Understanding Markets

Learn how prediction markets work on Kairos and how to interpret market data.

What are Prediction Markets?

Prediction markets are exchange-traded markets where people can bet on the outcomes of future events. The market price reflects the collective wisdom of all participants.

How They Work

1. Market Creation:

   • A question is posed with defined outcomes

   • Example: "Will Bitcoin reach $100k by Dec 2024?"

2. Trading:

   • Users buy shares in "Yes" or "No"

   • Prices fluctuate based on supply/demand

   • Price = Implied probability

3. Resolution:

   • Event occurs or deadline passes

   • Correct outcome determined

   • Winners receive $1 per share

   • Losers receive nothing

Market Types

Binary Markets (Yes/No)

Most common market type:

Structure:

• Two outcomes: Yes or No

• Prices always sum to $1

• If Yes = $0.70, then No = $0.30

Example:

Market: "Will SpaceX launch Starship in Q1 2024?"
Yes: $0.85 (85% probability)
No:  $0.15 (15% probability)

Payout:

• If launches: Yes holders get $1/share

• If doesn't launch: No holders get $1/share

Multi-Outcome Markets

Markets with multiple possible outcomes:

Structure:

• 3+ possible outcomes

• Prices sum to $1 across all outcomes

• Only one outcome can win

Example:

Market: "Who will win the 2024 US Presidential Election?"
Candidate A: $0.45 (45%)
Candidate B: $0.40 (40%)
Candidate C: $0.10 (10%)
Other:      $0.05 (5%)

Payout:

• Only winning outcome pays $1/share

• All other outcomes get $0

Scalar Markets

Markets with a range of values:

Example:

Market: "What will Bitcoin price be on Dec 31, 2024?"
Ranges:
$50k-60k:  $0.10
$60k-70k:  $0.25
$70k-80k:  $0.35
$80k-90k:  $0.20
$90k-100k: $0.10

Reading Market Data

Price Information

What Price Means:

• Price = Implied probability

• $0.75 = 75% chance

• $0.25 = 25% chance

Price Components:

Yes Price:  $0.65
No Price:   $0.35
Total:      $1.00 (always)

Volume Data

Total Volume:

• Total USDC traded

• Higher volume = more liquid

• Easier to enter/exit positions

24h Volume:

• Recent trading activity

• Indicates current interest

• High volume = active market

Liquidity

Definition:

• How easily you can trade

• Depth of order book

• Spread between bid/ask

Importance:

• High liquidity = better prices

• Low liquidity = higher slippage

• Check before large trades

Market Indicators

Price Chart

Shows historical price movement:

What to Look For:

• Trends: Up, down, or sideways

• Volatility: How much price moves

• Volume spikes: Sudden interest

• Support/Resistance: Key price levels

Time Ranges:

• 1 Day: Short-term movements

• 7 Days: Weekly trends

• 30 Days: Monthly patterns

• All: Full market history

Order Book

Shows pending buy/sell orders:

Bid Side (Buyers):

Price   Quantity
$0.64   500 shares
$0.63   1,000 shares
$0.62   750 shares

Ask Side (Sellers):

Price   Quantity
$0.66   300 shares
$0.67   800 shares
$0.68   1,200 shares

Spread:

• Difference between best bid and ask

• Smaller spread = more liquid

• Larger spread = less liquid

Trade History

Recent completed trades:

Information Shown:

• Time of trade

• Side (Buy/Sell)

• Price executed

• Quantity traded

Analysis:

• Large trades indicate big players

• Buying pressure pushes price up

• Selling pressure pushes price down

Market Life Cycle

1. Launch

Initial State:

• Market opens for trading

• Starting price set (often 50/50)

• Low volume initially

• Price discovery begins

2. Active Trading

Peak Activity:

• High volume

• Price fluctuations

• New information impacts price

• Community engagement

3. Pre-Resolution

Final Phase:

• Event approaching

• Price converges to likely outcome

• Volume may increase

• Last-minute positioning

4. Resolution

Market Closes:

• Trading stops

• Outcome determined

• Winners paid automatically

• Market archived

Market Efficiency

Efficient Market Hypothesis

Theory:

• Market price reflects all known information

• Hard to consistently beat the market

• Prices adjust quickly to news

In Practice:

• Some inefficiencies exist

• New information creates opportunities

• Skilled traders can find edge

Information Asymmetry

What It Means:

• Some traders have better information

• Creates trading opportunities

• Rewards research and analysis

How to Compete:

• Do thorough research

• Use AI analysis tools

• Monitor news closely

• Understand market psychology

Market Categories

Kairos offers markets in 7 categories:

Politics

• Elections and voting

• Policy decisions

• Government actions

• International relations

Crypto

• Price predictions

• Project launches

• Regulatory decisions

• Market trends

Sports

• Game outcomes

• Championship winners

• Player performance

• Records and milestones

Business

• Company earnings

• Product launches

• Stock prices

• Mergers and acquisitions

Technology

• Product releases

• Tech trends

• AI developments

• Innovation breakthroughs

Entertainment

• Award show winners

• Movie box office

• Music charts

• Celebrity news

Science

• Research breakthroughs

• Space exploration

• Climate events

• Health discoveries

Market Resolution

Resolution Sources

Markets resolve based on:

Official Sources:

• Government announcements

• Company press releases

• Sports league results

• Scientific publications

Trusted Media:

• Major news outlets

• Industry publications

• Verified social media

Resolution Criteria

Every market specifies:

1. Question: Clear, unambiguous

2. Outcomes: Defined possibilities

3. Source: Where answer comes from

4. Deadline: When resolution occurs

5. Edge Cases: How to handle unusual situations

Disputed Resolutions

If resolution is unclear:

1. Community discussion

2. Admin review

3. Additional sources consulted

4. Final decision made

5. Rarely: Market may be voided

Tips for Understanding Markets

Research Checklist

Before trading, verify:

• ☐ Question is clear

• ☐ Outcomes are well-defined

• ☐ Resolution source is reliable

• ☐ Deadline is reasonable

• ☐ Market has sufficient liquidity

• ☐ You understand the topic

Red Flags

🚩 Avoid markets with:

• Ambiguous questions

• Unclear resolution criteria

• Very low volume

• Unreliable sources

• Conflicting information

Green Flags

✅ Look for markets with:

• Clear, specific questions

• Official resolution sources

• High trading volume

• Active community

• AI analysis available

Next Steps