Which prediction market is the best: A comparison of the models of five major prediction platforms including FTX, Augur, Catnip, etc

This article was first published on November 5, 2020, in the Blockchain Study Society, authored by Jing Kai.

Taking advantage of the hot topic of elections, let's explore what prediction markets in the blockchain industry are today. What interesting platforms are there, and how do they perform during the elections?

What is a prediction market?

In simple terms, a prediction market is a derivatives market created based on clear facts that can be verified in the future. The support of blockchain technology gives prediction markets the characteristics of being public and trustworthy.

For example, who will win the 2020 U.S. presidential election, which team will win in a soccer match, or will Bitcoin's price exceed $20,000 by the end of 2020? These questions occur at some point in the future, and the final results are clear and verifiable, with no ambiguity.

In addition to events occurring in the future and having clear verifiable results, prediction markets also involve trading characteristics. Participants make judgments about the outcomes of future events and place bets on them. According to publicly verifiable rules, if the prediction is correct, they can earn profits.

During the 2020 U.S. presidential election, several prediction market platforms initiated discussions on predicting the next president. Users who participated and made correct predictions would receive rewards in cryptocurrency or fiat currency. Investing funds to make judgments, waiting for the answers to be revealed, and then receiving rewards or losing funds based on the results is the most basic gameplay of prediction markets.

Traditional prediction markets have the possibility of opaque operations, as data may be tampered with by project parties or suffer from database hacks. However, with the immutable and transparent characteristics of blockchain, encrypted prediction markets have emerged.

Of course, blockchain-based prediction markets are not without limitations.

First, encrypted prediction markets rely on oracle services to provide accurate results. Although encrypted prediction markets can record information from all parties on a public ledger, the prediction events often occur off-chain, requiring intermediary institutions or data oracles to provide off-chain data to blockchain applications. If the oracle fails or is maliciously manipulated, it can cause the prediction market to malfunction. Prediction markets often need to choose reliable oracle services or select multiple oracle service providers to avoid single points of failure.

Second, when there is a dispute over the results of a prediction topic, if the prediction market application does not have a suitable dispute resolution mechanism, it can also lead to unpredictable outcomes. In this U.S. presidential election, some prediction markets set deadlines that were too short, which could lead to this situation. If Trump loses the election, he may attempt to overturn the results through lawsuits, which would prolong the confirmation of the final outcome.

Although encrypted prediction markets are still in their emerging stage, the 2020 election attracted a large number of users to this type of application. Next, let's take a look at five typical prediction market platforms.

Readers should be reminded that this article is for informational purposes only and does not constitute investment advice. As prediction markets are essentially binary betting agreements, they carry a high degree of uncertainty, and participants should be aware of the risks.

FTX Centralized Platform Gameplay

Can Trump be elected? The prediction market on FTX gives the answer:

Yes: 0.12; No: 0.88.

The Trump-2020 contract product on the digital asset derivatives trading platform FTX has been online for a long time. According to FTX's introduction: TRUMP-2020 (hereinafter referred to as TRUMP) is a contract product launched by FTX. If Donald Trump wins the 2020 U.S. presidential election, TRUMP will settle at $1, otherwise it will be $0. Similarly, other President-2020 contracts (President refers to candidates in the 2020 U.S. presidential election) are also a series of election contracts launched by FTX. If any of the other candidates wins the 2020 U.S. presidential election, the corresponding contract will settle at $1, otherwise it will be $0.

Due to the niche nature of prediction markets, market liquidity is often insufficient. However, there has been some development in recent years, and during this election, FTX's prediction market is one of the most liquid markets.

According to statistics from Coingecko, the 24-hour trading volume of the Trump contract on the FTX platform is approximately $8 million (the combined trading volume of TRUMPWIN and TRUMPLOSE).

Theoretically, the price of a TRUMP contract is approximately equal to the probability of Trump being re-elected, while the opposite represents the probability of Trump not being re-elected.

As the trading volume of prediction markets increases, FTX has profited significantly. According to TheBlock, FTX may earn over $1 million in revenue from prediction contracts.

Compared to decentralized encrypted prediction markets, the trading experience of FTX's prediction contracts is somewhat better. Like other digital asset trading, users enter the trading price and quantity, and submit orders.

Since the usage method is familiar to everyone, there is no need for further introduction. It is worth mentioning that FTX added a note regarding the uncertainty of the final result of the U.S. presidency: there is a possibility of recounting votes or appeals. Therefore, even though the delivery conditions in the contract have come very close, it also provides more flexible options.

If none of the delivery conditions are triggered before November 9, the contract will be delayed to February 2021 for delivery. The uncertainty of delivery conditions is a consideration that all prediction markets regarding the U.S. election may need to address.

There is an additional piece of gossip about FTX: On November 5, Sam Bankman-Fried, the founder of the cryptocurrency derivatives exchange FTX, donated $5.22 million to U.S. Democratic presidential candidate Joe Biden.

The First Decentralized Prediction Market Augur

How does the Augur prediction market view Trump's chances of winning?

The market price information gives the answer:

Yes: 0.15; No: 0.87.

