Prediction Market: From Financial Game to the Convergence of Collective Intelligence

A prediction market is an open trading platform that predicts the outcomes of specific events through financial incentive mechanisms. These markets allow participants to place bets on the possible outcomes of various events. The market prices can reflect the overall judgment of the public regarding the probability of the event occurring.

The typical trading range for prediction market contracts is between 0% and 100%. The most common form is the binary options market, where the price at expiration is either 0% or 100%. Users can also exit their positions at market price before the event results are revealed.

The core of the prediction market lies in the fact that by aggregating the betting behaviors of participants, one can extract the group's expectations of future events. Traders with different viewpoints express their confidence in possible outcomes by buying and selling contracts, and the market price of the contracts is seen as a concentrated reflection of collective wisdom.

Prediction markets have a long history, almost as old as human betting behavior. The combination of prediction markets and politics also seems to have a long-standing tradition: as early as the Middle Ages, people were keen to bet on the outcomes of papal elections.

As the U.S. presidential election approaches, the heat of political-related betting reached a new high in July. Especially after significant rumors about the candidates emerged, the prediction market represented by a certain prediction platform has drawn widespread attention.

A well-known prediction market platform: Order book tradable prediction market

This is a decentralized prediction market project established in 2020, supported by several well-known institutions and individual investors.

The platform allows users to trade on controversial topics in the world, such as politics, sports, pop culture, etc., where users can build their portfolios based on their predictions.

Unlike traditional sports betting, this platform allows users to freely trade shares in market topics that have not yet been concluded, enabling speculators to flexibly participate in probability games.

The platform uses a mechanism based on a conditional token framework, where every 1 dollar of token staked will produce two conditional tokens, representing the two sides of the outcome of the event whether it occurs or not (. The multi-outcome market is a comprehensive statistic of multiple binary outcome markets.

Conditional tokens can be freely traded in the market, with prices fluctuating based on supply and demand; users can also wait until the event has a result, and those holding the correct tokens will receive the entire $1 profit.

Due to the independent trading of the two tokens, it is possible for their combined price to not equal 1 dollar, in which case market makers need to participate in arbitrage. Before the event ends, users can always exchange one positive and one negative token for 1 dollar in the contract.

The prediction market mainly consists of the following parts:

• Market Theme: Each prediction focuses on a specific theme or event, and the platform has discretion over market creation.
• Oracle: Adopts an optimistic oracle mechanism, allowing anyone to submit results, which are considered facts if not challenged.
• Conditional tokens: Lock 1 dollar to receive two tokens "Yes" and "No", with the winning party receiving the entire 1 dollar upon settlement.
• Order book market: Adopts a hybrid on-chain order book trading mechanism, with operators matching orders off-chain and ultimately settling on-chain.
• Liquidity providers: earn price differences through order placement, and the platform also offers additional incentives.

The platform currently has no token issuance plan, but distributes a large amount of funds through a liquidity reward program to incentivize market-making activities and enhance overall liquidity depth.

![Crypto Magic: In-Depth Analysis of Polymarket, SX Bet, Pred X and Azuro prediction market])https://img-cdn.gateio.im/webp-social/moments-b3f4fc0219aa70c1382698c094db12b3.webp(

A Sports Betting Platform: Single Bet Prediction System

This is a sports betting platform established in 2019, currently operating on a certain L2 network.

The platform mainly supports betting on sports events, including tennis, football, baseball, and basketball. Recently, cryptocurrency and political sections have been added, covering mainstream cryptocurrency price trends and topics related to the US elections.

Unlike the aforementioned platform, this platform adopts a traditional sports betting model, supporting only single bets, and wagers cannot be freely traded until the results are determined.

The platform's innovation lies in the implementation of a combination betting system for the first time. Users can make predictions on a series of events, and only if all are correct can they receive a prize. The prize earnings from combination betting are often quite substantial and can be seen as leverage in the prediction market. The platform will act as the counterparty.

Combination betting is similar to a lottery and can bring up to ten thousand times huge returns. This "myth of wealth creation" is easily spread virally and is the most attractive aspect of traditional sports prediction markets.

Clearly, it is difficult to realize combination betting in prediction markets based on the "dual-token" conditional framework, as it is impossible to issue conditional tokens for every possible outcome combination and ensure sufficient liquidity. The odds in prediction markets with only two outcomes are limited, which may not be attractive enough for users.

![Crypto Magic: In-Depth Analysis of Polymarket, SX Bet, Pred X and Azuro prediction market])https://img-cdn.gateio.im/webp-social/moments-e7688b05d263a23aa5e392ece5b2ea39.webp(

An AI-driven prediction market platform: Topic suggestions based on artificial intelligence

This is an initial prediction market based on a certain public blockchain, covering various topics such as politics, cryptocurrency price predictions, and trending events. It currently supports betting with stablecoins on multiple blockchains and has launched corresponding social media mini-programs. The mini-program offers two modes: one is a game mode to earn points by predicting the probability of trending events; the other is a real mode linking wallets to participate in betting on similar topics on the official website.

Unlike user-driven topic generation, the prediction topics on this platform are primarily generated and pushed to the website by AI, which crawls hot news and market sentiment indexes from the internet. While it supports multiple chains, it is not a completely decentralized application. The prices of the results for each prediction topic are determined by the platform's centralized order book, and the ordering process and market are realized according to smart contract rules.

