Prediction markets are picking up again and are among the fastest-growing markets today. However, they are yet to reach their full potential. In fact, despite seeing surging growth, in 2020, the daily volume averaged around $1 million as recently as 2020.
As of 2021, there are several prediction markets, each considered successful in its own right.
What Is A Prediction Market?
What is a prediction market? To understand that, we must first understand what the meaning of a “market” is. A market is simply defined as a group of individuals that purchase or sell goods or services. These “goods” can refer to anything, from groceries or stationary, financial assets like banking and stock market services or other types of services.
A prediction market, on the other hand, is a marketplace for buying and selling predictions. Prediction markets operate like stock markets. Like how you can get shares in a stock market, you can get shares for any event’s outcome. These events could range from financial predictions, sporting events, political outcomes, or utilities’ price increasing/decreasing.
How Does A Prediction Market Work?
Prediction markets work in a reasonably straightforward way. Prediction markets have two types of shares; YES Shares and NO shares. The YES shares are long shares, and the NO shares are short shares. The payout on predictions depends on if the event occurs or not.
So how does the payout occur? A YES share will pay out a certain amount of money if an event occurs, and the payout will be zero if the event does not occur. Similarly, a NO share will pay out a certain amount of money if an event does not occur and zero if an event does occur.
The share price depends on how much buyers are willing to pay and how much sellers are willing to accept. It also depends on the probability of the event occurring or not.
Let’s take an example. If a YES share costs 50 cents, then, according to the market, there is a 50% chance that the predicted event does occur.
Blockchain technology has helped prediction markets gain prominence. One such platform that has had a significant impact on prediction markets is Ethereum. Ethereum has helped prediction markets harness the power of smart contracts and realize their full potential.
Some significant examples of prediction markets are BetFair, Intrade, and the Iowa Electric Market. The latter is a pioneer of prediction markets and was used extensively to predict the presidential election results.
What Are The Issues That Prediction Markets Face?
We’ve already discussed how prediction markets function; however, what are the issues that they face? Prediction markets face a severe lack of liquidity and a lack of traders. There is also the presence of duplicate markets that further complicates matters. A lack of decentralization and legal issues also severely limit the size of their user base. This results in a less diverse crowd, in turn affecting the prediction quality.
Prediction markets averaged only around $1 million per day in 2020, with the figure being even more negligible in previous years. These low volumes prevent traders from taking large positions or hedge against outcomes. Such low volumes also contribute to low liquidity levels, fewer fees, and few active traders.
How Does Polkamarkets Change The Prediction Markets?
Polkamarkets is a DeFi-Powered Prediction Market that takes an innovative approach to prediction markets. Using blockchain technology gives people more access to prediction markets while also allowing them to earn from their prediction of real-world events.
Polkamarkets is built for cross-change information exchange and trading, allowing users to predict the outcome of real-world events. These events could be anything, from sporting events to political events. Since it runs on the Polkadot blockchain, it is completely decentralized and interoperable.
Polkamarkets hopes to create a solid prediction that would allow individuals to predict the outcome of sporting events, e-sports, elections, and even the prices of stocks and other altcoins.
Polkamarkets hopes to succeed where other decentralized markets have failed. Forecasting works in a relatively simple way that depends on scale. The more participants in a prediction market, the more data there is, which helps the prediction market become more effective. Polkamarkets plans to incentivize liquidity providers and traders to take up large positions in prediction markets. Simultaneously, a system for curation and resolution has been put in place that ensures that the markets are efficient and trustworthy.
Polkamarkets also concluded a highly successful strategic sale round, which saw investors throw their weight behind it, with the platform raising $625,000 within a couple of weeks. Polkamarkets has secured backing from significant names like Moonrock Capital, NGC Ventures, MorningStar Ventures, Astronaut Capital, and Spark Capital. Polkamarkets saw 10,000 parties express interest that exceeded over $80 million during the strategic sale.
How Does Polkamarkets Address The Issues Plaguing Prediction Markets
Polkamarkets gives prediction markets a shot in the arm by integrating DeFi into prediction markets. According to one report by DefiPulse, the total value of assets that are locked in DeFi exceeds $39.79 billion, and this figure is growing rapidly. Analysts expect prediction markets to grow by a CAGR of 24.5% from the current $7.2 billion to $21.5 billion in 2025.
Polkamarkets utilizes DeFi to expand the platform’s potential, with trading volumes growing with the DeFi space’s growth. Polkamarkets also allows users to earn DeFi rewards, helping them increase their earnings through yield farming and staking.
Some Salient Features Of Polkamarkets
- DeFi Powered Reward Model: Liquidity Providers and users can mine $POLK tokens through forecasting and providing liquidity. They can also gain exclusive access to special features through NFTs.
- Entertainment: Polkamarkets will support live streaming for sports and e-sports, daily crypto prices with live feeds, and virtual events and tournaments in other online communities.
- Event List: $POLK holders will curate event lists, ensuring a safe and open market.
- Fee economy: Platform fees on Polkamarkets go directly to liquidity providers and users.
Let’s Talk About $POLK
Polkamarkets will be powered by the platform’s native token, $POLK. $POLK has several uses. Some of which are:-
- Users can make predictions and provide liquidity to Polkamarkets and mine $POLK. ⅔ of the platform fees will go to liquidity providers.
- Liquidity providers can also mine $POLK by providing liquidity to Polkamarkets.
- ⅓ of the platform fees will go towards buying $POLK, which will then be rewarded to liquidity providers through yield farming.
Polkamarkets hopes to empower users by helping them monetize their predictions of real-world events and outcomes. It also allows users to sell fractions of outcomes or create their own prediction events where other users can take positions on predictions.
Several other features let Polkamarkets stand out from the competition. Polkamarkets is clearly taking the prediction market space by storm.
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