Prediction markets ‘ready for an explosion’ in APAC

Bruce Ahn, chief of staff at Partisia Blockchain Foundation, said that the real change around the evolution of predictions market will be in the retail space, shaped by new regulations.

“The biggest challenge with regulating prediction markets is the wide space that this market covers,” said Ahn.

While prediction markets have taken off in the US and regulations are rapidly evolving, they remain blocked or are operating in a grey space in APAC.

However, Ahn believes that they’re “ready for an explosion” as a diverse range of cultural and political topics haven’t even been tapped but the key for success will be the need to provide utility.

In terms of jurisdictions that will be the drivers of a prediction markets regulatory framework in the region, Ahn thinks that Hong Kong, Singapore, Japan and South Korea will be the first movers given that they already have the leg up in having strong anti-money laundering and know-your-customer frameworks.

However, APAC remains a “long ways off” in setting up such frameworks and is still in an “observation first and enforcement later” mode.

Rather than the strict licensing approach that the US is adopting, Ahn believes that APAC jurisdictions will take a more nuanced approach but this will take time and will likely move from a grey space to a clampdown phase in the next six months to a year.

“From a risk and control perspective, prediction markets are viewed as gambling and there’s a tremendous amount of market manipulation and integrity issues,” said Ahn.

Based on how digital assets have been regulated in APAC, Ahn doesn’t think that jurisdictions in the region will use the US’ approach as a blueprint, citing the Howey Test as an example of the contrast in regulatory approach between the US and APAC.

“Unlike the US, which focuses on the classification of the assets themselves, regulators in Asia will likely be focusing more on the activity,” said Ahn.

For example, "What is the industry doing with the asset?" rather than "What is this asset classification?"

"This could lead to a more difficult path for regulatory acceptance of prediction markets in Asia,” said Ahn.

An area that remains untapped for prediction markets is institutional adoption.

“Corporations like Apple and Google are already using internal prediction markets to predict outcomes on their products more accurately than their product managers,” said Ahn. “Rather than being incentivised by an optimistic view about a product they’ve created, the larger pool of employees within the company aren’t biased and can be a better source of truth.”

Ahn sees the potential for wider adoption of internal prediction markets across banks and supply chains, allowing businesses to incorporate prediction outcomes into their products and strategies.

For Partisia Blockchain Foundation, it’s currently exploring how its multi-party computation technology could be applied in prediction market outcomes, particularly in instances where private data, such as healthcare data, is involved.

Citing the example of the controversy around bitcoin treasury company Strategy and whether it filed a public disclosure to sell tokens by a certain date, Ahn said that with the cryptographic technology that it’s working on, prediction markets can provide outcomes more accurately and on time by using a combination of both public and private data.

“This enables a more accurate and objective truth to an outcome without private data being disclosed,” he said. “As prediction markets mature, using private data to determine a more accurate outcome will be important.”

From clearer laws around regulatory blindspots to connection to application programming interfaces, a number of factors can help drive institutional adoption of prediction markets.

The European Securities and Markets Authority in July issued a public statement reiterating that event contracts will be treated as heavily regulated financial derivatives under current rules.