Market Overview
The prediction market can be divided into two main camps: non-sports and sports. The non-sports market is relatively underdeveloped, with multiple target areas: cryptocurrencies, political events, cultural events, etc.
Polymarket is the undisputed leader in the non-sports market, mainly focusing on political events.
After incorporating the sports market, looking at the total transaction volume from the beginning of the year to date, Azuro and SX Network are closer to Polymarket.
Some competing projects have launched, including Limitless Exchange (running on EVM, offering ETH markets), and Hedgehog Markets (running on SOL, betting first and setting odds later).
Projects under development include Drift Exchange, xMarkets, Inertia Social, Doxa, Contro, etc.
New teams are keen on themes such as:
Permissionless markets: open market creation and incentive layers
Solutions: relying on artificial intelligence for market settlements, or creating more efficient systems
Polymarket users have repeatedly made these demands.
Thanks to popular and regular events, the sports market has gained a good user base in the Web2 environment.
It is not easy to shift users to cryptocurrencies, as most value brand and user experience. Web2 sports betting platforms also typically have inexhaustible marketing budgets, with at least five sports betting companies spending over $100 million annually.
The amount Americans bet on a single Super Bowl (about $23 billion) is ten times the total transaction volume of the crypto prediction market to date (about $2 billion), with just one state's betting amount far exceeding $2 billion.
Viewpoint: More on-chain funds = more on-chain sports betting, just as internet betting companies took over the betting market via mobile.
Leveraged Trading
One major limitation of the prediction market is the lack of leverage. In the non-sports market, LogX trade will allow perpetual trading on TRUMP, similar to FTX in 2020. Doxa market is also developing leveraged trading.
Both projects' counterparties are liquidity pools. Liquidation and bad debts remain unresolved issues.
For Polymarket, exploring "parlay betting markets" seems to be an interesting direction. For example, the market "Trump and Biden win nominations" is actually a leveraged bet, as it predicts two independent events.
Looking forward to seeing markets like "will a, b, c, and d happen?"
I am also not worried about initial liquidity supply, as liquidity providers (LPs) are keen on daily harvesting returns!
In the sports market, several protocols can now operate leverage through "parlay betting markets," where users must guess multiple unrelated events correctly to win. SX Bet, Azuro, and Overtime all support such markets.
Market Mechanisms
Prediction market mechanisms can generally be divided into two types: web2.5 and web3.
Web2.5: Uses cryptocurrencies as a payment method, such as Stake/Rollbit. Users can bet using cryptocurrencies, but the counterparty is the team behind the application, with no direct interaction with the blockchain.
Web3: Prediction markets have a certain footprint on the blockchain, such as NFT holdings, or bets executed through smart contracts.
There are usually two ways to match on-chain bets: 1. AMM, relying on passive LPs; 2. Order book, where the platform acts fully as an exchange.
Memecoins and Prediction Markets
In web3, memecoins themselves have become prediction markets, with $TRUMP and $BIDEN as examples, where holders can profit by 1) choosing the right direction and 2) focusing on the right issues:
Through memecoins, users can speculate on others' speculative behavior, right or wrong.
For example, the new protocol swaye is trying to combine the best features of prediction markets and memecoins.
Early entrants into a market not only bet on specific outcomes but also have an incentive to hype the market, as betting activities on both sides help increase returns.
Profit Models
Protocols have several ways to profit:
- Transaction fees
- A portion of the traders' bonuses (the web2 model follows this path)
- Accumulated counterparty earnings (web2 likes to serve losing customers)
Most protocols adopt the first or third method. Polymarket does not charge transaction fees.
Future Developments
Artificial intelligence agents will become emerging key players in this field, as they can quickly respond to news. They will manage orders, inventory, and execute betting strategies. They will also calculate expected outcomes and assume corresponding risks. At least two teams are quietly advancing in this direction.
In the next few years, at least one protocol's trading volume will be able to compete directly with Polymarket.
Given Polymarket's current incentives for its market, other protocols also need to use a lot of incentives such as points, tokens, or USDC.
Everyone is asking whether the trading heat can continue after the elections, at least since the beginning of the year, Polymarket's non-election market trading volume has been growing, which undoubtedly provides an optimistic signal for the market vitality in the post-election period.
