Source: mikey tweet
Compiled by: Wang Eryu, PANews
This article introduces prediction market categories, market strategies, product updates, key figures, market mechanisms and development directions:
Market Overview
Prediction markets can be divided into two camps: non-sports and sports. The non-sports market is relatively underdeveloped and there are multiple target areas: cryptocurrencies, political events, cultural events, etc.
Polymarket is the undisputed leader in the non-sports market, focusing mainly on political events.
After including the sports market, Azuro and SX Network will be closer to Polymarket in terms of overall transaction volume from the beginning of the year to date.
Several competing projects have launched, including Limitless Exchange, which runs on the EVM and offers markets on ETH, and Hedgehog Markets, which runs on SOL and places bets first and sets the odds later.
Other projects under development include Drift Exchange, xMarkets, Inertia Social, Doxa, Contro, etc.
The new team is keen on the following topics:
Permissionless Markets: Open Market Creation and Incentive Layers
Solution: Rely on artificial intelligence for market settlement, or create a more efficient system
Polymarket users have repeatedly made the above request.
Thanks to popular and regular events, the sports market has gained a good user base in the Web2 environment.
It is not easy to get users to switch to cryptocurrency because most users value brand and user experience. Web2 sports betting platforms also usually have inexhaustible marketing budgets, with at least five sports betting companies spending more than $100 million a year.
The amount of money Americans bet on a Super Bowl (about $23 billion) is 10 times the total transaction volume of the crypto prediction market to date (about $2 billion), and the amount of bets in a single state alone far exceeds $2 billion.
Opinion: More on-chain money = more on-chain sports betting, just as internet bookmakers took over the betting market via mobile phones.
Leveraged Trading
A big limitation of prediction markets is the lack of leverage. In non-sports markets, LogX trade will allow perpetual trading on TRUMP, similar to FTX in 2020. Doxa market is also developing leveraged trading.
The counterparties of these two projects are liquidity pools. Liquidation and bad debts are still two major unresolved issues.
For Polymarket, exploring parlay markets seems to be an interesting direction. For example, the market "Trump and Biden win the nomination" is actually a leveraged bet because it is predicting two independent events.
Expect to see a market where “will a, b, c, and d happen?”
I am also not worried about the initial liquidity supply, liquidity providers (LP) are keen to reap daily returns!
In terms of sports cumulative markets, several protocols already allow for leverage through “parlay markets” where users must correctly guess multiple unrelated events to win. SX Bet, Azuro, and Overtime all support such markets.
Market Mechanism
Prediction market mechanisms can be roughly divided into two categories: web2.5 and web3.
Web2.5: Use cryptocurrency as a payment method, such as Stake/Rollbit. Users can use cryptocurrency to place bets, but the counterparty is the team behind the application, and the product has no direct interaction with the chain.
Web3: Prediction markets have a certain footprint on the chain, such as NFT holdings, or bets executed through smart contracts.
There are generally two ways to match bets on-chain: 1. AMM, which relies on passive LPs; 2. Order books, where the platform acts entirely as an exchange.
Memecoin and prediction markets
In web3, memecoins have become prediction markets themselves. Taking $TRUMP and $BIDEN as examples, holders can benefit by 1) choosing the right direction and 2) choosing the right focus:
Through memecoin, users can speculate on the speculative behavior of others, whether right or wrong.
For example, the new protocol Swaye is trying to combine the best features of prediction markets and memecoin.
Users who enter a market early not only bet on specific outcomes, but also have an incentive to hype the market, as betting activity on both sides helps increase returns.
Profit Model
There are several ways for the protocol to make money:
- Transaction Fees
- Partial trader bonuses (web2 model follows this path)
- Accumulated counterparty gains (web2 likes to serve losing clients)
Most protocols use the first or third method. Polymarket does not charge transaction fees.
Future Development
Artificial intelligence agents will become key emerging players in this space because they will be able to react quickly to news. They will manage orders, inventory and execute betting strategies. They will also be able to calculate expected outcomes and take corresponding risks. At least two teams are quietly moving in this direction.
In the next few years, at least one protocol will reach a level of transaction volume that can compete head-on with Polymarket.
Given that Polymarket currently incentivizes its markets so heavily, other protocols will need to make heavy use of incentives like points, tokens, or USDC as well.
Everyone is asking whether the trading enthusiasm can continue after the election. At least since the beginning of the year, Polymarket's non-election market trading volume has continued to grow, which undoubtedly provides an optimistic signal for market vitality in the post-election period.
