I ran the earliest predictions market online at the reboot of The Industry Standard.

Prediction markets fatally suffer from two Problems.

1) large sharks making huge bets at the end (destroying any signal from earlier bets)

2) inside information on poorly written bets.

The solution is -parlay- edit: parimutuel style payouts but that destroys popularity (you are paid out at closing odds not at your time of bet odds spread to sell position).

"The solution is parlay style payouts"

I think you mean parimutuel payouts?