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Traditional derivatives can be used to trade the risk that would already exist with or without the existence of the derivatives market. Prediction markets creat

Traditional derivatives can be used to trade the risk that would already exist with or without the existence of the derivatives market. Prediction markets create risk out of thin air.

charcircuit 2mo ago
Do you think insurance markets create risk out of thin air too?
- dcrazy 2mo ago
  Insurance protects life and property (including future income). Until you wagered $100 on the Knicks winning, none of your property was threatened by them losing.
- skillina 2mo ago
  Of course not. If a building exists, there is a risk it burns down. Insurance just moves that risk around. The only way to eliminate the risk is to not build anything anywhere.
  - charcircuit 2mo ago
    So what would be the difference between buying insurance against downtime of a service you depend on (eg. Cloudflare) vs making a bet on the prediction market that there will be downtime? Even without these markets there is risk that the service goes down. The existence of the prediction market doesn't cause it to be possible.
    - wredcoll 2mo ago
      There is no risk to me if the rockets lose their next game. Unless I bet $100 on them winning, then a risk appears.
      - usehackernews 2mo ago
        If you’re a Houston bar owner dependent on post game traffic, there would be risk of them losing. There are a thousand of exchanges that have no risk on my life, but that doesn’t mean they don’t impact others.
        dcrazy 2mo ago
        A bar here in SF made local news for using Kalshi for just this purpose: https://sfstandard.com/2026/07/06/san-francisco-world-cup-kalshi-promotion/ https://sfstandard.com/2026/07/06/san-francisco-world-cup-ka... In a similar vein, companies that run skill competitions (hole-in-one prizes, half-court shots, etc.) can and regularly do buy insurance on those events. Under this theory, Kalshi is arguably not trading in commodities, but insurance, which is state-regulated.
        amazingman 2mo ago
        These dishonest word games are silly. Insuring against what?
        dcrazy 2mo ago
        Insuring against loss. I just looked up the official name; it’s called prize indemnity insurance. In the case of those “make a free throw from half court and win a car” competitions, the risk is a known value: the prize sponsor’s wholesale vehicle cost. The sponsor pays a premium for each contest, which is calculated based on the likelihood of someone winning. This is a very well established insurance market. You as an individual can go out and buy hole-in-one insurance. It’s more popular in Korea and Japan where there is a strong societal expectation of throwing a lavish party if one hits a hole in one. Here in the States, it’ll cover a round of drinks for the clubhouse. In the case of the bar, the Kalshi bet is functioning as an insurance policy against a potentially open-ended loss. The bar could be packed, the U.S. wins and everyone drinks the bar dry. So Kalshi is fulfilling a legitimate business role here. But insurance is boring and highly regulated. The bar could likely have bought an equivalent policy from an underwriter in the Financial District. Or frankly from a rich regular. Kalshi wants to make insane amounts of money from degenerate gamblers, and to be immune from state regulators who are more answerable to citizens than the CFTC commissioners. Hence adopting the fig leaf of “futures contracts.” If you thought I’m on Kalshi’s side here, I’m definitely not.
    - no-name-here 2mo ago
      The difference seems to be that it’s insurance if you’re buying protection against your own home burning down. Versus when you’re financially wagering that your neighbor’s house burns down. (I.e whether you get paid back if the misfortune impacts you, vs you getting paid if misfortune visits someone else.)
