Prediction Market: Analyzing Several Mainstream Platforms

A prediction market is an open trading system that predicts specific outcomes through financial incentive mechanisms. These markets allow users to bet on the outcomes of various events, and the market prices can reflect the collective judgment of the public on the probability of the event occurring.

Typical prediction market contract trading ranges from 0% to 100%, with the most common being binary options markets, where the price is either 0% or 100% at maturity. Users can also sell options at market price before the event outcome is revealed.

Through prediction markets, we can extract the public's expectations for the future outcomes of certain events from the betting behaviors of participants. Traders with differing viewpoints express their confidence by buying and selling contracts, and the market prices of these contracts are viewed as the aggregated collective prediction.

The history of prediction markets can be traced back to ancient times, as long as the history of gambling activities. Political predictions seem to have a long history as well; during the Middle Ages, people were enthusiastic about betting on the outcomes of papal elections.

As the U.S. presidential election approaches, interest in betting on the political sector reached a new peak in July, with some prediction market platforms attracting widespread attention. Let’s analyze several mainstream prediction market platforms.

Polymarket: tradable prediction market

Polymarket is a decentralized prediction market project established in 2020, supported by several well-known investment institutions. The platform allows users to trade on popular topics and build investment portfolios based on predictions.

Unlike traditional sports betting, Polymarket allows free trading of shares before the outcome of events is revealed, enabling speculators to flexibly participate in probability games.

Polymarket uses a mechanism based on a conditional token framework. Users stake 1 dollar to receive two conditional tokens representing the positive and negative outcomes of an event. These tokens are freely traded in the market, with prices reflecting the probability of the event occurring. Users can buy and sell at any time through the order book or wait for the event results to be revealed to gain profits.

Since the two tokens trade independently, there may be cases where the sum of their prices does not equal 1 dollar, which requires market makers to participate in arbitrage. Users can also exchange one positive and one negative token for 1 dollar worth of collateral at any time.

The main components of Polymarket include:

• Market Topic: Each prediction focuses on a specific topic or event.
• Oracle: Uses optimistic oracle mechanism to determine event outcomes.
• Conditional tokens: ERC1155 tokens representing different outcomes.
• Order Book Market: Hybrid on-chain order book trading mechanism.
• Liquidity providers: Earn spreads by placing orders.

Polymarket currently has no plans to issue tokens, but has distributed over $3 million in USDC rewards for liquidity provision this year.

SX Bet: Single Bet Prediction Market

SX Bet is a sports betting platform established in 2019, currently operating on the Arbitrum Orbit scaling chain.

The platform primarily supports betting on sports events and has recently added cryptocurrency and political sections. Unlike Polymarket, SX Bet only supports single bets, and wagers cannot be traded before the results are revealed.

The innovation of SX Bet lies in the realization of a combination betting system for the first time. Users can make predictions on a series of events, and only if all are correct can they win a huge prize, which can be seen as leveraged trading in a prediction market. The platform acts as the counterparty.

Combination betting is similar to lottery tickets and can bring returns of up to 10,000 times, making it easier to form viral spread. This is the most attractive way to play in traditional sports prediction, but it is difficult to achieve in prediction markets based on the "dual-token" framework.

Pred X:AI Pushes Topics in the Prediction Market

Pred X is a multi-chain prediction market platform that supports various topics such as politics and cryptocurrency prices. Users can place bets using USDC on multiple blockchains and a Telegram mini-program is provided.

Unlike other platforms, the prediction topics of Pred X are mainly generated automatically by an AI system through analyzing popular news and market sentiment. The platform uses a centralized order book to determine prices, and the ordering process is executed by smart contracts.

However, Pred X is currently still not mature enough. The order depth and trading volume for predictable topics are far lower than those of other platforms. Users cannot freely place orders for trading, and most markets lack market makers. The technical details of multi-chain support are also not clear enough.

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

Azuro: Bet Protocol Supported by Liquidity Pools

Azuro is not a prediction market itself, but a foundational protocol for creating on-chain prediction markets. It provides smart contracts and web components that can be used to build multiple prediction market applications.

Azuro only supports single bets and cannot freely trade "yes" and "no" tokens like Polymarket. It is based on liquidity pools, with one pool supporting multiple platforms and prediction topics.

Azuro proposed the concept of "liquidity tree", allowing multiple prediction topics to share the same liquidity pool. This solves the problem of liquidity fragmentation under the traditional binary split model.

In Azuro, odds are determined by the ratio of the betting funds to the total liquidity. Data providers set the initial odds and add initial liquidity. Azuro also supports multiple dapp platforms for access and has a dividend mechanism.

The prediction market embodies an interesting philosophy, viewing the free market as the most effective information aggregation system. The development of cryptocurrency has brought lower trading friction and better market mechanisms to prediction markets.

However, the existing platforms still have shortcomings. Polymarket struggles to achieve flexible betting, and Azuro's liquidity pool scheme is relatively complex. The popularity of prediction markets reflects, to some extent, the pursuit of a free market within crypto culture, which is particularly valuable in the current information environment.