As the 2024 U.S. presidential election looms, the frenzy surrounding crypto-based prediction markets is palpable. For Kyle DiPeppe, however, the excitement may soon fizzle out. DiPeppe, a participant at the mtnDAO hacker house and the mind behind Hedgehog Markets, foresees a steep decline in prediction market activity after November 5, 2024—the date that will seal the fate of billions in political wagers. The question then becomes: Can prediction markets endure when the electoral fireworks have dimmed?

The Post-Election Conundrum

The 2024 election is shaping up to be a watershed moment for prediction markets, especially for sector leader Polymarket, which has thrived on the anticipation and uncertainty of political outcomes. Once the dust settles, though, DiPeppe predicts that nearly 90% of the trading volume—largely driven by political speculation—will evaporate, as has happened in past cycles. The crux of the matter, according to DiPeppe, is whether there will be enough liquidity left to keep market makers and other stakeholders engaged in the prediction markets once the election buzz subsides.

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A New Model for Enduring Engagement

In anticipation of this inevitable dry spell, Hedgehog Markets is pioneering an alternative approach to prediction markets—one that departs from the high-liquidity, binary shares model employed by Polymarket. DiPeppe’s vision centers on what he describes as the “long tail” of bettable events—niche occurrences that attract dedicated fans willing to stake their money on a favored outcome without the intention of trading their position actively.

This model mirrors the experience offered by sports betting platforms like DraftKings and FanDuel, where participants place a wager and let it ride, rather than engaging in stock market-like trading. “The appeal of sports betting lies in its short-term focus,” DiPeppe noted. “The same is true for crypto markets, dominated by short-term trading of memecoins. The challenge is creating a market type that resonates with this time frame.”

Empowering Users with Custom Markets

Hedgehog’s departure from traditional trading models affords it greater flexibility in engaging its user base. DiPeppe envisions a platform where users can create custom prediction markets, place their own bets on outcomes, and wait for others to challenge their predictions. This level of customization is a marked difference from Polymarket’s more centralized approach, where market creation is confined to suggestions made within its Discord community, with the final decision resting with the company.

Drawing parallels with the success of Pump.Fun, a memecoin factory where communities can launch tokens for “fun” trading, DiPeppe believes there’s untapped potential in the realm of prediction markets. However, custom markets come with their own set of challenges, particularly when outcomes do not align with the scenarios considered by bettors. For instance, in the event of a tie where only win/lose outcomes were bet on, the resolution becomes murky.

Addressing Potential Pitfalls

DiPeppe contends that Hedgehog’s dispute resolution mechanism is more straightforward. In situations where a custom market ends in an unanticipated scenario, the platform can simply return the original stakes to the bettors, avoiding the complications of redistributing the pot based on the odds at which the bets were placed.

Another potential issue is the risk of insider manipulation. Consider a scenario where a market is created around whether a presidential candidate will mention a specific word during a debate. What if that candidate—or someone with inside knowledge—places a large bet on that market? While this might seem like insider trading, DiPeppe argues that prediction markets are, at their core, tools for truth-seeking through trading. If someone trades on knowledge they possess, it ultimately enhances the accuracy of the market and informs other participants and the general public.

The Future of Custom Prediction Markets

DiPeppe’s ultimate question is whether communities will embrace the concept of custom prediction markets with the same enthusiasm they have shown for launching NFT collections and memecoins. He’s betting that they will, and with Hedgehog Markets, he’s positioning himself to lead the charge into this new frontier of decentralized prediction and speculation.

As the prediction market landscape evolves, Hedgehog’s approach could offer a sustainable model that not only survives the post-election downturn but also thrives on the diverse interests of niche communities.