The Augur prediction market operates similarly to FTX. Taking the U.S. election as an example, Augur created corresponding tokens (NO Trump Augur prediction token NTRUMP and YES Trump Augur prediction token YTRUMP). When the delivery conditions are triggered, for example, if Trump cannot be re-elected, the price of the NTRUMP token will settle at $1, while the price of the YTRUMP token will be $0.

According to a report from Chain News on November 3, the trading volume of the "2020 U.S. Presidential Election" market on the Augur platform has exceeded $5 million.

Augur is a decentralized peer-to-peer prediction market based on the Ethereum platform, allowing anyone to create prediction topics and initiate prediction markets. The advantages of decentralized prediction markets like Augur lie in providing stronger stability and security, as well as low fees, eliminating counterparty risks, and traders do not have to worry about the platform interfering. Additionally, due to decentralization, the platform cannot suddenly shut down, avoiding single points of failure.

Speaking of Augur, there are a few extra points to mention. The current front-end is deployed on IPFS, providing a censorship-resistant way; and Augur's current v2.0 uses the 0x protocol, aiming to enhance trading fluidity.

Combining AMM and Layer 2 with Polymarket

Can Trump be elected? Currently, Polymarket's prediction market on this topic has a trading volume of $8 million. Under this topic, Polymarket currently gives the price:

Yes: $0.16; No: $0.84.

Polymarket Data on November 4

Polymarket is an emerging prediction market platform that uses an automated market maker mechanism, with USDC as its token. Officially described as an information market platform: Polymarket leverages the power of free markets to unveil the mysteries of significant real-world events.

Currently, the hottest topics are all related to the U.S. election.

Vitalik Buterin praised Polymarket: Try Polymarket now. Its uniqueness lies in being built on the Ethereum sidechain of Matic Network, providing an optimized UI to attract users from outside the crypto space. It also offers the option to purchase USDC with a credit card.

The user experience on Polymarket is significantly better than traditional DAPPs, and there are no trading fees. Users can register directly with an email without needing a decentralized wallet.

After logging in, to participate in the market, you need to first deposit USDC into the contract or directly purchase USDC with a bank card. Similarly, you can redeem assets stored in Polymarket at any time.

Once the deposit is successful, you can participate in predictions. First, click on "Markets" in the top navigation bar, then scroll down to browse different markets categorized by type, quantity, liquidity, etc. Choose your preferred prediction market.

For example, after entering the Trump betting market, you can directly purchase the corresponding shares.

Polymarket uses the AMM automated market maker model, which allows trades to be executed directly without needing a counterparty, with the final price automatically determined by the market.

After submitting an order, it is equivalent to holding the corresponding position. There are two ways to realize profits:

Sell directly on Polymarket

The second way is to wait for the prediction market to settle. If you guessed correctly, the settlement price for each share is $1, while if you guessed wrong, you lose everything.

The above image is an example after settlement.

Polymarket provides the trading experience and fluidity of a centralized prediction market. With the use of the AMM mechanism, trades can be executed immediately; and thanks to the sidechain of Matic Network, there are no high transaction fees, and the trading depth is also quite good.

The option to buy coins directly with a bank card also provides a low-threshold way for non-crypto users to participate. However, trading requires depositing USDC into the account, and the custodial approach has raised some concerns among hardcore cryptocurrency enthusiasts.

Prediction Market on EOS: Prediqt

Everipedia is the blockchain version of Wikipedia, and a recent move is its collaboration with the Associated Press and ChainLink oracle service provider to record the results of the U.S. election on-chain in real-time on the EOS blockchain.

In addition, the team has created a prediction market application platform: Prediqt.

Prediqt uses its native token IQ as the asset for participating in the prediction market. Currently, the trading volume is approximately 48 million IQ.

Prediqt allows users to create markets themselves. By submitting a series of information (such as trading tokens, market names, descriptions, images, etc.) and setting the market's settlement confirmation criteria, arbitrators, delivery times, and other information, users can create their own prediction markets to play with friends.

Of course, a more common approach is to directly participate in existing prediction markets.

Prediqt uses both order book and AMM methods to purchase corresponding shares, with the default method being the order book. The recently launched platform similar to Uniswap, Minswap, provides a way to purchase Trump prediction tokens with IQ tokens.

However, the current market trading volume of Prediqt is relatively small.

Catnip Based on Augur and Balancer

Finally, let’s introduce a small project, Catnip. Currently, there is only one trading market: whether Trump will win the 2020 presidential election, which can be seen as an experimental project.

Catnip uses two prediction tokens (YTRUMP and NTRUMP) that come from the Augur platform. However, unlike Polymarket, using Catnip is a non-custodial method, allowing users to log in directly with a web3 wallet, and the obtained prediction market tokens are directly stored in the wallet.

Catnip, leveraging Balancer, creates trading pairs, and by combining Augur and Balancer, it can be seen as a new attempt of DeFi + prediction markets. Catnip also has scalability, as Augur provides prediction markets while Balancer provides liquidity, making Catnip a gateway to prediction markets, backed by two established platforms, allowing for more interesting gameplay to emerge.

The current market trading volume is $7.58 million, with the settlement date set for January 22, 2021. This is a relatively reasonable setting, avoiding potential disputes caused by setting the market time too short.

Conclusion

This article outlines several typical blockchain prediction market cases, which may inspire you. How to create your own encrypted prediction market? How to participate in it? This article can provide you with some answers.