Prediction markets are open markets that use financial incentives to predict specific outcomes. These markets are established to trade bets on the outcomes of various events. Market prices can reflect the publics views on the probability of an event occurring.
A typical prediction market contract trades between 0% and 100%. The most common form of prediction market is the binary options market, which expires at 0% or 100%. Users can also sell options before the event occurs and exit at the market price.
Through prediction markets, we can extract the publics expected future outcomes of an event from the value of the betting groups performance on the outcome of an event. Traders with different beliefs will reflect their confidence in possible outcomes through trading contracts, and the market prices of these contracts are considered to be aggregated beliefs.
The history of prediction markets is long, almost as long as the history of human gambling, and the combination of prediction markets and politics seems to have existed since ancient times: in the Middle Ages, people were keen on betting on predictions about the election of the Catholic Pope.
As the U.S. presidential election approaches, interest in betting on the political sector has reached a new peak in July with the assassination of Trump, Bidens withdrawal from the election, and the Democratic Partys replacement of Harris as an elector. Prediction markets represented by Polymarket have attracted widespread attention.
Polymarket: Order Book Tradable Prediction Markets
Polymarket is a decentralized prediction market project launched in 2020. It was founded by Shayne Coplan and is supported by many well-known institutions and angel investors such as Polychain Capital, Founders Fund and Vitalik.
Polymarket allows users to trade on the world’s most controversial topics (such as politics, sports, pop culture, etc.), and users build portfolios based on their predictions.
Unlike traditional sports betting, Polymarket allows users to freely trade shares when market topics are still undecided, and speculators can flexibly participate in probability games.
Polymarkets real-time hot markets
Polymarket uses the Gnosis-based conditional token framework (CTF). For every $1 of erc20 tokens such as USDC collateral, two conditional tokens will be generated. These tokens represent the positive and negative outcomes of the transaction (yes or no). Multiple outcome markets are comprehensive statistics of multiple binary outcome markets.
Conditional tokens fluctuate in the market due to trading demand, and users can buy and sell at any time through the order book; or they can wait until the event has a result, and those who hold the correct tokens will receive the full $1 profit.
Because the two tokens are traded independently in a market similar to CEX, it is possible that the sum of the prices of the two tokens is not equal to $1, so the participation of market makers is needed to balance the price difference. Therefore, before the end of the event, you can use one positive and one negative token to exchange for a $1 pledge in the contract at any time.
Polymarkets prediction market is generally composed of the following parts:
Market Topics - Each prediction in Polymarket focuses on a theme or event, and while users can submit new market creation proposals through Polymarket’s Discord, Polymarket has discretion over which markets are created due to the complexities involved in wording.
Oracles - The outcome of an event usually requires human input into an oracle. Polymarket uses the UMA optimistic oracle, which allows anyone to submit a solution. If no one challenges the solution within a period of time, the solution is accepted as fact. In the rare case when a dispute arises, the oracles decision is determined by the UMA token holders.
Conditional Tokens - As mentioned above, by locking up $1 to obtain two conditional tokens, yes and no, when the market settles, the person holding the winning outcome will receive the full $1. Yes and no tokens are freely traded in the market, and the price indicates the probability. Polymarket uses the Conditional Token Framework (CTF) developed by Gnosis Protocol, which is built on the ERC 1155 token standard.
Order Book Markets - Polymarkets markets are a hybrid on-chain order book trading mechanism, similar to dYdX v3, where users authorize through signatures, operators match off-chain, and finally interact with contracts on-chain. The contracts perform non-custodial settlement, atomically swapping between binary outcome tokens and collateral assets, so the operator does not hold the pledged $1.
Liquidity providers - Unlike sports betting, Polymarket allows free trading of conditional tokens before the results are announced. Pricing is determined by supply and demand rather than by mechanisms, and token prices may deviate (the sum of the prices of two tokens is not equal to $1). Therefore, anyone can make a profit by placing a limit order and earning fees through the bid-ask spread. At the same time, Polymarket also gives additional USDC incentives.
