Why Bitcoin-Settled Prediction Markets Might Be a Smart Bet

Core Insights - The paper argues that BTC settlement in prediction markets could provide superior economics for users compared to stablecoin-denominated markets [1][2] - It critiques the current trend of using stablecoins, highlighting the opportunity cost for Bitcoin holders who miss out on potential BTC appreciation [2][3] Group 1: Current Market Dynamics - Most on-chain prediction markets use stablecoins to avoid volatility, which forces Bitcoin holders to convert their assets, leading to opportunity costs [2][3] - The author suggests treating BTC as a deflationary settlement asset, similar to gold, to allow users to benefit from long-term appreciation [3] Group 2: Liquidity Bootstrapping Strategies - The paper explores three methods to bootstrap liquidity in BTC-based markets: cross-market making, DeFi redirection of trades, and automated market makers (AMMs) [3] - Each method is analyzed for its risk profiles, including exchange-rate swings and slippage, which impact users and liquidity providers [3] Group 3: Practical Applications of BTC Settlement - BTC settlement could be particularly beneficial for long-dated political events, allowing Bitcoin holders to maintain exposure while participating in prediction markets [4] - Crypto-native communities may prefer BTC settlement as it aligns with their belief in crypto as a value storage, avoiding the need to convert to stablecoins [4] - In regions with unstable fiat or regulatory issues surrounding stablecoins, BTC-settled markets could serve as a more reliable settlement asset [4] - Events with small payoff windows or during volatile periods may also benefit from BTC denomination, making it more relevant [4]