Epistemic status: I probably have no idea what I'm talking about.
Prediction markets have several constraints due to laws against online gambling (at least in the US). PredictIt, for example, must operate as a nonprofit, limit each contract to 5,000 total traders, and limit investment to $850 per contract.
Given the usefulness prediction markets, it would be great if we could remove these contraints on financial incentives for the users and operators of these platforms. Currently, we rely on fake internet points for incentive on websites like Metaculus; although, people do seem to like those.
So, I tried to think of an alternative model. In a betting market, the winners are paid with the losers' money. Instead, imagine the prediction platform is a bank. Forecasters deposit money in the bank, and are given ballots to vote on questions. The bank, as banks do, lends that money out to earn interest. Then, interest earned from all forecasters' deposits is paid to only to the winners. Winners win by earning interest from others' money, and losers lose by opportunity cost and inflation.
Legally, I don't think this counts as online gambling. This would be like if your regular bank only let you earn interest on the money in your account if you can guess how many jelly beans are in the jar in the lobby.
Here's a simple version of the model. Forecasters buy 1-year CDs from the prediction bank, with the stipulation that they only earn this interest if they get questions right. The bank buys a bunch of US 1-year Treasury Bills with the money deposited. At the end of the year, the earned interest is divided among winners for each question, minus what bank keeps as profit.
There are a lot of variations for this model, but hopefully you get the general idea. Note that risk for forecasters is limited relative to the betting market approach, thus constraining both profits and losses. Also, there's the risk that the bank makes a bad investment and cannot pay out interest.
I think it could work, but I'm pretty confident I'm missing something here, so I wanted to share it for feedback. Let me know if (a) I got the economics of this right, and (b) it seems feasible.
I think another possible route around gambling restrictions to prediction markets is to ensure all proceeds go to charity, but the winners get to choose which charity to donate to. I wrote about this more here:
https://forum.effectivealtruism.org/posts/d43f6HCWawNSazZqb/charity-prediction-markets
Great idea! Makes me think, it would be interesting to see a political prediction market where the winnings go to your preferred candidate in the race. Not sure about if that would have a positive impact, but would be cool to study.
Edit: Just read your post and see that you discuss this haha