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
Market Creation:
A question is posed with defined outcomes
Example: "Will Bitcoin reach $100k by Dec 2024?"
Trading:
Users buy shares in "Yes" or "No"
Prices fluctuate based on supply/demand
Price = Implied probability
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: $0.10Reading 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 sharesAsk Side (Sellers):
Price Quantity
$0.66 300 shares
$0.67 800 shares
$0.68 1,200 sharesSpread:
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:
Question: Clear, unambiguous
Outcomes: Defined possibilities
Source: Where answer comes from
Deadline: When resolution occurs
Edge Cases: How to handle unusual situations
Disputed Resolutions
If resolution is unclear:
Community discussion
Admin review
Additional sources consulted
Final decision made
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
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