Objectively speaking, this platform is still not mature enough compared to other prediction markets. The order depth and trading volume of predictable topics on the site are far lower than those on other platforms. As a prediction market, it should allow users to freely trade different outcome tokens before the results are announced. However, the platform's order book does not support users to place orders independently. In the absence of market makers in most markets, users are practically unable to freely trade outcome tokens. Furthermore, the documentation does not detail how to ensure the consistency of market contracts across different chains under multi-chain support, as well as how to ensure sufficient liquidity of probability outcome tokens across each chain. When connecting a wallet to trade under the social media mini program "real mode", there is a discrepancy between the prediction market and the official website's betting price for the same topic.

Various circumstances have raised doubts about the practicality and reliability of the platform. Overall, this product currently resembles a semi-finished product.

![Crypto Magic: In-depth Analysis of Polymarket, SX Bet, Pred X and Azuro prediction market])https://img-cdn.gateio.im/webp-social/moments-9a47be354d7bdace8cdec2923f3f12a2.webp(

A Betting Protocol: Prediction Infrastructure Supported by Liquidity Pools

This is not the prediction market itself, but rather the foundational protocol used to create on-chain prediction markets. This no-access infrastructure includes on-chain smart contracts and web components, which can be used to establish multiple prediction market applications.

This protocol only allows for a single bet and does not permit free trading of "yes" and "no" like some other platforms; profits can only be obtained after the results are announced.

The system is built around liquidity pools, allowing anyone to deploy their own liquidity pool by interacting with factory contracts. Multiple betting platforms can be created under one liquidity pool, and each platform can establish multiple possible events for different prediction topics, allowing for separate bets.

Under the binary split model, liquidity is divided among different prediction events. The protocol introduces the concept of a "liquidity tree," meaning that multiple events under a single prediction topic, and even multiple topics across various platforms, can share the same liquidity pool.

The liquidity tree provides a hierarchy, with various possible events defining the range of liquidity, such as multiple score possibilities for a football match between two teams.

These liquidity funds ensure that the platform has the ability to act as a counterparty to bettors at all times, paying potential bonuses ) which are losses for LP (. If bettors generally incur losses, then LP can earn profits. A liquidity tree simultaneously provides liquidity for multiple prediction market topics and generates profits and losses as a counterparty.

The odds for each event under this agreement are calculated based on the ratio of the betting funds for that event to the total liquidity range of the entire prediction market. The initial odds are set by specific data providers and initial liquidity is added accordingly. Data providers can also adjust the odds during the betting process, and the solvency of these odds is guaranteed by the initial liquidity.

The protocol also supports implementation on multiple dapp platforms, allowing the betting platform to set its own handling fee dividends, and bettors can choose freely; liquidity pool creators can also set the pool's dividend ratio. A certain percentage of all pool profits goes into the protocol's own DAO, and the protocol has also issued a native token.

![Crypto Magic: In-depth Analysis of Polymarket, SX Bet, Pred X, and Azuro prediction market])https://img-cdn.gateio.im/webp-social/moments-492769d7fe77c8b89ae39879d05131ad.webp(

Summary

The concept behind prediction markets is very interesting. Participants aim for profit, viewing the free market as the most effective information collection system of humanity, thereby making predictions about real-world events. These results are often surprisingly accurate. In contemporary society, where recommendation algorithms dominate the flow of information, prediction markets seem to effectively restore the truth and reflect diverse viewpoints, as evidenced by predictions on certain platforms regarding political events.

Many crypto users may have first encountered prediction markets during the last presidential election when a certain exchange launched a candidate index. With strong market-making capabilities, users can even engage in trading with high leverage. Although it is a centralized platform, it indeed offers a very interesting experience.

Cryptocurrency has greatly reduced transaction friction in prediction markets, providing better and more efficient market mechanisms. Based on the ideas of smart contracts and automated market makers, it has also brought about no entry barriers and better liquidity for prediction markets. Many AI agent projects even view prediction markets as an arena to leverage the collective intelligence of models and hone their capabilities.

Of course, the drawbacks are also obvious: some platforms, although they have opened up free trading of conditional tokens, find it difficult to implement a flexible betting mechanism, lack high return expectations, and have lost some of the fun for ordinary users; while the liquidity pool-based solutions are clearly still relatively complex and lack the ability for re-trading after betting.

Rather than saying it is the mechanism and technological innovation, the current popularity of prediction markets should be viewed as another popular application of crypto culture, a victory of the market culture behind it. This is particularly valuable now that algorithms are gradually dominating the flow of information. After all, nothing is smarter than the market, and no information system is more efficient than the free market.

![Crypto Magic: In-Depth Analysis of Polymarket, SX Bet, Pred X, and Azuro prediction market])https://img-cdn.gateio.im/webp-social/moments-44419cd1335b17b856e5df78be622824.webp(

![Crypto Magic: In-Depth Analysis of Polymarket, SX Bet, Pred X and Azuro prediction market])https://img-cdn.gateio.im/webp-social/moments-ee9e0f0dc0d7fffdd185fee77a832e57.webp(