The booming of the prediction market to a certain extent reflects the most authentic emotions of traders and the possibility of transforming expected events into trading behaviors.

Vitalik has long been optimistic about the potential of prediction markets in expanding the daily applications of cryptocurrencies. He has mentioned it publicly multiple times. The Polymarket he invested in has gained great popularity this year due to election topics. The act of betting on elections has a long history, dating back to the Middle Ages when people began betting on papal elections. Today, the showdown between Trump and various Democratic candidates has also attracted a lot of attention. However, due to the explicit ban on betting on political events in the United States, such activities have shifted to encrypted markets like Polymarket. Its real-time results reflect users' true thoughts, and public sentiment is often considered an important factor for our trading reference. The prediction market is entering the public's view in a unique way.

What is a prediction market

Taking Polymarket as an example, this platform is essentially a binary options market. Traders can choose "yes" or "no" under a certain topic and invest the corresponding amount. If the prediction is correct, they can earn a fixed income; if the prediction is wrong, they lose the invested amount. Currently, Polymarket has completed three rounds of financing totaling $74 million from individuals and institutions such as Vitalik, Polychain, and Dragonfly.

It is also a platform for traders to bet against each other. If someone profits, it is definitely at the expense of losses from other traders, and the platform itself profits by charging fees.

Current status of the prediction market

From the chart, it can be seen that the Polymarket website has experienced significant changes in both the number of visits and unique visitors over the past year. Especially after completing a new round of $35 million financing in May this year, monthly active users, trading volume, and open interest have all reached historical highs. In May and June, the number of visits and unique visitors increased significantly, reaching 733,689 and 220,956, respectively. This growth trend coincides with the approaching U.S. presidential election, indicating a surge in user interest in political prediction markets.

Data source: SimilarWeb

Since the beginning of 2024, Polymarket's TVL has also surged, from about $10 million at the beginning of the year to the current $67 million, an increase of +570%. At the same time, the daily trading volume broke through $27 million on July 1, and the highest number of daily trading users approached 7,000… These rapidly rising data show that the prediction market platform is exerting strong attraction to the entire encrypted market.

Source: DefiLlama

Source: Dune

How to participate in Polymarket?

By visiting the official website polymarket.com, users can choose to trade and provide liquidity. The most popular prediction topic on the homepage is "Winner of the 2024 Presidential Election." The initial trading price for each result is $0.5, and the price will change based on the amount bet by users on both sides, representing the probability of the current event occurring. $0.5 means that Trump has a 50% chance of being elected president, and the current predicted probability has risen to 61%. At the same time, the total amount of funds invested in this topic has exceeded $350 million.

As shown in the figure, users only need to enter their investment amount to know how much they can win if they guess correctly, without understanding the complex logic behind the product. The front-end design is simple and user-friendly. At the same time, due to the depth of the topic funds, when the investment amount is large, the potential return will change significantly, for example:

1. Betting $1,000 on Trump's victory, if he wins, you can get back $1,615 (+61.51%);
2. Betting $10,000 on Trump's victory, if he wins, you can get back $16,131 (+61.34%), with little change;
3. When betting $1,000,000 on Trump's victory, if he wins, you can only get back $1,369,041 (+36.90%), and the return rate drops from 61% to about 37%.

Although the prediction market seems to be fun and can bring considerable profits on the surface, due to various reasons such as betting failures, high friction costs, and low liquidity, traders are expected to incur losses in the long run on this platform because their average returns are negative. Even if individual traders can make substantial profits in the short term, whether they can consistently predict correctly and make profits is still unknown. After all, no one can be 100% sure that their bets are always correct. Investors still face relatively high risks in such markets and need to be cautious.

In addition, Polymarket also has a liquidity reward program. By providing market liquidity through limit orders, the closer the order price is to the average market price, the more you can earn. The amount of reward also depends on the amount of the order, the larger the order amount, the greater the reward.

Other prediction market projects

Polymarket is not the first project to do prediction markets. As early as 2015, Augur was established and completed a $5.3 million financing. It is an open global prediction market protocol that allows anyone to create markets for anything. Gnosis, which initially started as a prediction market with its 1.0 version, has now become a dapp incubator with its own series covering wallets and mainnet infrastructure.

