a16 Long Article: Prediction markets are becoming a new meme and a new traffic password

How prediction markets form a new kind of meme through visual charts and gradually become key elements of social media and popular culture. This article is based on Alex Danco's a16z piece “Prediction Path Screenshots: a New Kind of Meme”, organized, translated, and written by TechFlow. (Background: What are these 8 prediction markets betting on in the real world?) (Additional context: He Yi shouted “BNB is going to do prediction markets”: welcome professional frens to participate, YZi Labs leads the investment.) In the mid-2010s, a new form of visual content began to appear in elections, sports competitions, and playoff contests: charts showing “probability changing over time”. These charts are engaging because they tell a captivating story: what was initially expected to happen, and then what actually happened. Through these images, you can tell many exciting stories. With just the change in probability, you can narrate stories about collapse, redemption, or the underdog's comeback. (Kurt Vonnegut gave many such stories a famous name: for example, “The Man Who Fell Into the Abyss”, “Boy Meets Girl”, and “The Downward Spiral”, each story has its own shape.) These images are a kind of “meme”: they compress large amounts of information into a small space and convey the story intact when shared. Although these charts are very captivating, they have one major limitation: they almost only exist in the realms of politics, sports, or financial markets. The reason is obvious: these charts require widely accepted prediction odds to function, and these odds must be legally used. Financial markets have always had these odds; elections have polling data to utilize, enabling the construction of these probability paths like Nate Silver. Sports seasons (and even single games) have clear structures and enough historical data to confidently predict the probability of teams advancing in the playoffs during the season. Beyond that, the “story shape” form cannot be further expanded into popular culture. Prediction Markets Arrive Slowly Prediction markets obviously solve this problem. As long as you can define a contract and its resolution terms, we now have a way to make these “prediction shapes” appear in any story happening in the world. Popular predictions—the starting ingredient needed for such stories—have gone from scarce to abundant. In fact, these markets did not emerge overnight, nor did they start off that way. In early 2024, the magazine “Works in Progress” published an article titled “Why Prediction Markets Are Unpopular”. The article argued that “the natural demand for prediction market contracts is low” because the three traditional groups constituting market participants—savers (seeking wealth accumulation), passionate bettors (betting for the thrill), and savvy traders (trying to profit from market distortions caused by the former two groups)—have no particular reason to engage in prediction markets. Savers might buy market indices to accumulate wealth over the long term, but they have no reason to bet on the outcome of the presidential election. Passionate bettors might be more inclined to participate, but they have more interesting speculative avenues (like day trading, meme coins, or sports betting) than predicting state senate election outcomes. And with lower participation from the other two groups, savvy traders see little profit potential in entering the market. Due to limited participation from these three groups, prediction markets are destined to remain illiquid and relatively useless in predicting the future. The poor performance of prediction markets in forecasting the 2022 midterm election outcomes further validated this viewpoint. However, interesting changes have occurred in the year and a half since that article was published: prediction markets have quickly entered mainstream popular culture. As predicted by the enormous betting amounts on weekly sports competitions, the largest market is in sports. But they have successfully entered mainstream culture—even becoming the subject of an episode of “South Park”—while covering a variety of markets ranging from the New York City mayoral election results to The Federal Reserve's policy interest rate path, and even the timeframe for Taylor Swift's marriage. Breaking the “Fourth Wall” What changes have taken place in the past two years? Perhaps there is no universal solution. The 2024 election undoubtedly played a role: Americans have a long history of betting on elections, and the volume of prediction market transactions increased 42 times from early June to the election week. However, this enthusiasm did not wane after the election. A key player in this positive feedback loop is a new type of market participant that did not exist a few years ago but is now ubiquitous. This participant resembles promoters in traditional betting events, such as promoters for boxing matches in Las Vegas. They are ordinary social media users, as well as a new form of meme—posting screenshots of prediction paths. Prediction markets today are not just about classic market dynamics; they are also about social media-driven viral dissemination. The key behavioral mechanism is to post screenshots when prediction contracts become topical, thereby attracting attention and bringing liquidity to the contracts. A good example is a popular cultural question contract on the Kalshi platform: “Will Taylor Swift and Travis Kelce get married in 2025?” If you look at the chart, you will notice two important things happening on August 26, when Swift and Kelce announced their engagement on Instagram. The first is the surge in odds; the second is the significant increase in liquidity as people start to pay attention to the contract. While a certain level of liquidity increase would occur anyway, it is undeniable that these screenshots shared at key moments constitute the viral dissemination of the contract itself, becoming an entry point for attracting bettors. This phenomenon of “breaking the fourth wall” makes a broader audience suddenly aware of this meme (or more accurately, aware of the reason to follow this contract), adding an interesting new element to future stories. The New “Protagonist” on the Timeline Betting on the Pope is said to be “the original prediction market”, and the most recent instance witnessed a glorious return of this tradition. For Catholics worldwide, this is a great moment, as Cardinal Robert Prevost becomes the first American Pope—Pope Leo XIV. For the betting market, this is also a significant moment, as few considered him a competitive candidate: most attention was focused on popular figures like Pietro Parolin and Luis Antonio Tagle. The day after the smoke cleared, @Domahhhh shared the real highlights on X: a detailed breakdown of his thought process and the scale of his bets during the critical moments before the meeting and between the decision and announcement. In his words: "As a directional bet, I decided to bet a substantial amount of money that the next Pope would not be [Parolin and Tagle, the two frontrunners]. After the fourth round of voting, the white smoke rose (indicating a new Pope has been successfully elected). Relatively speaking, this was fast. The logical conclusion (which I thought of immediately) was that the strong vote-getter in the first round had consolidated votes and become the Pope. Parolin’s odds rose to about 65%. Tagle stayed around 20%. These two had an 85% chance of becoming Pope, and honestly, looking back, this price seems extremely wrong, but at the time it was hard to feel it was wrong…