Chapter 5 Quiz

Instructions: Select the best answer for each question. Some questions may have multiple correct interpretations, but choose the most accurate or complete answer.

Question 1

What regulatory designation does Kalshi hold from the CFTC?

A) Swap Execution Facility (SEF) B) Designated Contract Market (DCM) C) Broker-Dealer Registration D) No-action letter exemption

Question 2

In Polymarket's Conditional Token Framework, what happens when you deposit $1 of USDC?

A) You receive $1 worth of Yes tokens only B) You receive 1 Yes token and 1 No token C) You receive tokens proportional to current market prices D) Your deposit goes into a liquidity pool

Question 3

Which of the following platforms allows any user to create a new prediction market?

A) Polymarket B) Kalshi C) Manifold Markets D) PredictIt

Question 4

What was the maximum number of traders permitted per market under PredictIt's no-action letter?

A) 500 B) 750 C) 850 D) 1,000

Question 5

Metaculus primarily differs from traditional prediction markets because:

A) It uses cryptocurrency for settlement B) It allows continuous probability distributions rather than binary trading C) Users submit probability estimates rather than trading contracts on an order book D) It has no limit on the number of participants

Question 6

What blockchain does Polymarket primarily use for settlement?

A) Ethereum mainnet B) Polygon (Matic) C) Solana D) Arbitrum

Question 7

Which scoring rule does Metaculus primarily use to evaluate forecaster accuracy?

A) Brier score B) Spherical score C) Log score (logarithmic scoring rule) D) Quadratic score

Question 8

PredictIt's fee structure included:

A) 2% trading fee, no withdrawal fee B) 10% profit fee and 5% withdrawal fee C) 5% profit fee and 2% withdrawal fee D) Flat $1 per trade fee

Question 9

What market mechanism does Manifold Markets primarily use?

A) Central Limit Order Book (CLOB) B) Dutch auction C) Automated Market Maker (AMM) D) Sealed-bid auction

Question 10

Polymarket's CLOB uses a hybrid approach where:

A) Orders are fully on-chain on Ethereum B) Orders are signed off-chain and settlement happens on-chain C) All matching happens on a centralized database with no blockchain involvement D) Users vote on trade execution through a DAO

Question 11

Which of the following statements about Kalshi is FALSE?

A) Kalshi is available to users worldwide B) Kalshi settles contracts in U.S. dollars C) Kalshi is regulated as a Designated Contract Market D) Kalshi requires KYC verification

Question 12

What does the acronym CLOB stand for in the context of prediction markets?

A) Centralized Ledger of Bets B) Central Limit Order Book C) Conditional Liquidity Order Bonding D) Crypto-Linked Open Book

Question 13

Which organization developed the Conditional Token Framework used by Polymarket?

A) OpenZeppelin B) Chainlink C) Gnosis D) Uniswap

Question 14

On Manifold Markets, what is the name of the play-money currency?

A) Points B) Mana C) Credits D) Tokens

Question 15

What oracle system does Polymarket use for market resolution?

A) Chainlink B) UMA C) Band Protocol D) Augur REP

Question 16

Which platform was the first to receive CFTC approval as a Designated Contract Market specifically for event contracts?

A) PredictIt B) Polymarket C) Kalshi D) Iowa Electronic Markets

Question 17

A trader buys a Yes contract at $0.60 on a market that resolves Yes. On PredictIt (with a 10% profit fee and 5% withdrawal fee), what is the approximate net profit per contract?

A) $0.40 B) $0.36 C) $0.34 D) $0.30

Question 18

What is the primary advantage of Metaculus over traditional prediction markets for long-term forecasting questions?

A) Higher financial incentives B) Support for continuous probability distributions and conditional questions C) Faster resolution times D) Ability to short-sell predictions

Question 19

Which of the following is NOT a market type available on Manifold Markets?

A) Binary (Yes/No) B) Multiple Choice C) Numeric (resolves to a number) D) Futures contracts with leverage

Question 20

PredictIt operated under a no-action letter issued by the CFTC. Which university was the operator?

A) University of Iowa B) George Mason University C) Victoria University of Wellington D) MIT

Question 21

Augur's primary innovation was:

A) The first CFTC-regulated prediction market B) Fully decentralized market creation and resolution on Ethereum C) The first prediction market to use play money D) Real-time settlement in less than one second

Question 22

When using the Kalshi API, what authentication method is used?

