In 2024, the Web3 prediction market sector has witnessed a historic explosion.

Prediction market platforms represented by PolyMarket have brought traditional prediction markets into the Web3 ecosystem through decentralized technology on the blockchain. Whether it is political elections, sports events, or emerging financial events, users can directly participate in market predictions through on-chain contracts and probability tokenization.

PolyMarket has rapidly gained popularity, attracting a large number of users and capital with its easy-to-use interface and transparent on-chain trading model. According to Dune's data, Polymarket's total trading volume has exceeded $6 billion, with users generating nearly 8 million transactions, among which the betting event predictions for the U.S. presidential election are the hottest. However, despite PolyMarket paving the way for Web3 prediction markets, its underlying mechanisms still expose many shortcomings, laying the groundwork for the next generation of prediction market mechanisms and technological iterations.

What is a Prediction Market?

In simple terms, a prediction market is a market where different opinions place bets on an event that has not yet occurred. For example, suppose you and a friend have different views on the outcome of a match; you can place a bet based on your judgment. If the outcome of the match aligns with your bet, you will receive a reward based on the odds; if your prediction is wrong, the amount you bet will go to the correct side. The operation of such markets sounds a lot like "gambling," but in fact, prediction markets provide a relatively objective market consensus on the probabilities of future events by aggregating the judgments of many people, thus serving not only as a speculative tool but also providing data support in fields such as economics, society, and governance. Currently, most prediction markets operate through a mixed order book format, where users purchase shares representing the probability of a certain event occurring. For example, if you believe a certain candidate will win the election, you can buy "yes" shares at a price reflecting the current market odds. If the event occurs as you predicted, the shares will be worth $1; if the event does not occur, the shares will become worthless. This mechanism allows you to profit from your understanding and predictions of various events. Of course, you can also choose to sell your shares before the event's outcome occurs.

How Does the PolyMarket Prediction Market Mechanism Work?

PolyMarket adopts the traditional order book prediction market model. Its core mechanism is to create event-related market pools, allowing users to buy and trade probability tokens based on different outcomes. For example, in a presidential election market, users can purchase tokens for "Candidate A elected" or "Candidate B elected," with the prices of these tokens reflecting the market's probability predictions for the event's outcome.

• Market Creation: Users or the platform create event markets and set initial conditions.

• Token Trading: Users trade tokens through the order book, with buy and sell prices dynamically adjusted based on supply and demand.

• Event Outcome: After the event concludes, settlements are made based on real-world results, and users holding the correct outcome tokens receive corresponding rewards.

Although this mechanism runs smoothly in the initial phase, it relies heavily on active market participants and liquidity providers (LPs), limiting its effectiveness for small to medium-sized markets or niche events. These issues restrict the further development of PolyMarket.

Pain Points of PolyMarket: Limitations of Order Book Prediction Markets

Despite the breakthrough advancements PolyMarket has brought to Web3 prediction markets, its order book mechanism has significant pain points:

1. Requires Active Market Makers and Liquidity Guarantees
   The order book mechanism heavily relies on active market makers and liquidity providers (LPs); only sufficient liquidity can provide a good trading experience. For small to medium-sized markets or niche events, insufficient liquidity leads to severe price fluctuations, making trading difficult, which prevents some small to medium-sized prediction events from proceeding smoothly.

2. Poor Performance in Probability Tokenization for Diverse Scenarios
   The order book mechanism has poor robustness when dealing with multi-possibility prediction markets (such as complex multiple-choice events). In markets with insufficient liquidity, prices are often chaotic and fail to accurately reflect probabilities, as odds need to be continuously adjusted based on actual conditions.

Scalability Issues Based on ERC-1155 PolyMarket uses the ERC-1155 standard for tokenization, but its level of standardization is insufficient, limiting the protocol's scalability and making it difficult to support widespread cross-platform applications and more complex scenarios.

Solio DeFi Protocol Deeply Applies Bonding Curve to Solve Liquidity Issues for Prediction Markets

To address the pain points of PolyMarket, Solio introduces an innovative mechanism based on Bonding Curve, fundamentally changing the gameplay of Web3 prediction markets.

1. No Need for Active Market Makers or MEV Mechanisms, Enhancing Liquidity and Trading Experience, Bonding Curve as Counterparty
   Solio's Bonding Curve mechanism incorporates liquidity, with token minting and burning completed through algorithms, eliminating the need for dedicated liquidity providers (LPs). Even with fewer market participants, liquidity can be maintained, making it suitable for small to medium-sized prediction markets.

2. Liquidity Gradually Improves with User Participation
   In the Solio system, the more participants there are, the stronger the liquidity within the Bonding Curve. This endogenous liquidity mechanism resolves the issue of PolyMarket's reliance on external LPs.

3. Suitable for Complex Prediction Markets with Multiple Possibilities
   The flexibility of the Bonding Curve makes it more suitable for prediction markets involving multiple possibilities, whether for simple binary predictions or complex events involving multiple options, achieving smooth tokenization.

4. Standardized Probability Tokenization Based on ERC-20
   Solio adopts ERC-20 standard tokens, which have stronger interoperability and scalability, facilitating integration with other Web3 protocols.

Non-Intrusive Oracles Based on ZK-TLS Solio provides a non-intrusive oracle solution through ZK-TLS technology, achieving data privacy protection while enhancing the applicability of prediction markets in various scenarios, offering users a wider range of prediction options. Prediction markets are often referred to as "on-chain casinos," and this label is not without reason. Their high-risk, high-reward mechanisms indeed attract a large number of speculators. However, the potential of prediction markets is not limited to gambling. In broader application scenarios, prediction markets can provide revolutionary support in the following areas:

• Decentralized Governance: Communities can collect opinions through prediction markets to provide data support for DAO decision-making.

• Public Policy Analysis: Governments and organizations can gain insights into public perceptions of future events through prediction markets.

• Financial Risk Management: Institutions can assess and hedge potential risks through prediction markets.

• Education and Research: Prediction markets can serve as research tools for analyzing complex systems and user behavior.

Conclusion

Whether Web3 prediction markets are a casino or a land of future opportunities depends on technological innovation and the expansion of application scenarios. Solio's innovative design centered around Bonding Curve injects new vitality into this sector. By enhancing liquidity, optimizing user experience, and achieving broader scenario coverage, Solio transforms prediction markets from a single speculative tool into a diversified practical field. By 2025, Web3 prediction markets may indeed become the best path for wealth appreciation. It is worth noting that Solio is not just a standalone prediction market protocol; it is a comprehensive DeFi protocol within a complete ecosystem, also including fair launches through Bonding Curve, lending, stable coins, and other DeFi Lego ecosystems. Solio is still in development, so keep an eye on Solio-related news for significant potential airdrop opportunities!