Prediction Market: Future Predictions Under Financial Incentives

The prediction market is an open market that predicts specific outcomes through financial incentive mechanisms. These markets establish a betting platform for trading various event outcomes, and market prices can reflect the public's views on the probability of events occurring.

Typical prediction market contracts trade in a range from 0% to 100%. The most common is the binary options market, where the price is either 0% or 100% at expiration. Users can also sell options at market price to exit before the event occurs.

Through prediction markets, we can extract the public's future expectations from the value of the betting community's participation on the outcomes of certain events. Traders with differing viewpoints reflect their confidence in possible outcomes through trading contracts, and the market prices of these contracts are seen as aggregated beliefs.

Prediction markets have a long history, nearly as long as the history of human gambling. Political forecasting seems to date back to ancient times: in the Middle Ages, people were keen to bet on the outcomes of papal elections.

As the US elections approach, some political events that occurred in July have sparked a new wave of betting enthusiasm, and the prediction market has once again attracted widespread attention.

Polymarket: tradable prediction market

Polymarket is a decentralized prediction market project established in 2020. It allows users to trade on highly controversial topics around the world, enabling users to build investment portfolios based on predictions.

Unlike traditional sports betting, Polymarket allows users to freely trade shares on market topics that are not conclusively determined, enabling speculators to participate flexibly in probability games.

Polymarket uses a conditional token framework, where for every 1 dollar staked in tokens, two conditional tokens representing the positive and negative outcomes of an event are produced. These tokens fluctuate in the market due to trading demand, and users can buy and sell them at any time through the order book.

Condition tokens can trade independently, which may result in the sum of the prices of two tokens not equaling 1 dollar, requiring market makers to participate in balancing the price difference. Before the event ends, one can always exchange a positive and a negative token in the contract for 1 dollar collateral.

Polymarket's prediction market mainly includes: market themes, oracle, conditional tokens, order book market, and liquidity providers.

Currently, Polymarket has no token issuance plan, nor does it have a user incentive points program. However, this year it has distributed over $3 million in USDC rewards for market-making activities to enhance the overall liquidity depth of the platform.

SX Bet: Single Bet Prediction Platform

SX Bet is a sports betting platform based on Ethereum established in 2019, currently running on the SX Chain built on Arbitrum Orbit Rollup.

SX Bet primarily supports betting on sports-related topics, and has recently added cryptocurrency and politics segments. Unlike Polymarket, SX Bet only supports single bets, and bets cannot be freely traded until the results are determined.

The innovation of SX Bet lies in the realization of a combination betting system for the first time, where users make predictions on a series of events, and only those who are correct in all can win a prize. The bonus returns from combination betting are often very high and can be seen as leverage in the prediction market. As a market maker, SX Bet will become the counterparty.

This type of combination betting is similar to a lottery, potentially bringing returns of up to ten thousand times, making it easier to achieve viral spread. However, the prediction market based on the "dual-token" framework finds it difficult to implement combination betting, with limited odds, which may not be attractive enough to users.

Pred X: Prediction Market Based on AI Topic Suggestions

Pred X is a multi-chain prediction market that supports betting with USDC across multiple blockchains. It also launched a Telegram mini-program, offering both a points game and a real betting mode.

Unlike Polymarket, which focuses on user-suggested topics, Pred X primarily generates prediction topics by automatically scraping hot news with AI. Although it supports multiple chains, Pred X is not fully decentralized, and prices are determined by a centralized order book.

Currently, Pred X is still not mature enough, with order book depth and trading volume far below other platforms. It does not support users to place orders on their own, making it difficult to trade freely without market makers. The specific implementation of multi-chain support also lacks explanation. Overall, Pred X resembles a semi-finished product.

Azuro: A Betting Protocol Based on Liquidity Pools

Azuro is a foundational protocol for creating on-chain prediction markets, including smart contracts and web components. It only supports single bets and does not allow trading result tokens freely like Polymarket.

Azuro is centered around liquidity pools, where a single pool can support multiple betting platforms and prediction topics. It introduces the concept of a "liquidity tree" that allows different topics and platforms to share the same liquidity pool.

The odds of Azuro are calculated based on the ratio of the betting funds for each event to the total liquidity range. The initial odds are set by data providers and initial liquidity is added. Azuro supports multiple Dapp implementations, and both the betting platform and liquidity pool can set dividend ratios.

Azuro has issued its native token $AZUR, and a certain percentage of the profits from all pools goes into the Azuro DAO.

Summary

Prediction markets use free market mechanisms to gather information and predict real-world events, often accurately reflecting the true situation. Cryptocurrencies reduce trading friction, while smart contracts and AMMs also bring better market mechanisms.

However, there are still shortcomings on various platforms: Polymarket struggles to achieve flexible betting and lacks high returns; the Azuro solution is relatively complex and lacks post-bet trading capabilities.

The explosive popularity of prediction markets reflects more the prevalence of crypto culture and the victory of free market culture, which is particularly valuable in today's era of information monopoly. After all, there is no smarter and more efficient information system than a free market.