slotegrator

Maksym Shtun, product owner at Slotegrator, takes down 5 popular misconceptions about the business model behind prediction markets, from licensing to liquidity and the difference between fixed-odds and P2P mechanics.

Opinion.- If you’re paying any attention to igaming media at all, you’ve come across plenty of pieces about prediction markets by now. 

The sheer volume of content related to prediction markets means that there’s guaranteed to be some misconceptions going around, especially when it comes to the difference between fixed-odds event betting and P2P exchange models, which sometimes use AMM algorithms for pricing. 

Here, I’d like to dispel a few of the myths we all keep reading about.  

Myth #1: The licensing situation is too complicated

Regulations are always a concern in igaming, and no less with prediction markets. 

So far, regulators have largely taken one of two views: they either view prediction markets as a financial instrument or a form of gambling. Authorities in the US are largely following the former view, and prediction markets like Kalshi and Polymarket are regulated by the CFTC. In some European countries, on the other hand, regulators see prediction markets as unauthorised gambling platforms.

But — and this is important — we’re still in the very early stages of prediction market regulations. Things are still evolving, but quickly. 

Gibraltar has already issued one licence to a prediction market company, ADI Predictstreet. The Malta Gaming Authority is exploring the creation of a regulatory category. So overall, the trend is towards clarity.

Given the widespread popularity of prediction markets, it’s entirely possible that more countries will move to create regulatory categories for them, even European ones. Some might argue that there’s a cultural divide between the US and Europe, where Americans are familiar with trading in a way that Europeans, who prefer betting on sports, aren’t; but Europeans are perfectly familiar with stocks and trading. It’s not as if the vertical is entirely alien to them. 

Myth #2: The liquidity will dry up if a bet is too niche

I’ve heard from some corners that the P2P model can fail if a bet is too niche.

The idea is that if too few players are willing to buy a contract for an event, there won’t be enough liquidity to make it happen; that there will be an imbalance between the number of bettors interested in buying each end of the contract. 

That might be true in theory, but that’s not how it happens in the wild. This simply isn’t how any betting platform works, prediction market or otherwise. 

Operators know their audiences. No operator, whether it’s a prediction market, sportsbook, or casino, would offer an event so niche that only a handful of bettors would be interested. Instead, players always have opportunities to bet on events they care about: football matches, tournament brackets, geopolitics, etc. When a platform offers bets that are tailored to the audience’s tastes, there will be as much volume as you’d expect in other verticals. 

All the operator has to do is exercise judgement and don’t offer bets that would appeal to only a few bettors, or bets on events that are irrelevant to your audience. At the end of the day, if you know your players, you’ll know what they want to bet on. 

Myth #3: Launching a prediction market is much more complicated than other betting verticals

In short: no, it isn’t.

But I’ll go on. Launching any betting platform takes effort. Setting up the platform, integrating content, establishing the corporate structure — all of it takes money and effort, and that’s before you’ve even started on your marketing. 

There might be additional complications when starting a prediction market, but this isn’t a problem with the product itself; the hesitation, in my view, comes from unfamiliarity. We’re not talking about calibrating the first rocket to go to Mars. 

Myth #4: Betting is betting; players see no difference between fixed-odds and P2P

Proponents of fixed-odds event betting love to say this, but to me, it couldn’t be more wrongheaded. If players saw no difference between fixed-odds and P2P, Polymarket and Kalshi wouldn’t be the massive phenomena that they are. Of course players care about the difference. 

In their view, the trading experience is as important as the bets themselves. The point of prediction markets is that they’re buying a contract with another player, not betting against the house — which has worked in an overround to skew the odds in their own favour. It’s not just about being able to bet on byelection results or the number of goals Messi scores in the World Cup; it’s about the transparency. 

The trading aspect is paramount. Fixed-odds platforms can’t deliver that, and platforms that try will miss the boat. 

Myth #5: Operators can’t generate enough traffic to make it work 

Do prediction markets require substantial traffic? Of course. So do casinos and sportsbooks. No betting or trading platform can function without a wide enough audience, and in the end, a well-run prediction market won’t require more traffic than those other verticals. It’s no reason to single out prediction markets and avoid them. 

Maksym Shtun, product owner at Slotegrator