Predicting the market is an open market that predicts specific outcomes through financial incentive mechanisms. These markets are trading markets established for betting on various event outcomes. Market prices can reflect the public's view of the probability of an event occurring.
A typical prediction market contract trades between 0% and 100%. The most common form of prediction market is the binary options market, whose price at expiration is either 0% or 100%. Users can also sell options before the event occurs and exit at market prices.
Through prediction markets, we can extract the public's future expectations for an event from the value of the results shown by the participating betting group, and traders with different beliefs will reflect their confidence in the possible outcomes by trading contracts, and these contracts' market prices are considered to be aggregated beliefs.
The history of prediction markets is long, almost as long as the history of human gambling, and the combination of prediction markets and politics seems to have existed since ancient times: in the Middle Ages, people were keen to bet on the prediction of the election of the Catholic Pope.
As the US presidential election approaches, interest in betting on the political sector has peaked in July with the emergence of events such as Trump's assassination, Biden's withdrawal, and the Democratic Party's replacement of Harris as the elector, with prediction markets represented by Polymarket attracting widespread attention.
Polymarket: Tradable Prediction Markets
Polymarket is a decentralized prediction market project born in 2020, founded by Shayne Coplan, supported by well-known institutions and angel investors such as Polychain Capital, Founders Fund, and Vitalik.
Polymarket allows users to trade on highly controversial topics (such as politics, sports, pop culture, etc.), and users build their portfolios based on their predictions.
Unlike traditional sports betting, Polymarket allows users to freely trade shares of market topics before they are settled, allowing speculators to flexibly participate in probability gambling.
Polymarket uses the conditional tokens framework (CTF) based on Gnosis, where every $1 of erc20 tokens such as USDC pledged will produce two conditional tokens, representing the positive and negative outcomes of the trading event (yes or no). A multi-outcome market is a composite statistic of multiple binary outcome markets.
Conditional tokens fluctuate in the market due to trading demand, and users can buy and sell at any time through the order book; or they can wait until there is a result, and the person holding the correct token gets the full $1 profit.
Because the two tokens are traded independently in a market similar to cex, it is possible that the prices of the two tokens added together do not equal $1, so market makers need to participate to level the difference. Therefore, before the event ends, you can also use one positive and one negative token in the contract to exchange back $1 of the pledge.
Polymarket's prediction market is generally composed of the following parts:
Market theme - Each prediction in Polymarket focuses on a theme or event, although users can submit new market creation proposals through Polymarket's Discord, but due to the complexity of the wording, Polymarket has discretionary power over which markets will be created.
Oracle - The result of an event usually requires human input into the oracle. Polymarket uses the UMA optimistic oracle, allowing anyone to submit a solution. If no one challenges the solution within a certain period, the solution will be adopted as fact. In rare cases, when a dispute arises, the oracle's decision is made by the token holders of UMA.
Conditional Tokens - As mentioned above, by locking $1, you get "yes" and "no" two conditional tokens, and at market settlement, the person holding the winning result will get the full $1. "Yes" and "no" tokens are freely traded in the market, and prices indicate probabilities. Polymarket uses the conditional tokens framework (CTF) developed by the Gnosis protocol, which is built on the ERC1155 token standard.
Order book market - Polymarket's market is a hybrid on-chain order book trading mechanism, similar to dYdX v3, where users authorize by signature, matched off-chain by operators, and finally interact with contracts on-chain. The contract performs non-custodial settlement, performing atomic exchanges between binary result tokens and collateral assets, so operators do not control the pledged $1.
Liquidity providers - Unlike sports betting, Polymarket allows free trading of conditional tokens before the result is out, determined by supply and demand rather than by mechanism, and token prices may deviate (the prices of two tokens added together do not equal $1). Therefore, anyone can place limit orders to earn fees by buying and selling spreads, and Polymarket also provides additional USDC incentives.
Polymarket has not indicated a token issuance plan, nor has it actively incentivized user points. Nevertheless, Polymarket has distributed over $3 million in USDC for liquidity rewards so far this year, aiming to improve the overall liquidity depth of the platform. Currently, the highest trading volume market pays about 600 USDC per day to liquidity providers.
SX Bet: Single Bet Prediction Platform
SX Bet is a sports betting platform based on Ethereum, founded in 2019, currently relying on the Arbitrum Orbit Rollup established SX Chain.
The betting markets currently supported by SX Bet are mainly still based on sports topics, focusing on the winners of major events such as tennis, football, baseball, and basketball. Recently, the betting sector has also added new topics such as Crypto, Degen Crypto, and politics, with bets revolving around the price trends of mainstream crypto assets and on-chain meme coins and the winners of the US election.
Unlike Polymarket, SX Bet follows the traditional sports betting model, only supporting single bets, and bets cannot be freely traded before the outcome of the prediction event is determined.
The innovation of SX Bet lies in the first implementation of a combination betting system, where users make predictions for a series of events, and only if all are correct can they receive the prize money. The prize money for combination betting is often very substantial, which can be seen as the leverage of the prediction market. SX Bet's market will become the counterparty to the transaction.
This type of combination betting is more like a lottery, often bringing huge returns of up to ten thousand times, and its benefactor stories are easily virally spread, which is also the most interesting part of traditional sports prediction markets.
