Key takeaways
- Blockchain enhances prediction markets through decentralization, transparency and global access, enabling platforms like Polymarket and Augur to offer censorship-resistant forecasting.
- Polymarket uses USD Coin (USDC), while Augur relies on its native REP token to allow users to create decentralized markets for elections and sports events.
- Polymarket has seen significant growth, while Augur has improved with its Augur Turbo update, which addressed issues like high fees. Both are gaining traction but still face competition from traditional platforms.
- As the 2024 US presidential election approaches, blockchain prediction markets are expected to play a more prominent role, offering real-time insights into public sentiment and reshaping forecasting through crowd wisdom.
Prediction markets are based on gathering collective wisdom to forecast future events, allowing participants to bet on outcomes ranging from elections to sports results. By purchasing shares in their predicted outcome, individuals contribute to a dynamic system where share prices reflect the probability of those events occurring.
Blockchain technology is now shaking up this space, making prediction markets more transparent, decentralized and accessible to a global audience. Platforms like Polymarket and Augur are leading the charge in this revolution, bringing a new level of innovation and utility to forecasting.
Understanding prediction markets
Think of prediction markets like stock markets, but instead of trading shares in companies, you’re trading shares based on the outcomes of events.
The magic lies in the collective wisdom of a diverse group of people, which often leads to more accurate predictions than just relying on a handful of experts. These markets cover a wide range of topics, from elections and economic data to sports results and even the weather.
Here’s how they work: Let’s say you think there’s a 70% chance a candidate will win an election. You can buy shares at $0.70 each. If the candidate wins, those shares will pay out $1, rewarding your prediction. If they lose, the shares are worthless. The share prices shift as more people place bets, giving you a real-time reflection of the market’s collective view of the event.
Creating a market starts when a user sets up a specific event, such as “Will candidate A win the election?” The user then defines the betting options, such as “Yes” or “No.” Once the market is live, participants place bets by purchasing shares in the outcome they believe is most likely.
For instance, if you think candidate A will win, you’d buy “Yes” shares. The price of these shares fluctuates based on the market’s current consensus about the event’s likelihood. When the event concludes, blockchain oracles — third-party services providing real-world data — confirm the outcome, ensuring its accuracy.
Subsequently, the smart contract automatically handles payouts. If you purchased “Yes” shares and candidate A wins, you’ll receive a payout based on the amount of shares you hold.
Did you know? In addition to traditional event outcomes like elections or sports, decentralized prediction markets have been used for innovative applications such as forecasting disease outbreak patterns and climate events and even predicting technology adoption trends.
Why blockchain matters for prediction markets
Traditional prediction markets face several challenges, including regulation, lack of transparency and susceptibility to manipulation. Blockchain technology addresses these issues by providing decentralized platforms where predictions can be made openly, transparently, and with fewer restrictions.
Blockchain-based prediction markets don’t rely on a central authority to manage the platform, which removes the risk of bias or manipulation. Every action is recorded on a public ledger, making it impossible to tamper with or alter market data after the fact.
Blockchain’s advantages for prediction markets include:
- Decentralization: Without a central party controlling the market, blockchain-based platforms are less vulnerable to interference or manipulation. Participants can place bets and create markets without needing a central authority to manage or oversee transactions.
- Transparency: All transactions and market movements are visible to anyone, ensuring that markets are fair and open. This level of transparency builds trust among participants.
- Global participation: Traditional prediction markets often face geographical restrictions due to regulations or laws. Blockchain-based platforms, on the other hand, allow participants from anywhere in the world to join, creating a larger pool of participants and improving market liquidity.
These features make blockchain a natural fit for prediction markets, and firms like Polymarket and Augur are pioneering this new approach.
Polymarket
Polymarket has become one of the most well-known blockchain-based prediction markets. Built on the Polygon network, it allows users to bet on various topics, including political events, sports outcomes, cryptocurrency prices and more. The platform is straightforward and user-friendly, attracting a broad range of participants, from casual bettors to data-driven traders.
Polymarket operates using USDC, a stablecoin pegged to the United States dollar, making it easier for users to engage in markets without worrying about volatile cryptocurrency prices. This design choice helps bridge the gap between blockchain enthusiasts and more traditional users.
Polymarket has made headlines by offering markets on high-profile events, such as the outcome of the US presidential election, the development of the COVID-19 pandemic and various geopolitical situations. These markets provide insights into public opinion and crowd sentiment, often outperforming traditional polling methods.
However, Polymarket isn’t without its challenges. In 2021, the US Commodity Futures Trading Commission (CFTC) fined Polymarket for offering unlicensed event-based contracts. This led to some market closures, but the platform continues operating in less regulated markets and remains one of the top players in blockchain prediction.
