Prediction markets in crypto are emerging as powerful tools for forecasting events with high accuracy, offering a range of betting models and use cases.
Points
- Definition and historical background of prediction markets.
- How prediction markets work in crypto.
- Different types of prediction markets and betting models.
- Best crypto prediction markets in 2024.
- Potential for prediction markets to influence crypto prices.
Prediction markets have made headlines recently after demonstrating an uncanny ability to forecast global events with a level of accuracy unseen by traditional bookmakers or even polling results.
What is a Prediction Market?
A prediction market is a financial marketplace where people speculate on the outcome of all kinds of events, buying and selling shares that represent the likelihood of certain outcomes. These markets involve large numbers of skilled, methodical analysts publicly speculating on the outcomes of major events, with a financial incentive to indicate their true opinions. This creates a dynamic and often highly accurate forecasting tool.
Historical Background
Predictive markets are not a new invention and date back to at least the 1500s when people speculated on papal elections. Wall Street has been betting on political elections since at least the 1800s, and there is evidence of predictive markets betting on elections in Canada and Britain during the same period. In modern times, these markets have become significantly more complex and sophisticated.
How Prediction Markets Work
Typically, a prediction market allows users to buy a contract or share representing an outcome. A market will have a specific set of events with two or more outcomes that users can trade on. For example, a market might speculate on the outcome of an election with two possible outcomes. It will open with contracts available for purchase supporting the victory of either candidate, and these shares might begin trading at equal values.
Types of Prediction Markets
There are four main types of prediction markets in 2024:
– Fixed Odds Betting: Users place bets and cannot trade or sell their contracts.
– Continuous Double Auction （CDA）: Users can buy and sell orders at any time, allowing for arbitrage and swing trading of contracts.
– Automated Market Maker （AMM）: Uses algorithms to provide liquidity and automatically set prices based on supply and demand.
– Parimutuel Markets: Pools bets together and calculates payout odds based on the distribution of bets across different outcomes.
Types of Contracts/Betting Available
There are several ways a contract can play out on a prediction market, including:
– Binary Yes/No Outcomes: Straightforward type of market with a simple yes or no outcome.
– Categorical Markets: Multiple possible outcomes rather than a simple yes or no.
– Scalar Markets: Continuous outcomes within a range, such as speculating on the price of Bitcoin by the end of the year.
Best Crypto Prediction Markets in 2024
Several crypto prediction markets are available, including:
– Polymarket: Built on Ethereum and Polygon, trading contracts in USDC stablecoins.
– Augur: Uses real-time oracles to feed live data to pre-programmed smart contracts.
– Zeitgeist: Built on the Kusama network, offering a variety of betting models.
Potential for Prediction Markets to Influence Crypto Prices
As prediction markets become more prevalent, they may influence actual crypto prices by indicating public sentiment and potentially affecting market behavior. This could lead to a situation where prediction markets themselves become priced in, creating a feedback loop that impacts the accuracy of their forecasts.
解説
- Definition: Overview of prediction markets and their historical background.
- Functionality: How prediction markets work and the types of markets and contracts available.
- Best Markets: Leading crypto prediction markets in 2024.
- Influence: Potential impact of prediction markets on crypto prices and market behavior.