Prediction Market: Information Collection System of the Encryption World

A prediction market is an open market that uses financial incentives to forecast 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 an event occurring.

Typical prediction market contract trading ranges from 0% to 100%. The most common form is the binary options market, where the price at expiration is either 0% or 100%. 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 outcome of a certain event. Traders with different opinions reflect their confidence in possible outcomes through trading contracts, the market prices of which are regarded as aggregated beliefs.

The history of prediction markets is long, almost as long as the history of human gambling. The combination of prediction markets and politics has a long history, with people in the Middle Ages being keen to place bets on the elections of Catholic popes.

As the U.S. presidential election approaches, interest in betting on the political sector reached a new peak in July. Events such as Trump's assassination, Biden's withdrawal from the race, and the Democratic Party replacing Harris as a candidate have drawn widespread attention to prediction markets represented by Polymarket.

Polymarket: Order Book Tradable Prediction Market

Polymarket is a decentralized prediction market project that was born in 2020, founded by Shayne Coplan and supported by several well-known institutions and investors.

The platform allows users to trade on controversial topics in the world ( such as politics, sports, and pop culture ), and users can build portfolios based on predictions. Unlike traditional sports betting, Polymarket allows users to freely trade shares when the market topic is undecided.

Polymarket uses a condition token framework based on Gnosis. For every 1 dollar of collateral staked, two condition 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 at any time through the order book.

The prediction market of Polymarket mainly includes the following parts:

• Market Theme: Each prediction focuses on a specific theme or event.
• Oracle: Using UMA optimistic oracle to determine the outcome of events.
• Conditional tokens: Obtain two conditional tokens "yes" and "no" by locking 1 dollar.
• Order book market: a hybrid on-chain order book trading mechanism.
• Liquidity providers: Earn fees by placing limit orders.

Polymarket currently has no plans for token issuance and no user incentive points. However, this year it has distributed over $3 million in USDC to incentivize market-making activities to enhance the platform's liquidity depth.

SX Bet: Single Bet Prediction Platform

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

The platform mainly supports betting on sports topics, including events such as tennis, football, baseball, and basketball. Recently, cryptocurrency and political segments have been added, covering mainstream asset price trends and topics such as the U.S. elections.

Unlike Polymarket, SX Bet only supports single bets, and users cannot freely trade their bets until the outcome of the predicted event is determined. Its innovation lies in the first implementation of a combination betting system, where users make predictions on a series of events, and only if all predictions are correct can they receive a prize, often resulting in high returns.

Combination betting is similar to lottery and can bring returns of up to ten thousand times, making it easy to form viral spread. This is the most interesting part of traditional sports prediction markets, but prediction markets based on a "dual-token" conditional framework are difficult to achieve.

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

Pred X is an initial prediction market based on the Sei blockchain, covering various topics such as politics, cryptocurrency price predictions, and popular events. It currently supports betting with USDC on multiple blockchains and has launched a Telegram mini-program.

Unlike Polymarket, the prediction topics of Pred X are mainly automatically generated by Aimelia AI, which captures popular news and market sentiment indices from the internet. The prices of various prediction topic results are determined by the platform's centralized order book, and the ordering process and market are implemented according to smart contract rules.

However, Pred X is not mature enough yet. The order book depth and trading volume for predictable topics on the website are far lower than those of Polymarket and Sx Bet. The order book does not support users to place orders themselves, and without market makers, users find it difficult to trade result tokens freely. The specific implementation details of multi-chain support are also not clear enough.

Overall, Pred X currently resembles a semi-finished product, with practicality and reliability needing improvement.

Azuro: A Betting Protocol Supported by Liquidity Pools

Azuro is not the prediction market itself, but rather a foundational protocol for creating on-chain prediction markets. It provides a set of permissionless infrastructure, including on-chain smart contracts and web components, which can be used to build multiple prediction market applications.

Azuro only supports single bets and cannot freely trade "yes" and "no" tokens like Polymarket; profits can only be obtained after the results are announced.

The system is centered around liquidity pools, and anyone can deploy their own liquidity pool. Multiple betting platforms can be created under one pool, and each platform can establish multiple events for different prediction topics.

Azuro has proposed the concept of a "liquidity tree," where multiple events under a prediction topic, and even multiple topics across various platforms, can share the same liquidity pool. This addresses the issue of liquidity being fragmented under a binary split model.

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. The data provider can also adjust the odds during the betting process.

Azuro supports multiple dapp platforms, allowing both the betting platform and liquidity pool creators to set dividend ratios. A certain percentage of all pool profits goes into the Azuro DAO, and Azuro has also issued a native token, $AZUR.

Summary

The philosophy behind prediction markets is interesting; it views the free market as the most effective information collection system. Cryptocurrency reduces trading friction, and smart contracts and AMMs also bring better market mechanisms.

However, various solutions have their limitations. Polymarket struggles to achieve flexible betting, and Azuro's liquidity pool scheme is relatively complex. The explosion of prediction markets more reflects the popularity of encryption culture and embodies the value of free market culture. In an era where algorithmic authoritarianism gradually monopolizes information, this is particularly valuable.