AI forecasting evolves with liquid prediction markets

Prediction markets offer a powerful mechanism for forecasting future events, but AI-related markets often suffer from low liquidity and limited interest. A new initiative aims to significantly boost AI prediction markets by funding higher liquidity rewards on Polymarket, potentially creating more accurate and useful forecasting tools for the AI community.

The problem: The current landscape of AI prediction markets lacks sufficient liquidity and depth.

• Despite growing interest in AI forecasting, existing prediction markets on AI topics suffer from thin order books and limited trader participation.
• Polymarket, a leading prediction market platform, has approximately 25 AI-related markets, but most have relatively low liquidity rewards (as little as $5/day) resulting in limited trading activity.
• Even potentially valuable markets like “Will AI win an IMO gold medal in 2025?” remain underutilized due to insufficient liquidity.

The proposal: A new initiative seeks to fund enhanced liquidity rewards specifically for AI prediction markets.

• The project aims to raise $55,000 to fund 10 markets for six months with liquidity rewards of $30/day per market.
• These funds would either boost existing AI prediction markets or create entirely new markets focused on important AI forecasting questions.
• While no formal process exists yet, discussions with Polymarket team members indicate they are receptive to facilitating this arrangement.

Why this matters: Improved liquidity could transform the quality and usefulness of AI prediction markets.

• Polymarket currently spends an average of $17,000 daily on liquidity rewards across all markets, with individual rewards ranging from $1 to $5,000 per day.
• Higher liquidity rewards demonstrably increase trading volume by attracting more participants, particularly experienced traders who typically avoid thinly-traded markets.
• Unlike markets with high volatility where liquidity providers risk losses, many AI forecasting markets experience gradual probability shifts, making them suitable candidates for this approach.

The implementation strategy: The initiative proposes a measured approach to maximize impact.

• Initial liquidity rewards could be set higher (approximately $100/day) to generate immediate attention before settling to a sustainable level around $30/day.
• The pay-as-you-go nature of liquidity rewards makes this a low-risk experiment that can be adjusted or discontinued based on results.
• The project seeks both financial backers and AI forecasting experts who can help design effective market questions and rules.

Potential concerns: The proposal acknowledges possible conflicts of interest.

• The initiative’s organizer is an active Polymarket trader who would indirectly benefit from increased liquidity rewards flowing into the platform.
• To address this conflict, the organizer offers to either abstain from trading on the relevant markets or contribute personal funds to the project.