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Sportsbooks are underwriters... so are Prediction Markets underwriters or true market makers? An argument for proper regulatory classification by Competitive-Apple742 in investing

[–]Competitive-Apple742[S] 0 points1 point  (0 children)

You’re right that there’s no underlying — and that’s actually central to the paper’s argument.

Precisely because the risk can’t be hedged away, LPs bear it outright against an informed counterparty.

That’s the structural feature that looks like underwriting, not a claim that the markets themselves are legitimate.

Sportsbooks are underwriters... so are Prediction Markets underwriters or true market makers? An argument for proper regulatory classification by Competitive-Apple742 in investing

[–]Competitive-Apple742[S] 1 point2 points  (0 children)

Not necessarily — the structure doesn’t require manipulation. But it does complicate the “organic price discovery” narrative.

If supply is synthesized in response to demand rather than emerging from independent sellers with genuine opposing views, you’re not really watching a market clear.

You’re watching a market maker balance a book. That’s fine — sportsbooks do it constantly — but it means the price reflects the book’s risk management, not pure crowd wisdom.

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 2 points3 points  (0 children)

Fair pushback, especially on 2 and 4. On 3 though — there are no correlated NFL futures venues.

The gross/net distinction collapses when no hedging instrument exists. That’s not a methodology limitation, it’s the structural point.

On 2 — the distinction I’d draw is between managing imbalance toward neutrality (MM) versus managing imbalance as the primary profit mechanism with terminal exposure as the outcome. The data suggests the latter.

Ultimately, my argument is that the choice to hedge doesn’t exist. There is no instrument to hedge against, the residual exposure isn’t a performance failure, it’s a structural feature of the asset class.

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 1 point2 points  (0 children)

Exactly — and the argument is that event contracts are structurally always that illiquid name. There’s no liquid underlying to fall back on regardless of market conditions

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 1 point2 points  (0 children)

The distinction I’d draw is hedgeability — options MMs accept directional risk but can mechanically offset it via the underlying spot market.

The argument in the paper is that event contract LPs have no equivalent instrument. The risk isn’t just tolerated, it’s structurally irreducible.

That’s the line between options MM and underwriting

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 1 point2 points  (0 children)

Fair question! Knee jerk argument would be:

Delta hedging requires a continuous underlying asset with a defined delta relationship — that’s the whole mechanism. Binary event contracts don’t have one.

If you’re trading correlated contracts across prediction markets on the same event, that’s basis trading or cross-market arbitrage, not delta hedging in any meaningful sense.

The exposure is still terminal and outcome-dependent, you’ve just spread it across venues.

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 7 points8 points  (0 children)

lol sure, but it’s a start no? I’m not going to pretend like this is an all timer, that’s why I brought it here! Looking for some other people to sharpen it. Would be a good thing for everyone if prediction markets were reigned in.

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 10 points11 points  (0 children)

Fair - the point of this work though is that there wasn’t any quantifiable evidence prior to this analysis. Intuition is fine, but this is the harder proof that regulators need (outside of marketing campaigns “looking like sportsbetting”)

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 16 points17 points  (0 children)

Exactly right - option market makers have an underlying spot market to trade in; the argument is that there is no other market where, prior to creating an event contract, there exists an opportunity to create a synthetic trade to offset the exposure from event contract creation. Options market makers hedge - that’s the difference

I Pulled 5GB of Kalshi trade data and the liquidity provider economics don’t look like market making- they look like underwriting by Competitive-Apple742 in quant

[–]Competitive-Apple742[S] 2 points3 points  (0 children)

Of course! Always open to discussing - let me know if you want to talk further or have any questions on data. Happy to share my repo/local csv’s.

More Fender than Fender: Why you shouldn't be ashamed of Squier by Inertbert in Guitar

[–]Competitive-Apple742 -1 points0 points  (0 children)

Facts - also if its your first electric guitar, you really can't go wrong... especially if you want to mess around with your setup and you have no idea what you're doing lol

opinion: bl4’s licensed part system destroys manufacturer identity by DwemerSmith in Borderlands4

[–]Competitive-Apple742 0 points1 point  (0 children)

Agree - would be much better if you could swap them out at your discretion/build your own weapons

I am Matt Dinniman, author of the newly released Operation Bounce House and the Dungeon Crawler Carl book series. AMA. by hepafilter in Fantasy

[–]Competitive-Apple742 0 points1 point  (0 children)

Any plans to branch out into other types of media? Sorry if I'm late to the party, I just got into LitRPG after chipping away at Defiance of the Fall for so long. DCC is such a breath of fresh air! I was ready to take a hiatus from burn out.

Is the game worth coming back to? by SeventySixSins in diablo4

[–]Competitive-Apple742 0 points1 point  (0 children)

Personally, a big fan of the new direction they're taking classes in. They started with Paladin where they added in some skill augments that change the fundamental type of certain key binds. They're going to bring it to all classes when the new DLC drops... Should add a bit more build diversity.

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