10.4 Market Risks

Regulatory Uncertainty

Risk:

Prediction markets operate in unclear regulatory territory:

• Could be classified as gambling (illegal in some jurisdictions)

• Could be classified as securities (US)

• Could face outright bans (certain countries)

• AML/KYC requirements may be imposed

Mitigation:

• Decentralized protocol (no single point of control)

• Permissionless platform ecosystem (distributed liability)

• Geographic restrictions where legally required

• Legal counsel in key jurisdictions

• Compliance-first approach for regulated markets

Residual Risk:

Regulatory crackdown could force shutdown of platforms, reduce user base, or eliminate certain market categories. Protocol-level permissionlessness provides some protection but not immunity.

Competition

Risk:

Existing or new competitors could capture market share:

• Polymarket has brand recognition

• Augur has decentralization credibility

• Monaco has sports betting focus

• New entrants with better tech or distribution

Mitigation:

• Platform ecosystem creates network effects

• Superior economics (4-tier fee distribution)

• Technical advantages (LMSR, Solana)

• First-mover in platform revenue sharing

Residual Risk:

Well-funded competitor could subsidize fees, acquire platforms, or offer better terms to creators, eroding Path's advantages.

User Adoption

Risk:

Prediction markets remain a niche product:

• Complex for mainstream users

• Cultural resistance to betting/gambling

• Preference for centralized platforms (Robinhood, DraftKings)

• Limited awareness

Mitigation:

• Platform ecosystem enables specialized UX for different audiences

• Educational content and onboarding

• Gradual complexity (start simple, add advanced features)

• Marketing focused on use cases, not technology

Residual Risk:

TAM may be smaller than projected, limiting growth potential.