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Decentralized prediction markets are blockchain-based platforms where users bet on future events without intermediaries. Here’s what you need to know:
Use blockchain and smart contracts to operate autonomously
Allow betting on various outcomes like politics, sports, finance
Typically use cryptocurrency tokens for trading
Aim to harness “wisdom of the crowd” for accurate predictions
Key features:
Feature
Description
Decentralized
No central authority controls the market
Transparent
All bets and market data are public
Low fees
Reduced costs due to no intermediaries
Global access
Anyone with internet can participate
Censorship-resistant
Difficult for governments to shut down
Popular platforms:
Polymarket: Operates on Ethereum with Polygon Layer-2, allows bets on a wide range of real-world events.
Augur: Ethereum-based, allows user-created markets
TotemFi: Uses staking system, no loss of funds on wrong predictions
Challenges include legal uncertainties, data reliability issues, and potential market manipulation. Despite limitations, these markets show promise for predicting outcomes in finance, politics, and other fields.
2. Basics of decentralized prediction markets
2.1 Definition
Decentralized prediction markets are online platforms that use blockchain technology. They let people bet on future events without middlemen. These markets use group knowledge to guess how likely different outcomes are. They work on blockchain, which makes them open, unchangeable, and hard to shut down.
Key parts of decentralized prediction markets:
Built on blockchain
Run by smart contracts
Use tokens for betting
Allow direct trading between users
2.2 Main features
Decentralized prediction markets have several key features:
Feature
What it means
No central control
No single group runs the market
Open to all
Anyone with internet can join
See-through
All bets and market info are public
Hard to stop
Governments can’t easily shut them down
Cheap to use
Lower fees than regular markets
Self-running
Smart contracts handle all tasks
These features make prediction markets more open and fair. People can bet on many things, from politics to money, while staying private and safe.
Blockchain makes sure bets can’t be changed once placed. This helps users trust the system more.
Many of these markets have their own tokens for betting. This lets them work well with other blockchain money apps, making them more useful.
3. How these markets operate
3.1 Blockchain and smart contracts
Decentralized prediction markets use blockchain and smart contracts to work on their own and openly. Blockchain keeps a record that can’t be changed, showing all market activities. Smart contracts are computer programs that run the market without needing people in the middle.
Here’s how blockchain and smart contracts help these markets:
Feature
What it does
Can’t be changed
Keeps bet records safe
Open to see
Anyone can view market activities
Runs itself
Smart contracts handle betting and results
Keeps things safe
Uses special codes to protect user money and info
Smart contracts also set up new markets and decide who wins bets based on real events.
3.2 Using tokens to join in
To join these markets, you usually need special tokens. These tokens do different jobs:
For betting
To add money to markets and earn fees
To vote on changes to how the market works
To get rewards for good guesses
Using tokens helps these markets work well with other online money apps.
3.3 Starting and ending markets
Here’s how markets start and finish in these systems:
Step
What happens
1. Create market
Someone suggests a new thing to bet on
2. Add money
People put in money so others can bet
3. Betting time
Users place bets on what they think will happen
4. Get real info
Trusted sources tell what really happened
5. Pay out
Computer program gives money to winners
This way of doing things is fair and doesn’t need people to run it. But it’s important that the info about what really happened is correct.
4. Parts of decentralized prediction markets
4.1 Who’s involved
Decentralized prediction markets have several key players:
Player
Role
Market Creators
Suggest new markets and set up events to bet on
Traders
Buy and sell shares based on what they think will happen
Liquidity Providers
Add money to markets so others can trade
Oracles
Give real-world info to decide who wins
Token Holders
Own the market’s special coins and vote on changes
4.2 Oracles and data sources
Oracles are important in these markets:
They connect the blockchain to outside info
They make sure the right info is used to end bets
They help keep the markets fair and correct
Types of oracles:
Type
What it is
Used for
One source
One trusted place for info
Sports scores
Many sources
Info from different places
Big money news
People-based
Info from many people
Things people decide
Computer-based
Info from machines
Stock prices, weather
The type of oracle used can affect how much people trust the market.
4.3 How decisions are made
Here’s how things work in these markets:
1. Starting a market:
People suggest new things to bet on
Everyone votes on which bets to allow
2. Betting time:
People buy and sell based on what they think
Prices change as people bet
3. Finding out what happened:
Oracles tell what really happened
Computers use this info to end the bet
4. Giving out money:
Winners get paid
People who added money to the market get some too
5. Big choices:
People with special tokens vote on big changes
This way of doing things helps keep everything open and fair, without needing someone in charge.
