Prediction Market: Smart Choices Under Financial Incentives

A prediction market is an open trading platform that predicts specific outcomes through financial incentives. These markets allow users to bet on the outcomes of various events, and the market prices reflect the collective judgment of the public on the probability of the events occurring.

The typical trading price of prediction market contracts fluctuates between 0% and 100%. The most common form is the binary options market, where the price is either 0% or 100% at expiration. Users can also sell options at the market price to exit before the event occurs.

The core of the prediction market lies in extracting collective wisdom from the betting behavior of participants, reflecting the collective 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 summary of the collective prediction.

This prediction mechanism has a long history, dating back to humanity's earliest gambling activities. Political predictions have also been around for a long time; during the Middle Ages, people were keen to bet on the outcomes of papal elections.

As the US election approaches, the betting heat in the political sector reached a new peak in July. Events such as Trump being assassinated, Biden withdrawing from the race, and the Democratic Party replacing Harris as a candidate have caused prediction markets, represented by a certain trading platform, to attract widespread attention once again.

A certain trading platform is a decentralized prediction market project established in 2020 that allows users to trade on hot topics. Unlike traditional sports betting, this platform enables users to freely trade shares while events are still undecided, increasing flexibility.

The platform uses a conditional token framework, where users receive two conditional tokens representing the positive and negative outcomes of an event for every $1 they stake as collateral. These tokens can be freely traded in the market or can be fully redeemed by the correct side after the event is revealed.

Another platform called SX Bet adopts a traditional sports betting model, supporting only single bets and not allowing the trading of stakes until the event results are determined. Its innovation lies in the implementation of a combination betting system for the first time, allowing users to predict a series of events, and only those who get everything right can receive a high reward.

There is also a prediction market platform based on multiple blockchains, where the prediction topics are automatically generated by an AI system that captures trending news from the internet. The platform supports multi-chain betting, but the order book depth and trading volume are still relatively low, and the overall functionality is not yet mature.

Azuro is a foundational protocol for creating on-chain prediction markets, consisting of smart contracts and web components. It adopts a liquidity pool model, allowing multiple prediction topics and betting platforms to share the same liquidity pool, thereby improving capital efficiency.

The prediction market embodies the powerful function of the free market as an information collection system. The emergence of cryptocurrencies has reduced trading friction, and the smart contract and AMM mechanisms have also brought better liquidity to prediction markets. Although there are still some mechanical limitations, the rise of prediction markets reflects the popularity of crypto culture and the triumph of free market ideals, which are particularly valuable in the current information environment.