1/ 🧵

Let’s dive into Web3 prediction markets:
- how they turn opinions into probabilities on-chain,
- why they’re gaining traction, and
- where AI could take them next.

Buidlguidl is a curated group of Ethereum builders creating products, prototypes, and tutorials to enrich the web3 ecosystem. https://buidlguidl.com

2/

Prediction markets let you wager on future events, buy/sell outcome shares before resolution, and benefit from permissionless, on-chain settlement.

Prices ↔ probabilities.

4/

Most are binary: two outcome tokens (“Yes” vs “No”), each pegged to a fixed payout (e.g. 1 USDC).

Before resolution, 🎯 Price(Yes)+Price(No)=1 USDC.

5/

Dynamic pricing emerges from supply/demand: buying “Yes” pushes its price up (higher implied probability), while “No” falls — and you can trade anytime.

6/

Order books or AMMs are used for trade execution. Order books (used by Polymarket) are costly to run fully on-chain, so hybrid models - with off-chain matching and on-chain settlement - are now more common.

7/

In AMM models, creators deposit collateral (e.g. 1 ETH) and mint equal outcome tokens (e.g. 100 Yes + 100 No at 0.01 ETH each). Prices shift with token supply.

8/

Pricing rules range from simple linear functions to Logarithmic Market Scoring Rules (LMSR), offering smoother discovery as sentiment shifts — all within the fixed payout cap.

9/

A key challenge is resolving off-chain events.
Prediction markets rely on decentralized oracles (e.g. Optimistic Oracle) to report real-world outcomes on-chain.

10/

Human traders have limited bandwidth and incentives. Niche markets often suffer low liquidity and herd biases, skewing forecasts.

11/

Imagine AI agents instead: always-on, ingesting news/clinical data, spotting signals, and trading automatically—turning markets into truly real-time forecasting engines.

12/

The future?
Web3 prediction markets + AI agents = scalable, unbiased, 24/7 probability engines for everything from elections to biotech breakthroughs. 🔮✨

Interested in learning more?

Check out this article by @phipsae :

Interested in learning more?

Check out this article by @phipsae :
https://phipsae.medium.com/building-web3-prediction-markets-how-they-work-and-where-ai-takes-them-next-e87a6b3511e6

3/

These markets date back to Wall Street election betting in 1884.

On-chain, Polymarket users wagered over $3.3 billion in the 2024 U.S. presidential race alone.