Source: CoinGecko

Overall, the prediction market track is still relatively early, with few projects and a total market value of around $700 million. According to CoinGecko's prediction market category, currently only Augur (REP), finance.vote (FVT), Prosper (PROS), Handy (HANDY), Polkamarkets (POLK), and the yet-to-be-launched CEX Zeitgeist (ZTG) and Hilo (HILO) have released their own tokens, and their market rankings on CoinGecko are all outside the top 1000.

Overview of ecological projects

1. Polygon ecosystem:

• Polymarket: A flagship prediction market that went live in 2020, allowing users to trade on some political and real-time controversial topics and receive rewards for correct predictions.

• Augur: A veteran prediction market, also tradable on the Eth chain.

• UBet: Mainly used for sports predictions.

• YOLOrekt: Guessing cryptocurrency prices.

• Guesslot

• Reality Cards: NFT-based prediction platform.

2. BNB ecosystem:

• Prosper: A cross-chain prediction market and hedging platform.

• finance.vote: A cryptocurrency price prediction platform, also tradable on the Eth chain.

• AlphaOrBeta: Web3 prediction and opinion survey network, where users predict through voting, winners receive ETH rewards, and losers receive the native token of the prediction voting protocol. Developed by OpinionLabs, it quickly accumulated 100,000 users within 2 months of launching in the BNB ecosystem, becoming the number one social project in the Mantle ecosystem's popularity ranking at one point, ranking fourth on Arbs, and being selected as one of the most valuable builders by Binance Labs.

3. Polkadot ecosystem:

• Zeitgeist: An active prediction market on Polkadot, which completed a $1.5 million seed round and raised $14 million by the end of 2022.

4. Solana ecosystem:

• Hedgehog: A veteran prediction market, but has been inactive for a long time after its 2021 financing.

• JogoJogo: A new project in 2024, Solana's native AI prediction market, where anyone can bet any amount on any topic and receive returns.

• mash.trade: A new project in 2024, offering leveraged trading, with relatively few followers and an incomplete product.

5. Sei ecosystem:

• PredX

• Kargo

6. Ton ecosystem:

• Wagmi11: Mainly used for predicting sports events.

7. Other L2:

• BetBase: A prediction and betting platform on Base.

• Expectium: An information prediction market on Starknet.

CEX's attempts in the prediction market

Many centralized exchanges have also conducted similar prediction activities:

• Binance once launched Binance Futures NEXT: Each person could invest up to 100 USDT for voting, and if they chose correctly, they would get back 120 USDT, otherwise, they would receive a full refund. This method is equivalent to the exchange allowing users to participate in activities to receive benefits without incurring losses.

• LBank launched the SBF pardon-related contract activity in November 2023, with the option of 10x leverage. If SBF was successfully pardoned, those who bought long would profit, otherwise, they would incur losses. This activity sparked a lot of controversy.

• XT Exchange launched the "European Cup Battle of XT Summit" during the start of the European Cup this year, with a huge prize pool for predicting the champion. This event attracted the attention of over 5 million users worldwide.

Future development expectations

From the data, it can be seen that the number of active users and new registered users on Polymarket are growing rapidly. In the past 20 days from July, the monthly active trading users on Polymarket have exceeded 32,000, and the number of new registered users has exceeded 42,000. There are still many newly registered users who are observing and could potentially become active users of the platform at any time. The booming of the prediction market to a certain extent reflects the most authentic emotions of traders and the possibility of transforming expected events into trading behaviors. This real-time reflection of public sentiment provides valuable data for analyzing and understanding market trends.

In the United States, this kind of prediction-based trading platform is subject to relatively strict regulations. According to a ruling in 2012, regulated markets are not allowed to offer contracts on political events. This leaves a huge market gap and development opportunity for emerging unregulated prediction markets, such as encrypted platforms like Polymarket. Although the strict regulatory environment poses some legal risks in this field, it also provides the possibility for innovative companies to enter and expand due to these regulatory loopholes. For traders, this is both an opportunity and a danger.

【Disclaimer】This article is for reference only and does not constitute any investment advice. Investment carries risks, so please proceed with caution. Readers should independently evaluate the content of this article based on their own circumstances and bear the risks and consequences of investment decisions on their own.

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