      - FireBeyond 2mo ago
        How about Dead Peasant's Insurance, sorry, COLI (corporate-owned life insurance)? Policies that a company takes out on its employees with itself as a beneficiary, not the employee's family. Employees were often unaware the policy exists, or only gave only vague consent buried in onboarding paperwork. Companies used it partly as a tax shelter, since the death benefits are generally received tax-free and cash value can grow tax-deferred. It does still exist, though more tightly regulated, requiring explicit consent and only really able to be used on "extremely highly compensated employees" (executives).
        no-name-here 2mo ago
        Even in that case it is designed to cover the company’s cost of losing the employee including the cost of recruiting and training replacements, etc. The better analogy would be if it was insurance for someone completely unrelated dying - like saying we will pay you if x unrelated person dies.
    - abduhl 2mo ago
      [dead]
    - amluto 2mo ago
      If I have an insurable interest in Cloudflare’s uptime, I may buy insurance. If not, I may not. (IANAL. In the US this seems to largely be a state law issue. California’s law, to my quick non-expert skimming, is really quite clear on this point.)
    - tsimionescu 2mo ago
      This is a framing that obscures rather than illuminating. Perhaps in this specific case, the prediction market bet acts as insurance (and even then, only for those market participants who are actual Cloudflare customers; many others are simply taking a bet). But the prediction market allows bets of many other kinds, many of which do not act as insurance against anything. Sports bets are the most obvious, but also election bets, bets on wars, bets on celebrities' lives, bets on show durations, bets on Jesus returning, bets on aliens existing - none of these can be construed as insurance. When the vast majority of actual bets traded on this betting market can not be construed as insurance, you can't defend the market as offering insurance.
      - charcircuit 2mo ago
        >many others are simply taking a bet Which can provide much needed liquidity to the market.
        tsimionescu 2mo ago
        That's irrelevant. It's still gambling, or even worse - direct payment for successfully attacking Cloudflare's infrastructure. The point overall is that the "prediction markets" don't act as real insurance, it's just a tangential side effect for a minority of participants.
- amluto 2mo ago
  No. And, in fact, there is a concept called an “insurable interest” that is intended to prevent this kind of thing. If I buy an insurance contract that will pay me if your house burns down and then I burn down your house, then I’ve obviously committed arson, but I have also likely purchased that insurance contract illegally. And I don’t even need to burn down your house for that contract to be illegal. (IANAL)
  - FireBeyond 2mo ago
    There is a (possibly apocryphal) story of a man who bought an amazingly expensive Cuban cigar, insured it as it sat in his home, then smoked it... and filed an insurance claim for its loss. After back and forth with attorneys, the insurer paid the claim. And then sued him for their loss.
    - amluto 2mo ago
      But he surely had an insurable interest in that cigar!
brainwad 2mo ago
If you consider not just money, but utility, then there is already a lot of pre-existing risk that sports derivatives could hedge. Theoretically, fans should short their team to be utility-neutral whether their team wins or loses. However in practice fans tend to double down by adding monetary risk to their pre-existing emotional risk...