Obviously, Polymarket and all prediction markets based on the "dual token" conditional framework cannot implement combination betting, as the contract cannot mint a conditional token for each result combination and ensure that it can be freely traded in a liquidity-sufficient situation. The odds of a two-result prediction market are limited, which may not be attractive enough for users.
Pred X: AI-Pushed Topic Prediction Market
Pred X is a prediction market initially based on the Sei blockchain, covering topics such as political, cryptocurrency price predictions, and popular events. Currently, the platform supports betting with USDC on multiple blockchains such as Base, Linea, Sei, Bitlayer, and has launched a corresponding Telegram applet. Pred X's Telegram applet is called PredXFun (@PredxFantasyBot), which offers users two modes: one is a game mode where users make predictions about the probability of hot events and earn points; the other is a real mode where users participate in official website betting on similar topics by linking wallets.
Unlike Polymarket's prediction market topics, which are mainly proposed by users in Discord, most of Pred X's prediction topics are generated by Aimelia AI by capturing hot news and market sentiment indices from the internet and then pushing them to the Pred X website, where users spontaneously form trading markets. Although Pred X supports multiple blockchains, it is not a fully decentralized prediction market application. The different results of various prediction topics are determined by the platform's centralized order book, and the ordering process and each prediction topic's market are implemented according to smart contract rules.
Objectively speaking, Pred X is still not a mature platform compared to other prediction markets. The order book depth and betting transaction volume of predictable topics on the website are far lower than those of Polymarket and Sx Bet. As a prediction market, it should support users to freely trade different result tokens before the event is revealed. Unfortunately, Pred X's order book does not support users to place orders themselves. In most markets lacking market makers, users are actually unable to freely trade result tokens. In addition, the document does not specify in detail how to ensure the consistency of topic market contracts on different chains under the support of multi-chain betting, as well as how to ensure that all probability result tokens have sufficient liquidity on each chain. When trading by connecting wallets in the "real mode" of the Telegram applet, there is a price difference between the prediction market of the same topic and the official website's betting.
All these situations make us doubt the practical usability and reliability of Pred X. Overall, this product currently looks more like a semi-finished product.
Azuro: Betting Protocol Supported by Liquidity Pools
Azuro is not a prediction market itself, but a basic protocol used to create on-chain prediction markets, including on-chain smart contracts and web components, which can be used to establish multiple prediction market applications based on Azuro.
Azuro can only make single bets and cannot trade "yes" and "no" freely like Polymarket, only gaining profits after the results are announced.
Azuro's system is built around a liquidity pool, and anyone can interact with the Azuro factory contract to deploy their own liquidity pool. Multiple betting platforms can be created under one liquidity pool, and multiple possible events can be established for different prediction topics under each betting platform, respectively.
In the binary split model like Polymarket, liquidity is isolated, divided under multiple different prediction events. Azuro proposes a concept called a liquidity tree, where multiple events under one prediction topic, and even multiple topics and multiple betting platforms, can share the same liquidity pool.
The liquidity tree provides a hierarchical structure, with different possible events defining the range of liquidity, such as multiple possible scores for a football match between two teams.
This liquidity ensures that the platform has the capacity to act as the counterparty to the bettor at any suitable time, to pay potential prizes (losses for LPs). If bettors generally lose, then LPs can earn profits. A liquidity tree simultaneously provides liquidity for many prediction topics and acts as a counterparty, generating profits/losses.
The odds for each event in Azuro are calculated based on the funds bet on each event and the total liquidity range of the entire prediction topic. The initial odds are set by specific data providers and corresponding initial liquidity is added. Data providers can also adjust the odds during the betting process, and these odds' payout capability is guaranteed by the initial liquidity.
Azuro also supports the implementation of multiple dapp platforms, where betting platforms can set their own fee dividends, and bettors can freely choose; while the creators of liquidity pools can also set the pool's dividend ratio. All pool profits will have a certain percentage entering Azuro's own DAO, and Azuro has also issued its own native token $AZUR.
Finally
The philosophy behind prediction markets is interesting, with participants aiming for profit, viewing the free market as the most effective information collection system for predicting real-world events. These results are often surprisingly accurate, reflecting views effectively in a society dominated by algorithmic monopolies of information, as demonstrated in Polymarket's predictions about political events.
Many crypto users first encountered prediction markets during the last presidential election with the Trump and Biden indices launched on FTX, combined with SBF's strong market-making capabilities, you could even engage in high-leverage battles, although centralized, it was indeed a very interesting experience.
Of course, cryptocurrencies greatly reduce the transaction friction of prediction markets, providing a better and more effective market mechanism. And based on smart contracts and AMM ideas, it also brings better market mechanisms to prediction markets—no entry and better liquidity. Even many AI AgentFi projects also see prediction markets as a battleground for exercising model collective intelligence and honing abilities.
Of course, the flaws are also very obvious: Polymarket, although it has opened up the free trading of conditional tokens themselves, is difficult to achieve flexible betting mechanisms, lacks high-return expectations, and has lost some of the fun for ordinary players; and solutions like Azuro's liquidity pool are obviously still somewhat complex and lack post-bet trading capabilities.
Rather than saying that it is a mechanism and technological innovation, the current boom in prediction markets should be said to be another mass adoption of crypto culture, a victory for the underlying free market culture, which is particularly precious in an era where algorithmic authority is increasingly monopolizing information. After all, nothing is smarter than the market, no information system is more effective than a free market.