Polymarket system architecture, source: https://dune.com/blog/polymarkets-rise-a-new-era-in-prediction-markets
Polymarket currently has no plans to issue tokens, nor does it have a points program to actively incentivize users. Nevertheless, Polymarket has issued more than $3 million in USDC to incentivize market making activities through its liquidity reward program so far this year, with the goal of increasing the overall liquidity depth of the platform. The market with the highest trading volume currently pays approximately 600 USDC in rewards to liquidity providers every day.
SX Bet: Single bet prediction platform
SX Bet is an Ethereum-based sports betting platform founded in 2019. The project currently relies on the SX Chain built on Arbitrum Orbit Rollup.
Currently, the betting markets supported by SX Bet are still mainly based on topics in the sports sector, with bets placed on the winners of major events such as tennis, football, baseball and basketball. Recently, Crypto, Degen Crypto and politics have also been added to the betting sector, with bets placed on price trends of mainstream crypto assets and on-chain meme coins and topics related to the winner of the US election.
The difference from Polymarket is that SX Bet follows the traditional sports betting model and only supports single bets, and bets cannot be traded freely before the outcome of the predicted event is determined.
SX Bet’s innovation is that it has implemented a combination betting system for the first time, that is, users make predictions on a series of events, and only when all of them are correct can they get bonuses. The bonus income of combination betting is often very huge, which can be regarded as leverage for predicting the market. SX Bet’s market maker will become the counterparty of the transaction.
This type of combination betting is more like a lottery, and can often bring huge returns of up to ten thousand times. Its benefit stories can easily go viral, which is also the most interesting part of the traditional sports prediction market.
Obviously, Polymarket and all prediction markets based on the dual token conditional framework cannot realize combined betting, because it is impossible for the contract to mint a conditional token for each result combination and ensure that it can be freely traded under sufficient liquidity. The odds of a prediction market with only two results are limited and may not be attractive to users.
Pred X: A prediction market based on AI-driven topic push
Pred X is a prediction market initially based on the Sei blockchain, covering a variety of topics such as politics, cryptocurrency price predictions, popular events, etc. Currently, the platform supports betting with USDC on multiple blockchains such as Base, Linea, Sei, Bitlayer, and has launched a corresponding Telegram applet. Pred Xs Telegram applet is called PredXFun (@PredxFantasyBot), which provides users with two modes: one is a game mode in which users can predict the probability of hot events and earn points; the other is a real mode in which users can participate in betting on similar topics on the official website by linking their wallets.
Unlike Polymarket, where prediction market topics are mainly generated by users in Discord, most of Pred Xs prediction topics are generated by Aimelia AI through the Internet, which captures hot news and market sentiment indexes, automatically generates prediction topics, and pushes them to the Pred X website, where users spontaneously form a trading market. Although Pred X supports multiple blockchains, it is not a completely decentralized prediction market application. The prices corresponding to different results of various prediction topics are determined by the platforms centralized order book, and the order process and the market for each prediction topic are implemented according to smart contract rules.
Objectively speaking, Pred X is still an immature platform compared to other prediction markets. The order book depth and betting volume of predictable topics on the website are far lower than those of Polymarket and Sx Bet. As a prediction market, it should support users to freely trade tokens of different results before the event is revealed. Unfortunately, however, Pred Xs order book does not support users to place orders on their own. In the absence of market makers in most markets, users are actually unable to freely trade result tokens. In addition, the document does not elaborate on how to ensure the consistency of topic market contracts on different chains and how to ensure that all probability result tokens have sufficient liquidity on each chain when multi-chain betting support is implemented. When connecting a wallet for trading in the real mode of the Telegram applet, there is a difference in the betting price of the prediction market and the official website for the same topic.
All these situations make us doubt the practical usability and reliability of Pred X. Overall, this product is more like a semi-finished product.
