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Xen Baynham-Herd
@xenbh.eth
Why I’m interested in prediction markets I spent 8 years as a derivatives trader. Derivatives can be used to take risk, but they are mainly used to manage risk. Investment banks use derivatives to hedge all kinds of risk. Yet, ordinary people don’t have access to these sorts of risk management tools.
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Xen Baynham-Herd
@xenbh.eth
On a size-adjusted basis, individuals often take on way more financial risk than any investment bank or hedge fund would. Think about how much risk an individual takes on when they buy a home with a huge mortgage - they become extremely exposed to local property prices.
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Xen Baynham-Herd
@xenbh.eth
Or similarly with currency - a bank with international expenditures would never keep all their assets in one local currency - yet most people have their entire net-worth denominated in their home country’s currency (often with life devastating consequences).
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Xen Baynham-Herd
@xenbh.eth
Economists have come up with ideas for how derivative tools could be created to widen access to risk management, but to date none of these really worked in practice. For example, Robert Shiller’s book: The New Financial Order - Risk in the 21st C, has some good ideas, but no one was able to bring them to market.
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jackanorak
@jackanorak
YO ive been shilling that book for almost two decades to anyone who’d listen abt prediction markets, first time I’ve seen this mentioned in public it’s still gonna happen
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Nick Tomaino🎩
@nick
1000 $DEGEN Need to check out the book. Shiller is Keynesian so I’m surprised there’s prediction market related ideas
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Xen Baynham-Herd
@xenbh.eth
I don't think he mentions prediction markets. However, the ideas are related as they demonstrate what could be possible with wider access to new derivative markets. Recent innovations in prediction markets and decentralized perps make some of this possible and will eventually have a massive impact on financial markets.
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