Author: Nancy, PANews
With the continuous evolution of historical culture and technological background, the prediction market has evolved from a simple game of winning or losing to a more valuable reference, and even a powerful tool for insight into market trends. When this traditional betting event entered the on-chain world, with the help of the US election, the crypto prediction market became a hot narrative, and the market size has been expanding with more and more participants, which has also pushed crypto culture towards the mainstream.
However, the overall scale of the decentralized prediction market is still far behind that of the traditional world. The lack of leverage is considered to be one of the important reasons restricting the demand side. The Trump Perpetual Prediction Market launched by dYdX, the leading DeFi derivatives market and a new participant in the prediction market, may stimulate more liquidity to join.
Prediction market becomes the trending narrative, dYdX launches Trump perpetual contract
At a time when most crypto narratives are âfailed,â prediction markets are considered the crypto industryâs trump card for large-scale applications.
"Prediction markets and community notes are becoming two of today's flagship social cognition technologies, both of which seek truth and democracy, based on open public participation rather than pre-selected elites." Ethereum founder Vitalik Buterin previously believed that the reason why prediction markets are interesting is that they are a social cognition tool: the public can understand the importance of certain events and what may happen, and prediction markets are less susceptible to biased opinions than social media or news sites. At the same time, compared with conventional prediction markets, prediction markets in the crypto field do not have problems such as access difficulties, fees, and transaction restrictions.
Grayscale Research also pointed out that over the past two decades, technology and economic incentives have reshaped the traditional media landscape, and decision makers seem to be looking for alternatives. Prediction markets can be part of the solution, especially those that leverage the power of blockchain technology. By leveraging the transparency and record-keeping capabilities of blockchain technology, market incentives, and the collective wisdom of users, prediction markets that leverage the power of blockchain have the potential to become a "source of truth."
"The prediction market will be the next market to attract mainstream attention." Crypto investment institution 1confirmation believes that the prediction market is a breakthrough use case that will emerge in the crypto field in 2024. It is the first crypto product that people use every day (to obtain information). Many people donât even know that it is a crypto product. The market size is expected to grow 100 times in the next few years.
At present, the influx of market funds also confirms the popularity of the prediction market and demonstrates the attractiveness of the crypto market. According to DeFiLlama data, as of October 17, the TVL of the prediction market sector was close to US$250 million, a record high, more than 7.1 times higher than the beginning of this year. Not only that, the trading volume of the crypto prediction market has repeatedly set new highs. Taking the prediction platform Polymarket as an example, Dune data shows that as of October 17, Polymarket has processed more than US$1.65 billion in trading volume, a record high, and has shown a trend of rising month by month this year.
As the popularity of the crypto prediction market surges, dYdX recently announced the official launch of the TRUMPWIN-USD perpetual contract in the prediction market, allowing traders to trade their views on Trumpâs election prospects in a fully decentralized and leveraged manner.
Similar to the trading mechanism of other perpetual futures contracts on dYdX, the TRUMPWIN-USD perpetual market allows traders to establish positions based on Trump's winning margin in the US presidential election. dYdX will settle based on the results of the US election (settlement date November 5, 2024). If Trump wins the US election, the market will eventually settle to $1, otherwise it will be $0. This binary settlement price structure has clarity, ensuring that traders understand the exact results and potential gains or losses based on the results.
Break through the multiple difficulties of the traditional prediction market and open up incremental space with leverage
The prediction market is not only the intersection of information and capital, but its rapid rise in the crypto space is actually driving an innovation in the traditional prediction market.
Create a fairer and safer trading environment
As we all know, traditional prediction markets often limit user participation and flexibility, while decentralized prediction markets will promote the popularity of this field, including no restrictions on the amount of participation and the number of participants, and bring higher fairness and security. dYdX's Trump Perpetual Market operates within a completely decentralized framework, which means that it can create a more transparent, fair and secure trading environment for users, eliminate the risks brought by dependence on centralized institutions, and obtain more liquidity.
Multiple measures to deal with decentralized prediction market risks
However, the on-chain prediction market also has risks such as liquidity, market volatility, and oracles. In response, dYdX maintains a robust trading environment by incentivizing liquidity providers to attract them to deposit funds into the market to ensure smooth transactions. At the same time, in order to prevent misleading information and financial loss risks brought by oracles, dYdX chooses to rely on PolyMarket to ensure the accuracy and immutability of market prices and election results. The access to decentralized oracles ensures market transparency.
In order to ensure that the contract price is consistent with Trump's election probability in the real world, dYdX's Trump perpetual market also adopts a funding rate mechanism, that is, if Trump's winning probability begins to trade at a price higher than its fair value, long position holders will pay funding fees to short position holders, and vice versa. The introduction of this mechanism helps balance the market and keep prices accurate.
Increase flexibility and profitability with leverage and risk management strategies
However, the decentralized prediction market cannot yet match the market size of hundreds of billions of dollars in the traditional prediction field, which is closely related to limited user participation, insufficient market diversity, and regulation. The introduction of leveraged betting is considered to be a favorable weapon to open up the growth space of the decentralized prediction market. In fact, although the current crypto prediction market has shown a strong growth momentum relying on the US election, the yield rate is particularly important at the moment when more diversified prediction events have not been created to maintain and attract more users, especially in the crypto market chasing higher interest rates.
In dYdX's Trump Perpetual Prediction Market, whether traders establish long or short positions, they can use up to 20 times leverage to amplify their positions, thereby using leverage to open the door to potentially huge profits with a small amount of capital, and it is more flexible than traditional prediction markets. dYdX is also one of the few prediction markets that provides such a high proportion of market leverage.
Of course, leverage is a double-edged sword with both charm and risk. It can magnify both gains and losses, and it tests emotional control and risk management. To this end, dYdX introduces advanced order functions (such as limit orders and stop-loss orders, etc.) as an important tool for users to enter the market and manage risks, allowing them to better manage risks and maximize trading returns in the ever-changing market, rather than just being limited to speculative trading. In addition, dYdX also provides professional-level charting tools to provide traders with better trading decisions.
In other words, compared to a simple prediction market, dYdX will provide users with more flexible and professional trading strategies and more imaginative profit potential through multiple key features such as leverage, advanced order functions, and charting tools. It is especially attractive to experienced traders, thereby promoting greater development space for decentralized prediction markets.
In general, the current prediction market is not only a trading tool with economic value. By gathering the trading behaviors of different participants to obtain collective wisdom and market sentiment, it can effectively understand public demand and market changes. The openness and flexibility of the decentralized prediction market will further enhance the market's activity and liquidity. The introduction of leverage mechanisms by platforms like dYdX will further stimulate the demand of participants and inject more vitality into the market prosperity, thus promoting the prediction market to become a powerful tool for conveying "public opinion".
