Permissionless prediction market XO Market raises $500K in pre-seed round

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The below picture of Ukrainian President Volodymyr Zelenskyy was from a recent NATO summit.

Is that a suit Zelenskyy is wearing?

The New York Post called it a suit, The Sun called it a “slick black suit”, and Reuters called it a “suit-style jacket”.

But ChatGPT disagrees:

Under a narrow, traditional definition (tailored jacket with lapels + matching trousers made of the same suiting fabric), this outfit would not be called a suit. The jacket’s collar, patch pockets, utilitarian cut, and overall “field” or “workwear” styling put it outside classic suiting.

Anyway, the answer to that incredibly inane question is key — there’s a Polymarket bet (“Will Zelenskyy wear a suit before July?”) with $12 million of open interest riding on it.

Unfortunately for bettors, mainstream media opinion is not the final resort of resolution on Polymarket — that decision lies with UMA token holders.

UMA whales are disputing that Zelenskyy was wearing a suit, so the market has currently cratered to a 3% implied probability of resolving to a “YES” vote now. 

That has, hilariously, sparked activist Twitter pages like “ZELENSKYY WORE A SUIT,” accusations of oracle capture, and what some are calling “Suitgate.”

I’m not here to referee Zelenskyy’s wardrobe debate.

I only wish to point out that newer prediction markets are catching on to this problem and innovating new ways to mitigate this “buy-the-truth” problem that can emerge on UMA.

Inside XO Market

Take XO Market, an upcoming prediction market built as a sovereign appchain using Celestia for data availability.

To eliminate oracle capture, XO Market’s oracle system is designed to be AI-first. The oracle queries “trusted APIs” and “uses algorithmic data retrieval and machine learning to quickly determine objectively verifiable outcomes,” according to its whitepaper.

Only in the event of a rare dispute does the resolution kick up to a similar jury system, where staked XO token holders are randomly selected to decide. Quadratic voting mechanisms are also implemented to deter the influence of any single large token holder from dominating a market’s outcome.

Then the market resolves in accordance with majority vote. Minority token holders are slashed.

XO Market also wants to be permissionless, in contrast to Polymarket or Kalshi where markets are subject to approval from central gatekeepers.

Think a marriage between pump[dot]fun and Polymarket, Ali Habbabeh, co-founder of XO Market, tells me.

Any user with a hot take can draft a question, define resolution criteria, choose any collateral, and set a fee to earn on all trades, so good questions become a revenue stream.

Allowing creators to use any token they wish leads to liquidity fragmentation, but it also enables different communities to introduce utility to their own tokens through what Habbabeh likes to think of as “conviction markets.”

To bootstrap liquidity for a long tail of niche markets, XO depends on a kind of adaptive liquidity AMM, or what some may remember as Augur’s Liquidity-Sensitive Logarithmic Market Scoring Rule (LS-LMSR).

The general idea is that creators start by seeding a market for a few dollars, then graduate to deep liquidity over time as trading volume increases.

This design lies in contrast to Polymarket’s liquidity model that relies on professional market-makers. Niche markets are therefore ignored until makers are convinced it is worth their capital.

“LMSR was very compute intensive and that’s why Augur died,” Habbabeh tells me, “It’s the best pricing algorithm for prediction markets and nobody’s using it.”

An orderbook may be eventually used for when adoption scales, he added.

XO Market is launching open alpha this week.

The team recently emerged as one of the winners at Celestia’s Mammothon hackathon and subsequently closed a $500,000 pre-seed round led by Cyber Fund and Delphi Ventures.

The prediction markets landscape

XO Market’s alpha launch comes in the backdrop of both Polymarket and Kalshi achieving unicorn status.

Bloomberg reported last week that Polymarket was raising $200 million at a $1 billion valuation. Kalshi, on the other hand, recently closed a Paradigm-led $185 million round at a $2 billion valuation.

Polymarket’s open interest has held generally steady at the $100 million-$120 million mark in the last several months.

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