Understanding Prediction Markets in One Article: What New Projects and Market Trends Have Emerged After Polymarket's Popularity

Original source: mikey X account

Author: mikey

Compiled by: Wang Eryu, PANews

This article introduces the categories of prediction markets, market strategies, product updates, key figures, market mechanisms, and development directions:

Market Overview

Prediction markets can be divided into two main camps: non-sports and sports. Non-sports markets are relatively underdeveloped, with multiple target areas: cryptocurrencies, political events, cultural events, etc.

Polymarket is the undisputed leader in the non-sports market, primarily focusing on political events.

When including sports markets, looking at the overall trading volume from the beginning of the year to now, Azuro and SX Network are closer to Polymarket.

Some competing projects have launched, including Limitless Exchange (operating on EVM, offering ETH markets) and Hedgehog Markets (operating on SOL, betting first and setting odds later).

Projects under development also include Drift Exchange, xMarkets, Inertia Social, Doxa, Contro, etc.

Themes that new teams are enthusiastic about include:

• Permissionless markets: open market creation and incentive layers
• Solutions: relying on AI for market settlement or creating more efficient systems

Polymarket users have repeatedly raised these requests.

Thanks to popular and regular events, sports markets have gained a good user base in the Web2 environment.

It is not easy to shift users to cryptocurrencies, as most users value brand and user experience. Web2 sports betting platforms usually have inexhaustible marketing budgets, with at least five sports betting companies spending over $100 million annually.

The amount bet by Americans on a single Super Bowl (about $23 billion) is ten times the total trading volume of the crypto prediction market (about $2 billion), and just the betting amount from a single state far exceeds $2 billion.

Opinion: More on-chain funds = more on-chain sports betting, just as internet bookmakers took over the betting market via mobile.

Leverage Trading

A major limiting factor for prediction markets is the lack of leverage. In the non-sports market, LogX trade will allow perpetual trading on TRUMP, similar to FTX in 2020. Doxa market is also developing leverage trading.

The counterparties for these two projects are liquidity pools. Liquidation and bad debts remain two major unresolved issues.

For Polymarket, exploring "parlay betting markets" seems to be an interesting direction. For example, the market "Trump and Biden win the nomination" is essentially a leveraged bet, as it requires predicting two independent events.

Looking forward to seeing markets like "Will a, b, c, and d happen?"

I am also not worried about initial liquidity supply; liquidity providers (LPs) are eager to harvest returns daily!

In the sports market, several protocols can already perform leverage operations through "parlay betting markets," where users must guess multiple unrelated events correctly to win. SX Bet, Azuro, and Overtime all support such markets.

Market Mechanisms

The mechanisms of prediction markets can be roughly divided into two categories: web2.5 and web3.

• Web2.5: using cryptocurrencies as a payment method, such as Stake/Rollbit. Users can place bets using cryptocurrencies, but the counterparties are the teams behind the applications, and the products have no direct interaction with the blockchain.
• Web3: prediction markets have a certain footprint on-chain, such as NFT holdings or bets executed through smart contracts.

There are generally two ways to match on-chain bets: 1. AMM, relying on passive LPs; 2. Order book, where the platform acts entirely as an exchange.

Memecoin and Prediction Markets

In web3, memecoins have become prediction markets themselves. Taking $TRUMP and $BIDEN as examples, holders can benefit by 1) choosing the right direction and 2) focusing on the right issues:

Through memecoins, users can speculate on others' speculative behaviors, regardless of correctness.

For instance, the new protocol swaye is attempting to combine the best features of prediction markets and memecoins.

Users who enter a market early not only bet on specific outcomes but also have the motivation to hype the market, as betting activities on both sides help increase returns.

Profit Models

Protocols have several ways to profit:

• Transaction fees
• A portion of trader bonuses (web2 models follow this path)
• Accumulated counterparty earnings (web2 likes to serve loss-making clients)

Most protocols adopt the first or third method. Polymarket does not charge transaction fees.

Future Development

AI agents will become emerging key players in this field, as they can quickly respond to news. They will manage orders, inventory, and execute betting strategies. They can also calculate expected outcomes and assume corresponding risks. Currently, at least two teams are quietly advancing in this direction.

In the coming years, at least one protocol's trading volume will reach a level that can compete directly with Polymarket.

Given Polymarket's current strong incentives for its market, other protocols will also need to heavily utilize incentives such as points, tokens, or USDC.

Everyone is asking whether trading activity can be sustained after the election. At least from the beginning of the year to now, Polymarket's non-election market trading volume has been continuously growing, which undoubtedly provides an optimistic signal for market vitality in the post-election period.