I've only watched some prediction market news from the outside, so forgive my basic question, but are prediction markets supposed to bring in money besides having new entrants bring in cash?
I've often seen prediction markets compared to stock markets, but the stock market is generally positive-sum because you're investing money in profitable businesses that pay dividends. In contrast, if a prediction market begins with 1000 people with $1000 each (and no one else joins or brings in more money), can it ever have more than $1,000,000 in the market?
If the answer is "no, it doesn't generate money", isn't that a big problem for prediction markets as a long-term concept? It means everyone will be fighting over a limited pie, and there will be no reason for the average person to join the prediction market (they just stand to lose their money to the experts). Is this a problem holding back prediction markets now, and are there ideas to fix it?
Good to know :)
I do agree that subsidies run into a tragedy-of-commons scenario. So despite subsidies are beneficial, they are not sufficient.
But do you find my solution to be satisfactory?
I thought about it a lot, I even seriously considered launching my own prediction market and wrote some code for it. I strongly believe that simply allowing the usage of other assets solves most of the practical problems, so I would be happy to hear any concerns or further clarify my point.
Or another, perhaps easier solution (I updated my original answer): just allow the market company/protocol to invest the money which are "locked" until resolution to some profit generating strategy and share the profit with users. Of course, it should be diversified, both in terms of investment portfolio and across individual markets (users get the same annual rate of return, no matter what particular thing they bet on). It has some advantages and disadvantages, but I think it's a more clear-cut solution.