Rise of Prediction Market Agents (PMAs)

PMAs = Automated betting agents

In this article I highlight all things PMAs, including how they work and why I think they will grow to become a large market.

• What are PMAs • PMA mechanism • DeFi derivatives on PMAs • Why and how PMAs will win • Existing PMA projects to check out

What are PMAs

PMAs = Automated agents that help to place bets on prediction markets.

PMAs make bets broadly based on 2 things:

1. User Preference   • Type of markets e.g. culture, economic, politics, sports, etc. • Betting size

2. Market Analytics  • The agent is tasked to source for alpha • e.g. Steph Curry gets injured = Bet on Warriors (Curry's team) loss

PMA mechanism

I gave it some thought, and realized there are multiple ways PMAs can be built

• Single-market vs multi-market PMAs

• Long-only vs long-short PMAs

To keep it simple, the rest of the article will be written with this format in mind:

• Single-market: Basketball

• Long-short

Let's build a PMA-B (prediction market agent for basketball)

• PMA-B will bet purely on basketball-related markets

• A vault will be spun up for users to deposit their funds. Vault deposits will require a cap based on the liquidity of the markets PMA-B participating in

• PMA-B will carry out trades using the vault deposits based on its algorithm and information sourced

• 2% management fee and 20% performance fee (based on winnings)

PMA-B Token

• Similar to the concept of creator token

• Each PMA will have their own token

PMA-B Token Utility

• Stake to get priority access to deposit: Required stake can be increased based on the profitability of the PMA

• Management fee and performance fee will accrue back to the token (in the form of buy-backs / yield)

DeFi derivatives on PMAs

A couple of interesting derivatives

1. Lending Markets: If the markets that the PMAs are participating in have a longer expiry period, the position can potentially be used as collateral in a lending market. To better understand this concept, refer to @gondorfi

2. Alpha-Sourcing Agent: Another agent layer that invests into vaults based on which one is the most profitable

Why and how PMAs will win

Prediction markets are going mainstream:

• @Polymarket receives $2 bil investment from ICE (parent company of @NYSE) at $9 bil valulation

• @Kalshi valued at $5 bil with new investments from @sequoia and @a16z

• @Kalshi's trading volume exceeded $1 bil in the 1st week of October

With the freshly injected liquidity, it will likely attract builders to build ToC apps on top of prediction markets, and could also mean participation incentives.

PMAs have the potential to get the buy-in from both consumers and institutions:

1. Consumers

• Gen Zs have a vastly different financial mindset: Earn quick cash (e.g. livestreams) and don't save as much (heavy reliance on BNPL) • Prediction markets present themselves as 'you can make money while participating in activities you enjoy!' e.g. betting on Taylor Swift related markets

2. Institutions

• Diversified source of yields that is not subjected to macro conditions • i.e. Steph Curry's performance on the court is not affected by what Powell says

How will PMAs win? I believe it comes down to a few things:

1. Strength of Model

• Is the PMA actually good at sourcing for alpha?

• Does it actually make money and provide returns?

2. Interface

• Smooth user experience

• Integration with commonly used social media platforms e.g. Instagram, Snapchat, Meta (Facebook), Xiaohongshu

3. Virality

• Is it for my friends to see that I'm making money through a PMA?

• Think about shareable PnL cards

Why PMAs x crypto? • Stablecoin: Low cost, global access, possible to make micro-bets • Transparency: There is an immutable record of the agent's bets

Existing PMA projects to check out

There are already a few PMAs live:

@aixbet_ai

@sire_agent

@BillyBets_ai

Conclusion

The current PMAs are quite limited in scope, most are betting either on crypto or sports markets. I look forward to expansion of markets like eSports, or even nicher markets like sperm racing and robot fighting

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