  Prediction markets allow traders to bet on potential future outcomes. These
markets exist for weather, political, sports, and economic forecasting. Within
this work we consider a decentralized framework for prediction markets using
automated market makers (AMMs). Specifically, we construct a liquidity-based
AMM structure for prediction markets that, under reasonable axioms on the
underlying utility function, satisfy meaningful financial properties on the
cost of betting and the resulting pricing oracle. Importantly, we study how
liquidity can be pooled or withdrawn from the AMM and the resulting
implications to the market behavior. In considering this decentralized
framework, we additionally propose financially meaningful fees that can be
collected for trading to compensate the liquidity providers for their vital
market function.