One of Polymarket’s standout features is the use of liquidity pools, which help streamline trading and provide accurate, real-time valuations for shares, ensuring fair pricing. On top of that, smart contracts automatically handle the settlement process, boosting trust and minimizing the chance of human error.
The platform’s ability to deliver real-time data and capture market sentiment has made it a valuable resource for both casual gamblers and analysts, often producing insights that surpass traditional polling methods.
Did you know? Unlike typical betting platforms, Polymarket positions itself as an informational tool rather than a gambling site. It focuses on providing insights through market outcomes, thereby helping users understand the probability of future events based on collective market intelligence.
Augur
Augur was one of the first platforms to explore decentralized prediction markets, launching in 2018 on the Ethereum blockchain. It is entirely open-source, allowing anyone to create a market for any event they choose. Unlike Polymarket, which uses stablecoins, Augur relies on its native cryptocurrency, REP (Reputation), to govern the platform and resolve disputes.
The Augur system works by allowing participants to report the outcomes of events, with REP holders voting on the correct result. If participants report truthfully, they are rewarded with REP tokens. If they try to manipulate results, they risk losing their tokens. This “wisdom of the crowd” approach ensures the system remains decentralized and self-governing, reducing the risk of bias or manipulation.
Augur’s decentralized nature makes it censorship-resistant, an essential feature in prediction markets, especially for politically sensitive events. While traditional betting platforms may face pressure from governments or institutions to shut down politically charged markets, Augur’s architecture makes it nearly impossible to censor.
One of the drawbacks of Augur has been its user experience. Setting up markets and participating can be complex for new users, and during times of high network traffic, the platform’s reliance on Ethereum has led to high transaction fees. In response to these issues, Augur launched an updated version called Augur Turbo, designed to make the platform faster and more cost-effective, with a particular focus on sports betting and political events.
Did you know? Augur has undergone significant upgrades since its inception. For example, Augur v2, launched in 2020, included major updates such as the integration of the Dai stablecoin to combat volatility and a new dispute system designed to enhance market reliability and user trust.
Blockchain prediction markets and the 2024 US election
Both Polymarket and Augur are likely to play significant roles in forecasting the outcome of the upcoming US election. These platforms allow for real-time insights into voter sentiment by letting participants place bets on various political scenarios. This can provide more dynamic and potentially more accurate forecasts than traditional polling, which often struggles with sample size limitations, biases and outdated methodologies.
During the 2020 US election, Polymarket saw a surge of activity as people placed bets on the outcome. In the final weeks before election day, millions of dollars were wagered on whether Donald Trump or Joe Biden would win. Notably, odds often reflected a higher probability of a Biden victory, which aligned with the actual outcome, where Biden won the presidency.
Market prices even offered a glimpse into real-time shifts in public sentiment. Augur, though less widely used than Polymarket for political events, also hosted a variety of markets focused on the election.
As the 2024 election draws closer, prediction markets are expected to become even more active, with millions of participants contributing to a global pulse on political forecasts. Blockchain-based markets like Polymarket and Augur are poised to offer valuable insights that traditional polling may not be able to capture.
Growth of blockchain-based prediction markets
According to Dune Analytics, platforms like Polymarket have seen substantial increases in market activity, trading volume and user participation. Since its launch in 2020, Polymarket has processed over $100 million in trades, and this number is expected to grow as interest in decentralized markets continues to rise. The 28-day volume on Polymarket is around $400 million, according to the Dune dashboard below.
Despite facing early challenges, Augur is also on a growth trajectory, especially with the launch of Augur Turbo. The new version’s focus on faster transactions and reduced fees has the potential to attract more users, particularly those interested in sports betting and elections.
While blockchain prediction markets are still in their early stages compared to traditional platforms like PredictIt or Betfair, they are gaining traction, particularly among tech-savvy users and those looking for decentralized, censorship-resistant alternatives.
What’s next for prediction markets?
The future of prediction markets looks promising, especially as blockchain technology continues to mature. As platforms like Polymarket and Augur evolve, expect to see more streamlined user experiences, higher liquidity and a broader range of markets.
Prediction markets may become an essential tool for gathering real-time data on public sentiment for elections, financial events, and even global health trends. The decentralized, transparent nature of blockchain-based platforms will make them more reliable, secure and accessible to a wider audience.
As the 2024 US election and other significant global events approach, prediction markets will play a critical role in forecasting outcomes, offering unique insights beyond traditional polling methods. Platforms like Polymarket and Augur are at the forefront of this transformation, shaping the future of prediction markets and proving that blockchain is more than just a technology for cryptocurrencies — it can also democratize access to information and forecasting.
Written by Arunkumar Krishnakumar