A) OAuth 2.0 with API key B) Email/password login returning a JWT token C) Wallet signature (EIP-712) D) Basic HTTP authentication

Question 23

Which of the following best describes the relationship between a Yes token price and a No token price on Polymarket?

A) They are independently priced and can sum to any amount B) They should sum to approximately $1.00 since one Yes + one No can be redeemed for $1 C) The No token is always worth exactly half of the Yes token D) They are not related since they trade on different order books

Question 24

Which platform's API is fully open-source, with the entire codebase available on GitHub?

A) Polymarket B) Kalshi C) Manifold Markets D) Metaculus

Question 25

What is the primary reason cross-platform arbitrage (buying low on one platform, selling high on another) is difficult in practice?

A) All platforms have identical prices B) Moving funds between platforms is slow and costly, involving different currencies and regulatory jurisdictions C) Arbitrage is illegal under CFTC regulations D) All platforms share the same order book

Answer Key

  1. B — Kalshi holds a DCM designation, the same type held by exchanges like CME.

  2. B — The Conditional Token Framework creates one Yes token and one No token for each $1 deposited. Together they can always be redeemed for $1.

  3. C — Manifold Markets allows any user to create markets. Polymarket, Kalshi, and PredictIt all centralize market creation.

  4. C — PredictIt's no-action letter stipulated a maximum of 850 traders per market.

  5. C — Metaculus is a forecasting platform where users submit probability estimates, not a trading market with an order book.

  6. B — Polymarket settles on Polygon (previously known as Matic), an Ethereum Layer 2 scaling solution.

  7. C — Metaculus uses the logarithmic scoring rule (log score) as its primary metric.

  8. B — PredictIt charged a 10% fee on profits and a 5% fee on withdrawals.

  9. C — Manifold primarily uses an AMM (Automated Market Maker) based on a constant product formula, though it also supports limit orders.

  10. B — Polymarket's hybrid model has users sign orders off-chain, with an operator matching orders and settling on-chain.

  11. A — Kalshi is currently available only to U.S. residents. All other statements are true.

  12. B — CLOB stands for Central Limit Order Book, a standard market microstructure.

  13. C — Gnosis developed the Conditional Token Framework, which Polymarket and others build upon.

  14. B — Manifold's play-money currency is called Mana (M$).

  15. B — Polymarket uses UMA's Optimistic Oracle for market resolution.

  16. C — Kalshi was the first CFTC-approved DCM specifically for event contracts (approved in 2020).

  17. C — Gross profit is $0.40. Profit fee: 10% of $0.40 = $0.04. Net after profit fee: $0.36. Withdrawal fee: 5% of $0.36 = $0.018. Net: ~$0.34.

  18. B — Metaculus supports continuous distributions, conditional questions, and date-range questions, making it far more expressive than binary markets for complex forecasting.

  19. D — Manifold does not offer leveraged futures contracts. It supports binary, multiple choice, numeric, free response, and other creative market types.

  20. C — Victoria University of Wellington (New Zealand) operated PredictIt under the CFTC no-action letter.

  21. B — Augur pioneered fully decentralized prediction markets on Ethereum, with market creation and resolution governed by smart contracts and REP token holders.

  22. B — Kalshi's API uses email/password authentication that returns a JWT (JSON Web Token) for subsequent requests.

  23. B — Since one Yes token plus one No token can be redeemed for exactly $1 upon resolution, their prices should sum to approximately $1.00 (any deviation creates an arbitrage opportunity).

  24. C — Manifold Markets is fully open source, with its codebase publicly available on GitHub.

  25. B — Cross-platform arbitrage is impractical primarily because funds must cross between different currencies (USD, USDC, Mana), regulatory jurisdictions, and banking systems, making the process slow and expensive.

Scoring Guide:

  • 23–25 correct: Excellent — you have a thorough understanding of the prediction market landscape.
  • 18–22 correct: Good — solid grasp of the major platforms and their differences.
  • 13–17 correct: Fair — review the sections on platforms you missed.
  • Below 13: Review the chapter carefully before proceeding.

End of Chapter 5 Quiz