Prediction Market: The Gathering Place for Information in the Encryption World

Prediction markets are open markets that use financial incentive mechanisms to predict specific outcomes. These markets allow bets on the outcomes of various events, and market prices can reflect the public's perception of the probability of those events occurring.

The typical trading range for prediction market contracts is between 0% and 100%. The most common form is the binary options market, where the price at expiration is either 0% or 100%. Users can also exit at market price before the event occurs.

Through prediction markets, we can extract the public's future expectations from the value of the betting community's beliefs about the outcome of an event. Traders with different beliefs 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, almost as long as the history of human gambling. Political predictions seem to have existed since ancient times: as early as the Middle Ages, people were keen on betting on the outcomes of Catholic papal elections.

As the U.S. presidential election approaches, interest in betting on the political sector reached a new peak in July. Some prediction market platforms have thus attracted widespread attention.

Polymarket: Order Book Tradable Prediction Market

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

Unlike traditional sports betting, Polymarket allows users to freely trade shares on market topics that have not reached a conclusion, enabling speculators to flexibly participate in probability games.

Polymarket uses a conditional token framework. By staking $1 in collateral, two conditional tokens are generated, representing the positive and negative outcomes of the event. These tokens trade independently in the market, and the holder of the correct token ultimately receives the entire $1 payout.

Since the two tokens trade independently, there may be situations where the sum of their prices does not equal 1 dollar, which requires market makers to participate in balancing the price difference. Users can exchange one positive and one negative token for 1 dollar worth of collateral at any time.

The core components of Polymarket include:

• Market Theme: Each prediction focuses on a specific theme or event.
• Oracle: Using UMA optimistic oracle to determine the result.
• Conditional tokens: Obtain "yes" and "no" tokens by locking 1 dollar.
• Order Book Market: A hybrid on-chain order book trading mechanism.
• Liquidity providers: Earn the price difference by placing limit orders.

Polymarket currently has no plans for a token issuance, but has distributed over $3 million USDC in incentives for market-making activities this year.

SX Bet: Single Bet Prediction Market

SX Bet is a sports betting platform based on the Arbitrum Orbit Rollup, established in 2019. It currently primarily supports sports-related topics and has also added topics related to encryption and politics.

Unlike Polymarket, SX Bet follows a traditional sports betting model, allowing only single bets, and bets cannot be freely traded until the results are determined.

The innovation of SX Bet lies in the realization of a combined betting system for the first time. Users make predictions on a series of events, and only if all are correct can they win. Combined betting can bring huge profits, similar to the leverage of a prediction market.

This type of combination betting is more like a lottery and can bring returns of up to ten thousand times, easily leading to viral spread. However, prediction markets based on the "dual-token" framework find it difficult to implement combination betting, with limited odds and potentially insufficient attractiveness.

Pred X: Prediction Market Based on AI-Driven Topic Suggestions

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

Unlike user-generated topics, the prediction topics of Pred X are primarily generated by AI through scraping the internet. However, Pred X is not fully decentralized, as prices are determined by a centralized order book.

Currently, Pred X is still not mature enough, with low order book depth and trading volume. It does not support users to place orders on their own, and most markets lack market makers, making it practically impossible to trade result tokens freely. The documentation also does not detail the implementation specifics of multi-chain support.

Overall, Pred X currently resembles a semi-finished product, with questionable usability and reliability.

Azuro: A Betting Protocol Supported by 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 the free trading of "yes" and "no" tokens.

Azuro is centered around liquidity pools, allowing anyone to deploy their own liquidity pool. Multiple betting platforms can be created under a single pool, and each platform can establish multiple prediction topics.

Azuro proposed the idea of a "liquidity tree," allowing multiple events to bet on and even sharing the same liquidity pool across multiple themes and platforms. This funding ensures that the platform can act as a counterparty for the bettors.

The odds for each event are calculated based on the ratio of the betting funds to the total liquidity range. The initial odds are set by the data provider and initial liquidity is added.

Azuro supports multiple dapp platforms, allowing betting platforms and liquidity pool creators to set dividend ratios. Azuro also issues a native token, $AZUR.

Conclusion

The philosophy behind prediction markets is interesting, viewing the free market as the most effective information gathering system. Encryption currencies reduce trading friction, and smart contracts bring better market mechanisms.

But the shortcomings are also obvious: Polymarket struggles to achieve flexible betting and lacks high returns; Azuro's solution is complex and lacks trading capability.

The rise of prediction markets reflects the popularity of encryption culture and the victory of free market culture. In today's world where algorithmic authoritarianism monopolizes information, this is particularly valuable. After all, nothing is smarter than the market, and no information system is more efficient than the free market.