The History of Prediction Markets: From DARPA to DeFi
Prediction markets didn't start with crypto. They didn't even start with the internet. In fact, the idea of using "wisdom of the crowd" through markets has a dark, fascinating, and often controversial history. To know where we’re going, we have to look at where we came from.
The Early Days: Betting on Popes and Kings
As far back as the 1500s, people in Italy were betting on the outcome of papal elections. In the 1800s, "Wall Street Betting" was widespread in New York, with massive pools of money following presidential elections. These were "prediction markets" in everything but name: they aggregated private information into a public price.
The DARPA Controversy (Project PAM)
The modern era began in the early 2000s when DARPA (the US military’s research arm) proposed the Policy Analysis Market (PAM). The goal? Use a market to predict stability in the Middle East, including the likelihood of terrorist attacks. The media went into a frenzy, calling it a "terrorism betting parlor," and the project was killed within 24 hours. But the seed was planted: markets are incredibly good at predicting complex events.
Why It Matters Today
That military experiment proved a point: people with real skin in the game are less likely to lie and more likely to do deep research. This is why Polymarket predictions are often more accurate than traditional pundits or news anchors.
The DeFi Revolution
The final piece of the puzzle was the blockchain. Traditional markets like InTrade and PredictIt were always limited by payment processors and government bans. Crypto changed that. By using USDC and smart contracts, sites like Polymarket took prediction markets global, permissionless, and unstoppable.