Author:mikey
Compiled by: TechFlow
With many new teams emerging in the prediction market space, this article will provide a comprehensive overview of the field.
We will quickly summarize the categories of prediction markets, market entry strategies, product updates, some data, mechanism explanations, and future development directions.
Market entry strategies can be broadly divided into two categories: non-sports and sports. The non-sports market is a relatively underexplored area, with potential targets including cryptocurrencies, politics, and cultural events.
In the non-sports market, Polymarket is the clear leader, with its market entry strategy focused on political events.
If the transaction volume of the sports market is included in the comparison, the gap between Azuro and SX Network and Polymarket is relatively small.
Some competing projects that are already live include @LimitlessExchange (which provides ETH-denominated markets on the EVM) and @HedgehogMarkets (which provides pooled bets on SOL, where bets are placed first and odds are determined later).
Projects that will be launched in the future include: @DriftExchange, @xMarkets, @InertiaSocial, @Doxa, and @Contro.
Two common themes that new entrants are focusing on are:
Permissionless Markets – Open market creation and its incentives.
Settlements – Relying on AI for market settlements, or creating more efficient settlement systems.
These topics have been repeatedly requested by Polymarket users.
The sports category has proven its appeal in Web2 due to its popularity and the regularity of events.
However, it is very difficult for users to switch to cryptocurrencies because most users value brand and user experience. Web2 sportsbooks also have unlimited marketing budgets, with at least 5 sportsbooks spending more than $100 million per year.
Americans bet about $23 billion on a single Super Bowl game, a figure that is 10 times the historical trading volume of the crypto prediction market (about $2 billion), and even the amount bet in a single state is far more than $2 billion.
The argument is: the more on-chain money there is, the more on-chain sports betting there will be, just as internet bookmakers took over the market over the phone.
One limiting factor of prediction markets is the lack of leverage. On the non-sports market side, @LogX_trade will allow perpetual contracts for TRUMP, similar to FTX in 2020, while @doxamarket is also working on leveraging.
The counterparties of these two projects are centralized liquidity pools. Liquidation and bad debts remain open issues. It would be interesting if Polymarket could explore multi-leg markets (parlays) more. From a technical perspective, the market "Trump and Biden are nominated" is actually a leveraged bet because it relies on correctly predicting two independent events.
I would like to see a market similar to “will a, b, c, and d happen?”
I don’t think initial liquidity will be a problem, liquidity providers (LPs) are happy to collect their daily rewards!
In sports betting, several protocols already allow leverage through a mechanism called parlays, where payouts are made only when a user correctly guesses multiple unrelated events. SX Bet, Azuro, and Overtime already support this mechanism.
Prediction market mechanisms can be roughly divided into two categories: Web2.5 and Web3.
Web2.5 refers to cryptocurrency as a payment channel, such as Stake and Rollbit. Users can use cryptocurrency to place bets, but the counterparty is the team behind the application, and the product does not directly interact with the chain.
Web3 prediction markets, on the other hand, have on-chain features, whether positions in the form of NFTs or bets executed through smart contracts.
There are usually two ways to match bets on-chain: one is an automated market maker (AMM) that relies on passive liquidity providers (LPs), and the other is the platform acting as an order book for an exchange.
In Web3, Memecoins have themselves become prediction markets, such as $TRUMP and $BODEN, whose holders receive benefits in certain areas, including:
Correct direction
Attract attention
Memecoins allow users to speculate on the speculation of others, regardless of whether they are correct or not.
A new protocol called @swaye_co seeks to combine the best features of prediction markets and memecoins. Early users are not only betting on specific outcomes, they are also incentivized to gain attention, as betting activity on either side helps increase profits and losses.
As a protocol, there are several ways to monetize:
Transaction Fees
A subset of traders’ winnings (Web2 models usually follow this path)
Accumulate the counterparty's profit and loss (Web2 likes to serve loss-making customers)
Most protocols do either option 1 or option 3, while Polymarket does not charge any fees.
What will happen next? AI agents will be the next big users in this space, as they can quickly react to news, manage orders, inventory, and place bets. They can also calculate the expected value of outcomes and take calculated risks. Some teams are working on this technology in secret.
In the next few years, there will be at least one protocol competing head-on with Polymarket’s trading volume. Given Polymarket’s current incentives for its markets, it will likely take a lot of usage incentives, such as points, tokens, or USDC.
Everyone is asking how sustainable post-election volumes will be, and so far, non-election volumes on Polymarket have been rising since the beginning of the year.
