According to Blockworks, as the US election season intensifies, the volumes and total value locked (TVL) on the leading crypto-based prediction market, Polymarket, are expected to continue rising. Polymarket has seen significant growth this year, with TVL doubling over the past 30 days. While derivatives markets for most financial assets are typically much larger than the underlying spot markets, this is not yet the case in crypto, particularly onchain. Most futures trading still occurs on centralized exchanges. However, the fully onchain derivatives platform D8X aims to combine the growing phenomena of prediction markets and perpetual futures in the crypto space.
D8X co-founder Caspar Sauter views the upcoming launch of leveraged prediction markets via orderbook-based futures as a natural progression. Sauter expressed his enthusiasm for prediction markets and perpetual futures, stating, “As an economist, I love the fact that you can actually have a market to get predictions. I love [Polymarket], my co-founder loves the product, and we love perps — so the natural next step was to think, ‘can we do leverage?’” However, implementing leveraged prediction markets presents challenges, similar to those faced by perpetual markets on low-cap crypto assets, often referred to as “alts” or “shitcoins.” Prediction markets have unique features, such as a price bound from $0-1, and are susceptible to sudden, violent moves driven by external events, making them unlike highly liquid perpetual markets like bitcoin.
For example, Polymarket’s most liquid offering, the US presidential election winner, has seen $391 million bet to date, and a breaking news headline can potentially change the outcome instantly. Sauter noted that attempting to introduce perpetual futures on a highly illiquid and volatile spot market could result in significant losses from the outset. One potential solution is to require full collateralization with no leverage offered, but this approach lacks appeal for risk-tolerant speculators and is not capital efficient for market participants, including market-makers, to hedge. The specific financial engineering details to be used by D8X remain undisclosed for now. Sauter mentioned that multiple other teams are working on similar products, and he is interested to see how each will tackle the challenge. For instance, Solana-based derivatives exchange Drift announced it is also developing prediction markets.
D8X’s testnet deployment is expected to launch in a few weeks, and the platform will not be limited to political predictions. Sauter emphasized the flexibility of their system to offer a variety of prediction markets, stating, “Having a prediction market is a fantastic idea. The system we have will be relatively flexible to offer more than that.” However, political prediction markets have clearly garnered significant interest, and adding leverage to them is seen as an attractive feature.
