“prediction markets don't reward passive liquidity, they punish it like underwriting catastrophe risk”
Survey of recent research on why conventional market making fails in prediction markets. Covers cross-venue fragmentation (the same contract at 58-67 cents on different platforms), the January 2026 Polymarket XRP exploit that paid $231K on thin weekend liquidity, Kalshi's structural longshot bias, and evidence from 150M Polymarket trades that the top 5% skilled traders earned $228M while spread capture barely moves P&L. Concludes passive LPs on these venues behave more like underwriters of terminal risk than classical market makers.
Extensive technical background assumed
Platforms mentioned: Polymarket, Kalshi