People bet on the outcome of events using On-chain prediction markets, Decentralized Finance services built on a blockchain network. Through on-chain prediction markets, users can buy and sell tokens representing an event’s outcome. The value of these tokens is based on the real-time predictions of all the participants in the market and can change. By allowing users to bet on the expected outcome of events, these markets create a decentralized platform for market participants to speculate and make informed decisions about future outcomes.
How it works
Using smart contracts in a blockchain-based prediction market allows for the automated execution of agreements based on predetermined variables. They eliminate any chance of bias.
Smart contracts rely on oracles accurately to identify and record variables like those needed to configure a bet between India and Australia, such as scores and results. These oracles get their data from different trusted sources on the internet, ensuring accuracy and preventing any tampering so, then act on them to execute all necessary agreements at the end of the event. This provides an extra level of security and reliability for all involved in the blockchain-based prediction market.
Prediction markets, futures markets, and betting
Prediction markets and futures markets are ways of predicting the future outcome of something, whether that be the price of an asset or some other real-world event.
While futures markets allow traders to speculate on the price of underlying assets, prediction markets offer a way to predict such things as election results, company sales volumes, and the weather.
Because of the similarities between prediction markets and gambling, certain states have prohibited using real money in prediction markets. In order to comply with these laws, many prediction market operators have substituted virtual tokens for conventional currency in their systems. This allows traders to continue to benefit from the analytical opportunities that prediction markets offer without breaking the law.
Why we need on-chain prediction markets
Existing prediction markets have much to be desired. Low volumes, lack of liquidity and traders, and duplicate or confusing markets without adequate options for hedging against future outcomes are just some issues holding them back.
Over the years, prediction markets have been insignificant, meaning little or no meaningful incentives or trading opportunities.
Low volumes have a ripple effect on the wider ecosystem: liquidity is low, therefore there are not enough users to provide enough fees back to platform providers. With no profit to make from such platforms, we can only expect their eventual demise.
Analysts suggest DeFi solutions like on-chain markets will revolutionize the prediction market.
On-chain prediction as a source of public opinion
Prediction markets offer a unique approach to forecasting. Instead of relying strictly on historical data or computer algorithms, prediction markets tap into the collective wisdom of crowdsourced opinions from a wide variety of participants.
Decentralized platforms allow these participants to join forces across countries and cultures. Prediction markets present a helpful way to predict future events while gaining insight into global perspectives as well.
Corporations and policymakers gain insight into public opinion on various matters, capitalizing on the decisions made by traders based on information. As methods of decision-making become more advanced, informative biases should continue to be considered in order to achieve truly unbiased results.
Factors such as noise or herding can cause challenging externalities while trading contracts, thus proving why these prediction markets are so essential in today’s economy.
For instance, when an expected outcome trades at 65 cents, analysts can interpret it as a 65% chance that this outcome will indeed occur.
Examples of on-chain prediction markets:
Azuro Protocol is a remarkable piece of new technology that has truly revolutionized the blockchain space. It’s an open-source, public-domain software composed entirely of smart contracts written in Solidity that you can deploy on multiple chains, such as Ethereum and Gnosis Chain.
A few months after its initial launch in June 2022 on Gnosis Chain, the Azuro Protocol launched version 2 on both Gnosis Chain and Polygon Mainnet in February 2023. This major upgrade saw a host of new features, including fast transaction confirmation times, low fees, and native NFT & oracle support.
Overall, Azuro Protocol is quickly becoming one of the go-to solutions for projects looking to build interactive dApps on blockchain technology.
Polymarket harnesses the power of the Polygon blockchain. On this platform, you can trade on some of the world’s most controversial topics, from Covid-19 to politics.
When traders buy stakes in a market, they are staking their own research and foresight into the future. The market prices show the probability that outcomes will turn out as traders predict. As a result, trading on Polymarket gives predictions of higher accuracy and reliability, making it one of the foremost sources of impartial data about current events and their associated forecasts.
Augur is a decentralized prediction market platform built on the Ethereum blockchain. It allows users to trade on the outcome of future events by buying or selling contracts that represent a certain event or outcome.
The Augur protocol uses automated markets and game theory to create an environment where traders can bet on any event they see fit, while also making sure all settlement prices are accurate. The platform also rewards those who accurately predict outcomes with ETH tokens to reward further participation in its markets.
Overall, Augur is one of the most popular platforms for traders looking to get involved in crypto-based prediction markets.
Gnosis is another blockchain-powered prediction market platform that has quickly become popular among traders worldwide. They built it on the Ethereum blockchain and provide users with a secure, easy-to-use platform for trading derivatives, futures contracts, and other complex financial instruments.
What sets Gnosis apart from other prediction markets is its advanced features that allow traders to create their own custom markets or take part in existing ones with ease. The platform offers a host of tools for creating hedging strategies that help hedge risk and maximize potential profits. These features make it one of the best options available for those looking to get involved in crypto prediction markets.
Thales is an Ethereum protocol that provides the building blocks necessary for anyone to quickly and securely create decentralized peer-to-peer parimutuel markets and more.
By using uncensorable sUSD as collateral, Chainlink data feeds, and a roll-up-centric network such as Optimism, Thales ensures all transactions occur securely with no counterparty risk. Relying on these industry-leading technologies allows users to experience everything from novel on-chain initiatives such as a platform for AMM-based positional markets and immersive gamified experiences. This offers users the next level of trustless innovation right at their fingertips.
Polkamarkets focus on solving the low usage and volume problems associated with traditional centralized exchanges by providing incentives for both liquidity providers and traders to take larger positions.
The platform offers a comprehensive solution that not only uses traditional DeFi mechanisms such as liquidity mining and yield farming but also gives users the chance to take part in Sports and Esports daily markets with live feeds of events.
Players can mine $POLK tokens which they can use to open their own prediction markets.
Advantages of on-chain prediction markets
1. Increased Transparency: By leveraging blockchain technology, prediction markets provide increased transparency to the market and its participants. Every transaction is on-chain, making it easy for users to track prices and results in real-time.
2. Security: The security of a blockchain-powered prediction market is far superior to that of a traditional one because of the use of distributed ledger technology, which makes it highly resistant to fraud or manipulation from malicious actors.
3. Greater Liquidity: On-chain prediction markets boast greater liquidity than their centralized counterparts since there are no intermediaries required for transactions and traders who want to get involved in the market can immediately deploy capital without fear.
4. Low Fees: On-chain prediction markets typically have lower fees than their centralized counterparts, which can provide an incentive for traders to join the market and get involved.
5. Automated Arbitrage: On-chain prediction markets leverage automated arbitrage strategies that allow users to capitalize on discrepancies in pricing between different exchanges. This helps ensure a fair market price for all participants.
6. Accessibility: On-chain prediction markets are accessible from any device with an internet connection, making them ideal for traders who prefer trading on the go or while they’re away from home.
7. Improved Efficiency: On-chain prediction markets remove the need for intermediaries, resulting in improved efficiency since transactions are immediate instead of being delayed because of processing time by third parties. This helps traders get access to the market faster and more effectively.
On-chain prediction markets are becoming increasingly popular with traders as they offer many advantages over traditional exchanges. These include increased transparency, improved security, low fees, automated arbitrage strategies, and accessibility. They also provide a level of trustless innovation that users can leverage to gain greater returns than those offered by centralized exchanges.
The platforms discussed in this article are just some examples of the growing number of on-chain prediction markets available. Each platform has its own unique advantages and features, so it’s important for traders to do their research before deciding which one is right for them. By understanding these platforms, users can take advantage of the many benefits that they offer and increase their profits.