Traditional derivatives can be used to trade the risk that would already exist with or without the existence of the derivatives market. Prediction markets create risk out of thin air.

charcircuit 2mo ago

Do you think insurance markets create risk out of thin air too?

dcrazy 2mo ago
Insurance protects life and property (including future income). Until you wagered $100 on the Knicks winning, none of your property was threatened by them losing.
skillina 2mo ago
Of course not. If a building exists, there is a risk it burns down. Insurance just moves that risk around. The only way to eliminate the risk is to not build anything anywhere.
- charcircuit 2mo ago
  So what would be the difference between buying insurance against downtime of a service you depend on (eg. Cloudflare) vs making a bet on the prediction market that there will be downtime? Even without these markets there is risk that the service goes down. The existence of the prediction market doesn't cause it to be possible.
  - wredcoll 2mo ago
    There is no risk to me if the rockets lose their next game. Unless I bet $100 on them winning, then a risk appears.
    - usehackernews 2mo ago
      If you’re a Houston bar owner dependent on post game traffic, there would be risk of them losing. There are a thousand of exchanges that have no risk on my life, but that doesn’t mean they don’t impact others.
      - dcrazy 2mo ago
        A bar here in SF made local news for using Kalshi for just this purpose: https://sfstandard.com/2026/07/06/san-francisco-world-cup-kalshi-promotion/ https://sfstandard.com/2026/07/06/san-francisco-world-cup-ka... In a similar vein, companies that run skill competitions (hole-in-one prizes, half-court shots, etc.) can and regularly do buy insurance on those events. Under this theory, Kalshi is arguably not trading in commodities, but insurance, which is state-regulated.
        amazingman 2mo ago
        These dishonest word games are silly. Insuring against what?
        dcrazy 2mo ago
        Insuring against loss. I just looked up the official name; it’s called prize indemnity insurance. In the case of those “make a free throw from half court and win a car” competitions, the risk is a known value: the prize sponsor’s wholesale vehicle cost. The sponsor pays a premium for each contest, which is calculated based on the likelihood of someone winning. This is a very well established insurance market. You as an individual can go out and buy hole-in-one insurance. It’s more popular in Korea and Japan where there is a strong societal expectation of throwing a lavish party if one hits a hole in one. Here in the States, it’ll cover a round of drinks for the clubhouse. In the case of the bar, the Kalshi bet is functioning as an insurance policy against a potentially open-ended loss. The bar could be packed, the U.S. wins and everyone drinks the bar dry. So Kalshi is fulfilling a legitimate business role here. But insurance is boring and highly regulated. The bar could likely have bought an equivalent policy from an underwriter in the Financial District. Or frankly from a rich regular. Kalshi wants to make insane amounts of money from degenerate gamblers, and to be immune from state regulators who are more answerable to citizens than the CFTC commissioners. Hence adopting the fig leaf of “futures contracts.” If you thought I’m on Kalshi’s side here, I’m definitely not.
  - no-name-here 2mo ago
    The difference seems to be that it’s insurance if you’re buying protection against your own home burning down. Versus when you’re financially wagering that your neighbor’s house burns down. (I.e whether you get paid back if the misfortune impacts you, vs you getting paid if misfortune visits someone else.)
    - FireBeyond 2mo ago
      How about Dead Peasant's Insurance, sorry, COLI (corporate-owned life insurance)? Policies that a company takes out on its employees with itself as a beneficiary, not the employee's family. Employees were often unaware the policy exists, or only gave only vague consent buried in onboarding paperwork. Companies used it partly as a tax shelter, since the death benefits are generally received tax-free and cash value can grow tax-deferred. It does still exist, though more tightly regulated, requiring explicit consent and only really able to be used on "extremely highly compensated employees" (executives).
      - no-name-here 2mo ago
        Even in that case it is designed to cover the company’s cost of losing the employee including the cost of recruiting and training replacements, etc. The better analogy would be if it was insurance for someone completely unrelated dying - like saying we will pay you if x unrelated person dies.
  - abduhl 2mo ago
    [dead]
  - amluto 2mo ago
    If I have an insurable interest in Cloudflare’s uptime, I may buy insurance. If not, I may not. (IANAL. In the US this seems to largely be a state law issue. California’s law, to my quick non-expert skimming, is really quite clear on this point.)
  - tsimionescu 2mo ago
    This is a framing that obscures rather than illuminating. Perhaps in this specific case, the prediction market bet acts as insurance (and even then, only for those market participants who are actual Cloudflare customers; many others are simply taking a bet). But the prediction market allows bets of many other kinds, many of which do not act as insurance against anything. Sports bets are the most obvious, but also election bets, bets on wars, bets on celebrities' lives, bets on show durations, bets on Jesus returning, bets on aliens existing - none of these can be construed as insurance. When the vast majority of actual bets traded on this betting market can not be construed as insurance, you can't defend the market as offering insurance.
    - charcircuit 2mo ago
      >many others are simply taking a bet Which can provide much needed liquidity to the market.
      - tsimionescu 2mo ago
        That's irrelevant. It's still gambling, or even worse - direct payment for successfully attacking Cloudflare's infrastructure. The point overall is that the "prediction markets" don't act as real insurance, it's just a tangential side effect for a minority of participants.
amluto 2mo ago
No. And, in fact, there is a concept called an “insurable interest” that is intended to prevent this kind of thing. If I buy an insurance contract that will pay me if your house burns down and then I burn down your house, then I’ve obviously committed arson, but I have also likely purchased that insurance contract illegally. And I don’t even need to burn down your house for that contract to be illegal. (IANAL)
- FireBeyond 2mo ago
  There is a (possibly apocryphal) story of a man who bought an amazingly expensive Cuban cigar, insured it as it sat in his home, then smoked it... and filed an insurance claim for its loss. After back and forth with attorneys, the insurer paid the claim. And then sued him for their loss.
  - amluto 2mo ago
    But he surely had an insurable interest in that cigar!

brainwad 2mo ago

If you consider not just money, but utility, then there is already a lot of pre-existing risk that sports derivatives could hedge. Theoretically, fans should short their team to be utility-neutral whether their team wins or loses. However in practice fans tend to double down by adding monetary risk to their pre-existing emotional risk...