5. Benefits of these markets
Decentralized prediction markets have several key advantages over regular ones:
5.1 Hard to stop or control
These markets are spread out, making them tough to shut down:
No one group can close or change the market
People from anywhere can join
Users can bet on any topic without worry
Less likely to be stopped by governments
This lets people bet more freely on many different things.
5.2 Open for everyone
Anyone can use these markets:
You just need internet to join
No bank account or credit check needed
Easier to start than old-style markets
People from all over can add their ideas
More people joining means better guesses and more money in the markets.
5.3 Cheaper and more money to trade
These markets can save users money:
Benefit
How it helps
Lower costs
No middle-men means less fees
More trading
Open all day, every day
Fair prices
Computers keep prices competitive
Less price change
Lots of money in the market keeps prices steady
All this makes trading cheaper and easier for everyone.
5.4 Clear and unchanging records
Blockchain keeps everything open:
Anyone can check all bets and results
Old info can’t be changed or erased
People trust the market more
Easy to look at how the market worked before
This openness makes people feel better about using the market.
6. Problems and limits
Decentralized prediction markets have some issues and limits:
6.1 Legal concerns
These markets often face legal problems:
Issue
Details
Unclear rules
Many countries don’t know how to classify these markets
Possible illegal activity
Some see them as unlawful betting or uncontrolled trading
Hard to follow laws
Tough to check users’ identities and stop money crimes
User risks
People might break laws by using these markets
6.2 Data problems
Getting the right information is key:
Wrong data can lead to incorrect results
Even spread-out systems can have weak points
Hard to judge complex events accurately
Arguments about results can make users lose trust
6.3 Market cheating risks
These markets can still be tricked:
Rich users might change prices
Some people might use secret info to win
Market makers and bettors might work together unfairly
Bad people could use flaws in the computer code
6.4 New tech issues
As a new system, these markets face some problems:
Problem
Effect
Not enough traders
Can make guesses less accurate and prices jump around
Hard to use
Regular people might find it too complex
Slow at times
Blockchain limits can make fees high when busy
Doesn’t work with other systems
Hard to use across different platforms
These issues need fixing for more people to use these markets and for them to work better.
7. Well-known platforms
7.1 Top platforms
Two big names in decentralized prediction markets are:
1. Polymarket
Operates on Ethereum with Polygon Layer-2 for scalability.
Allows bets on various real-world events like politics, sports, and entertainment.
Users deposit USDC, buy outcome shares, and trade them.
No KYC checks, providing self-custody of wallets.
Faced regulatory issues but continues to operate internationally.
Augur
Uses Ethereum’s ERC-20 system
Users can make their own betting markets
Low costs for users
People who start markets can earn money from fees
3. TotemFi
Uses a staking system for bets
You don’t lose money if your guess is wrong
Users work together to earn rewards
Pays out in Bitcoin and its own TOTM coin
7.2 How they compare
Here’s how Augur, TotemFi, and Polymarket stack up:
What to look at
Augur
TotemFi
Polymarket
How it works
Uses Ethereum
Uses staking
Uses Ethereum with Polygon Layer-2
Who makes markets
Users
The platform
Users
Costs
Low
Not clear
Low
What happens if you’re wrong
You might lose money
You don’t lose money
You might lose money
How you earn
From trading fees
By working with others
From trading fees
What you can earn
Platform coins
Bitcoin and TOTM coins
USDC
Augur lets users create their own markets and has low fees. This is advantageous for those who want to bet on a variety of topics.
TotemFi doesn’t take your money if you guess wrong and pays out in Bitcoin, which can be appealing to some users.
Polymarket operates on Ethereum with Polygon Layer-2, allowing bets on a wide range of real-world events. Users can earn USDC, and the platform is known for its scalability and reduced transaction costs.
Both Augur and TotemFi have unique features that cater to different user preferences, while Polymarket stands out for its technological enhancements and broad event coverage. As more people use these markets, we can expect further improvements and innovations.
8. Real-world uses
Decentralized prediction markets are used in many areas. Let’s look at how people use them.
8.1 Guessing money trends
People use these markets to guess what might happen with money. They can help:
Predict how stocks might move
Guess if prices will go up or down
Show what many people think about money matters
Traders can use this info to make choices about buying and selling.
8.2 Betting on politics
These markets are good for guessing about politics. People bet on:
Who might win elections
What new laws might pass
Other big political events
Sometimes, these markets guess better than regular polls.
