Is the prediction market really about to take off? CZ says it's still too early; regulation and competition remain variables.

CZ recently shared his thoughts on the prediction market sector during a Chinese AMA. His summary: long-term optimism, but significant short-term uncertainties. This assessment is worth noting because it reflects a seasoned investor’s calm reflection on this rapidly heating sector.

Early Stage Reality of the Sector

CZ mentioned that prediction markets are a large sector in the long run, but the outcome in the short term remains uncertain. The reasons behind this are quite specific.

Taking Polymarket, a leading project in prediction markets, as an example: the platform currently has only one or two capable market makers, and their activity is mainly concentrated in sports events. What does this indicate? It shows that the liquidity infrastructure of the sector is still very underdeveloped.

Typical Features of the Early Sector

• Limited number of market makers, insufficient market depth
• Focused on a single category, mainly sports events
• Lack of mature counterparty mechanisms
• User base and trading volume are still small

These features have also appeared in other early stages of crypto sectors. Insufficient liquidity directly impacts user experience and trading costs, thereby constraining sector development.

Sources of Uncertainty

CZ clearly pointed out that future uncertainties include regulatory developments in various countries and competition within the sector. Both factors are critical.

Regulatory Variables

Prediction markets involve gray areas related to gambling and financial attributes, with regulatory attitudes varying greatly across countries. The US is relatively tolerant of Polymarket, but other regions may impose stricter restrictions. Changes in regulatory policies could directly affect the platform’s operational scope and user base.

Intensifying Competition

The business model of prediction markets is relatively clear, meaning the entry barrier is not particularly high. Once the sector shows clear growth potential, it will inevitably attract more participants. What will determine success or failure? It could be liquidity, user experience, category diversity, or the backing capital and resources.

Why Still Worth Watching

Although these uncertainties exist in the short term, CZ still believes prediction markets are a sector with long-term potential. What is the logic behind this?

Prediction markets are fundamentally tools for information aggregation and pricing. From sports events and political elections to economic data, as long as there are uncertain events, there is a demand for prediction and pricing. The breadth and depth of this demand determine the sector’s ceiling.

In comparison, Polymarket currently only has breakthroughs in the sports category. If it can expand into more categories, attract more market makers, and build deeper liquidity, the sector’s growth space is indeed substantial.

Key Factors to Watch

From now until the sector truly takes off, several key variables should be observed:

• How regulatory policies evolve, whether clearer frameworks emerge
• Whether new competitors appear and how they differentiate themselves
• Whether market makers and user bases grow, and liquidity improves
• Whether prediction market categories can be enriched beyond sports

Summary

CZ’s viewpoint is essentially a reminder to stay calm. Prediction markets indeed have long-term potential, but they are still in the early stages, with infrastructure underdeveloped and many uncertainties. We shouldn’t be overly pessimistic nor blindly optimistic. The real investment opportunities often arise when the sector’s fundamentals are clearer and the competitive landscape becomes more defined. Currently, prediction markets have not yet reached that stage.