The Trillion dollar usecase for Prediction Makerts is not gambling.
It's Parametric Insurance.
gambling is a small market ($600B), investors did not value Polymarket and Kalshi at $20B each because they hope to capture the gambling market.
The real big fish they are chasing is the insurance market ($8T).
They are betting of a future where event contracts replace the traditional Indemnity Insurance model
In the indemnity insurance model has 3 major flaws :
1 - Does not scale
An adjuster must inspect every claim, assess the damages and if it is covered or not. This incurs additional costs that will in the end be paid by the consumer.
If these costs are greater than the expected profit for a given category, there simply won't be an insurance market for it.
2 - Slow
If your house burned to the ground, you need the money now, not in 6 months.
Good luck explaining that to the adjuster that will want every receipt for every piece of furniture in your living room
3 - Adversarial
The insurance provider who has every incentive to deny your claim since the payout comes out of their pocket.
Unfortunately the judge (the adjuster) also works for them, and will find every reason to deny you a payout
There are already a few categories where Parametric insurance (event contracts) is already the dominant option :
- Fire insurance
- Extreme weather events
- Political risk (for example if a bill gets passed that would ruin your business)
- War insurance (try to find a traditional company that will insure your house in Donetsk or Tehran)
@Polymarket and @Kalshi investors are betting that this market will keep expanding and that they will be the ones to capture it
It's the real play behind Prediction Markets.
Of course there is still regulatory risk, but that was also the case for Bitcoin in 2013.
Risk = Profit
Take some risks and find a way to invest in Prediction Markets before everyone realizes what is up
ZEIT@ZEITFinance
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