8.3 Sports betting
Sports fans like these markets because:
They can bet on many different sports
The fees are often lower
The odds can be better than regular betting sites
8.4 New ways to check for problems
Companies use these markets to spot possible issues. They help:
See what might go wrong with projects
Get ideas from many workers
Make better choices about risks
Use
How it helps
Money Guessing
Shows what many people think about stocks and prices
Politics Betting
Can guess election results and new laws
Sports Betting
Offers many games to bet on with lower fees
Problem Checking
Helps companies spot issues before they happen
As more people use these markets, we might see them used in new ways. They’re good at getting many people’s ideas quickly and clearly.
9. Effects on old-style markets
Decentralized prediction markets are changing how regular markets work. Let’s see how they’re making things different.
9.1 Changing regular platforms
These new markets are making old ones change:
Change
How it happens
More open
Old markets show more about how they work
Lower costs
Old markets charge less to keep up
More choices
Old markets offer more things to bet on
Easier to use
Old markets make their websites better
9.2 Making markets work better
New markets are helping all markets do better:
Improvement
What it means
More money to trade
People from all over can join in
Better guesses
Lots of people guessing together often get it right
Faster updates
New info changes prices quickly
Less cheating
Hard for one person to trick the whole market
Here’s how new and old markets compare:
What to look at
Old markets
New markets
How open they are
Not very
Very
How much they cost
Often more
Usually less
How much money to trade
Can be less
Often more
How good the guesses are
Okay
Often better
How fast they work
Can be slow
Usually fast
How easy to cheat
Easier
Harder
As these new markets grow, they’ll keep making all markets better. This helps everyone who uses them.
10. What’s next
Let’s look at what’s coming for decentralized prediction markets and how they might change things.
10.1 New tech improvements
New tech will make these markets work better:
Improvement
What it does
Blockchain
Makes things more open and safe
Smart Contracts
Runs markets on its own
AI and Machine Learning
Helps people make better guesses
Mobile Apps
Makes it easier to use on phones
These changes will help more people use these markets.
10.2 Working with other online money tools
Prediction markets will work with other online money tools:
Tool
How it helps
Different blockchains
Move money between different systems
Data checkers
Get better info from outside the blockchain
Digital art tokens
New ways to bet and earn
Online insurance
Protect against mistakes in the system
This will give users more ways to use prediction markets.
10.3 More uses in different areas
These markets will be used in new ways:
Area
What it could do
Health
Guess disease spread and treatment results
Weather
Predict changes and effects of new rules
New tech
Guess what new tech will be popular
Movies and TV
Predict hits and award winners
Sports
Better betting and guessing player success
Government
Better election guesses and law effects
As these markets grow, they’ll help people make choices and plan in many areas.
The future looks good for decentralized prediction markets. They’ll likely get better tech, work with more tools, and be used in new ways. As rules change, finding a balance between new ideas and following laws will be important for these markets to keep growing.
11. Wrap-up
11.1 Main points
Decentralized prediction markets are changing how we use group knowledge. Here’s what’s important:
What’s new
How it helps
Blockchain
Makes things open and safe
Smart contracts
Runs markets without people
More uses
Not just for sports and politics anymore
Easier to use
More people can join in
Works with AI
Helps make better guesses
These markets are changing how we make choices, handle risks, and plan for the future in many areas.
11.2 Role in future money
Decentralized prediction markets will be big in how we handle money:
What they’ll Do
Why it matters
Better guessing
Many people’s ideas help see what might happen
More people join in
Different views make guesses more right
New rules needed
To keep things fair and working well
Work with other online money
Help manage risks and invest
Push new ideas
Make tech better and find new ways to use it
As these markets grow, they’ll help us make smarter choices about money and other things. They’ll change how we look at what might happen and deal with risks in our connected world.
FAQs
What are DeFi prediction markets?
DeFi prediction markets are online platforms where people bet on future events. They use blockchain to work without middlemen. Here’s what makes them special:
Feature
What it means
No central control
Runs on blockchain, not by one company
Self-running
Computer programs handle bets and payouts
Uses special coins
People bet with crypto or platform tokens
Anyone can start a market
Users can make bets on many topics
Cheap to use
Costs less than old-style betting sites
Two well-known DeFi prediction markets are:
Augur: Uses Ethereum and lets users create their own markets
TotemFi: Uses staking and doesn’t take your money if you guess wrong
These markets cover many topics like sports, politics, money trends, and world events.
People use DeFi prediction markets because:
They’re open to everyone
They cost less to use
They offer many things to bet on
They work without needing a company to run them
As more people use these markets, they might change how we think about betting and guessing future events.
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