What are decentralized prediction markets?

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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:

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:

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:

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:

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:

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:

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:

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:

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:

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:

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

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:

9.2 Making markets work better

New markets are helping all markets do better:

Here’s how new and old markets compare:

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:

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:

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:

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:

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:

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:

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.