The Rise of Decentralized Prediction Markets
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Censorship-resistant and decentralized prediction markets could change almost everything about our society. We are in the early innings of an open, permissionless market that rewards those who predict the future.
Prediction markets have implications for sharing wealth and redefining organizations. It sounds grand, but here’s how it can happen.
What are Prediction Markets?
Prediction markets go by many names: information markets, decision markets, idea futures, event derivatives, or virtual markets.
However the concept can be summarized as “exchange-traded markets created for the purpose of trading the outcome of events.”
The primary intention of prediction markets is to elicit and mix beliefs concerning the consequence of a future occasion. The merchants then guess on the beliefs that they suppose would be the consequence. The totally different beliefs have various payoffs which are decided by the proportion of merchants that guess on every consequence. The prediction market is subsequently made up of those merchants on opposing sides.
The foundation of a prediction market transaction is essentially betting against each other (the market) on how an outcome will turn out. An example of this can be made for a political race. Let’s say Bernie Sanders is running against Joe Biden for the democratic nomination. You decide to buy shares of each outcome that correlate to a percentage chance that the event will occur. Once the event has occurred, the prediction market will allow your shares to be redeemed for $1, while the other shares become worthless. For example, if you buy a Bernie Sanders outcome at $0.6 and Joe Biden outcome at $0.4, you believe in a 40% chance that Joe becomes the candidate. If Joe wins the democratic nomination, Joe token becomes worth $1, while your Bernie token is now worth zero.
Prediction markets aren’t new. For a very long time, prediction markets have been run centrally by establishments with a tighter grip over the trades. A centralized prediction market determines the occasions, members, and guidelines of engagement. Concern arises from centralized prediction markets regarding controls over markets and fees.
Enter Decentralization
Adoption of decentralization confers multiple benefits that encourage participation and create an environment for innovative activities.
Decentralized prediction markets are open for anyone, anywhere to join and participate as they wish. Blockchain-based markets are public, peer-to-peer, permissionless networks that all interested participants can enter and bet on their forecasts. This openness and censorship-resistant nature also enables anyone to create their own markets based on the events of their liking.
These markets also impose a dramatic decrease in fees vs. their centralized counterparts. Instead of fees taken on bets, deposits, and withdrawals, the only fees decentralized prediction market users fase are network fees that generally go toward keeping the network protocol safe and reliable.
Players in the Decentralized Prediction Market Arena
Augur
Augur is an Ethereum-based protocol that enables users to create their own prediction markets. The platform leverages smart contracts technology to build more sophisticated markets with cheaper and faster orders. Users also have greater access to liquidity on Augur as it aggregates buyers, sellers, and market makers under one roof thus greatly improving settlements in a robust marketplace.
Polkamarkets
Polkamarkets, a new entrant to the prediction market, is built on the Polkadot network that allows users to take positions for wide-ranging events in Esports, Crypto Futures, Sports,Politics, and more. The platform also has a finance and information marketplace where participants can tokenize their knowledge and earn from forecasting. Users can monetize their forecasts of future outcomes and events within an interoperable and decentralized infrastructure, where beliefs become assets with financial value traded openly on the market.
Decentralized prediction markets are still relatively nascent with their applications just starting to touch outcome predictions in politics, sports, and others. However, with further development in the space over the next few years they can elicit profound and disruptive impacts.
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