Azuro: A staking protocol backed by liquidity pools
Azuro is not a prediction market itself, but a basic protocol for creating on-chain prediction markets. This set of permissionless infrastructure includes on-chain smart contracts and web components, and multiple prediction market applications can be built based on Azuro. All Azuro-based betting platforms can be found at https://azuro.org/ecosystem .
Azuro can only place single bets, and cannot trade yes or no freely like Polymarket. You can only get profits after the results are announced.
Azuros role in the ecosystem, source: https://gem.azuro.org/hub
The Azuro system is built around a liquidity pool, and anyone can deploy their own liquidity pool by interacting with the Azuro factory contract. Multiple betting platforms can be created under one liquidity pool, and under each betting platform, multiple possible events can be established for different prediction themes and bet on separately.
In a binary split model like Polymarket, liquidity is isolated and divided among multiple different prediction events. Azuro proposed an idea called liquidity tree, that is, multiple event bets under a prediction theme, or even multiple betting platforms under multiple themes, can share the same liquidity pool.
The liquidity tree provides a hierarchical structure, where different possible events define the range of liquidity, such as a football game where two teams have multiple possible scores.
These liquidity funds ensure that the platform has the ability to act as a counterparty to bettors at any time to pay potential bonuses (losses for LPs). If bettors generally lose money, LPs can earn income. A liquidity tree provides liquidity for multiple prediction themes at the same time and acts as a counterparty to generate profits/losses.
The odds of each event under Azuro are calculated by the ratio of the funds bet on each event to the total liquidity range of the entire prediction theme. The initial odds are set by a specific data provider and the initial liquidity is added accordingly. The data provider can also adjust the odds during the betting process, and the solvency of these odds is guaranteed by the initial liquidity.
Azuro Liquidity Factory System Design, source: https://gem.azuro.org/contracts/factory
Azuro also supports the implementation of multiple dapp platforms. The betting platform can set its own dividends, and bettors can choose freely; and the creator of the liquidity pool can also set the dividend ratio of the pool. A certain proportion of the profits of all pools will go into Azuros own DAO. Azuro also issued its own native token $AZUR.
at last
The philosophy behind the prediction market is interesting. Participants aim to make profits and regard the free market as the most effective information collection system for humans to predict things in the real world. These results are often unexpectedly accurate. In todays society where recommendation algorithms monopolize information, prediction markets seem to be able to effectively restore the truth and reflect opinions, which is reflected in the predictions about political time on Polymarket.
The first time many crypto users unlocked the prediction market was probably the Trump and Biden index launched on FTX during the last presidential election. With SBFs powerful market-making capabilities, you can even fight with high leverage. Although centralized, it is indeed a very interesting experience.
Of course, cryptocurrency has greatly reduced transaction friction in the prediction market, providing a better and more efficient market mechanism. Based on the idea of smart contracts and AMM, it has also brought a better market mechanism to the prediction market - no access and better liquidity. Even many AI AgentFi projects regard the prediction market as a battlefield to exert the group intelligence of the model and hone their capabilities.
Of course, the flaws are also very obvious: although Polymarket has opened up the free trading of conditional tokens themselves, it is difficult to implement a flexible betting mechanism, there is no expectation of high returns, and some ordinary players have lost their fun; and the liquidity pool solutions such as Azuro are obviously still somewhat complicated and lack the ability to trade after betting.
Rather than saying it is a mechanism and technological innovation, the current popularity of the prediction market should be said to be another mass adoption of crypto culture and a victory for the free market culture behind it, which is particularly valuable now that algorithmic authority is gradually monopolizing information. After all, nothing is smarter than the market, and no information system is more effective than a free market.
refer to
https://learn.polymarket.com/
https://messari.io/report/yes-or-no-on-polymarket
https://docs.polymarket.com/
https://legacy-docs.polymarket.com/polymarket-+-uma
https://sx.bet/
https://docs.sx.technology/
https://help.sx.bet/en/articles/6233471-parlay-betting-rules
https://predx.ai/
https://predxai.medium.com/
https://azuro.org/#build
https://gem.azuro.org/concepts
https://gem.azuro.org/hub
