Prediction markets are a special kind of betting platforms that can be used for multiple purposes ranging from insuring a crop from bad weather to predicting the outcome of an event based on the wisdom of the crowd. Among other popular uses of prediction markets are hedging an investment, shorting the market, creating a futures market and predicting the outcome of an election. Given the fact that blockchain based projects that belong to the fintech area have been among the most successful ones based on this new technology, I believe that prediction market applications could become very successful and help complement the existing fintech platforms ecosystem.
How do prediction markets work?
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- A participant creates a “market”, which is simply an event that will happen in the future and has more than one possible outcome. For example, Will Donald Trump be impeached before the end of his mandate?
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- Bet orders are placed by many participants. These orders consists in a yes or no answer to the question, the probability (or degree of certainty) of this happening and the amount of money to place at stake.
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- Bet orders are accepted when complementary bets are made. If a stake of u$ 1 with a 70% probability of yes is made, It will be on hold until someone bets at least the same amount of money with a 30% probability or higher to no.
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- Before the market closes accepted orders can be sold or bought to a different price from their original value, this price is usually adjusted according to market expectations.
- When the market closes, in this case when Trump finishes his mandate or is impeached, the holders of winner bets are paid.
After testing existing applications for more than two weeks I came to the conclusion that the actual state of the art of blockchain based market prediction applications leaves much to be desired. Without taking into account the applications I couldn’t install or synchronize with the network, I found that all of them have either serious usability difficulties or are very limited. Besides, the actual blockchain transaction times and the lack of liquidity makes it impossible for these platforms to be used in reality for purposes such as shorting the market.
Following is description of the table’s contents. Betting currency contains the coin in which bets are made. Dispute and Market creator are the coins used to settle disputes and to set a new future event on which to stake, in the reviewed companies both coins coincide but, this is not necessarily always the case. Participation rewards can be earned by performing the different actions stated in this column. Does it have a dispute mechanism? Shows if the platform has a clearly defined procedure for settling an argument about a result.
Does it have a user reputation measurement? States if the platform associates to each participant a metric representing the correctness of his previous predictions. Can anybody create a market? Shows if all platform users are allowed to create a new future circumstance on which to place bets. Does the better choose probability or result? states weather is possible to set the degree of certainty of the chosen event or only the event itself. Can bets be sold before the market closes? Tells if there is a procedure allowing platform users to sell their current positions on an open market. Does it have multiple options bets?
Says if the platform allows betting on more than two results. Application status shows the actual state of the software. Application type tells what kind of application needs to be installed or if the product can be used through a webpage. Blockchain network states the name of the network in which the platform is based. Coin holders shows the amount of people that hold coins and therefore can use the application. Foundation date and Initial investment contain the year at which the company was created and the capital that it was founded with. Finally, Where does it work? Shows the places of the world where betting could be done.
| Company | Augur | Stox | Bodhi | Amoveo | Gnosis | |||||||||||||||||
| Betting Currency | ETH | STX | QTUM | mVEO | OLY | |||||||||||||||||
| Dispute and Market creator Currencies | REP | none | BOT | none | GNO | |||||||||||||||||
| Participation rewards | market creator gets a fee he sets between 0 and 50% | none | result settlers split 1% of loosing bets | none | to be decided by market creators | |||||||||||||||||
| Does it have a dispute mechanism? | yes | no | yes | no | yes | |||||||||||||||||
| Does it have a user reputation measurement? | no | yes | no | no | yes | |||||||||||||||||
| Can anybody create a market? | yes | yes | yes | yes | no | |||||||||||||||||
| Does the better choose probability or result? | probability | result | result | probability | result | |||||||||||||||||
| Can bets be sold before the market closes? | yes | no | no | yes | yes | |||||||||||||||||
| Does it have multiple options bets? | yes | yes | yes | no | yes | |||||||||||||||||
| Application status | live | live | live | live | beta (test network) | |||||||||||||||||
| Application type | webpage | webpage | desktop | webpage | webpage | |||||||||||||||||
| Blockchain network | Ethereum | Ethereum | Qtum | Amoveo | Ethereum | |||||||||||||||||
| Coin holders | 5196 | 17687 | 33102 | 2680 | 10088 | |||||||||||||||||
| Foundation date | 2014 | 2015 | 2017 | 2018 | 2015 | |||||||||||||||||
| Initial Investment | 5.3 Millons | 43.5 Millons | 33.3 Millons | 0 U$ (open source) | 12.5 Millons | |||||||||||||||||
| Where does it work? | Worldwide | Worldwide | everywhere but US, China, and Singapore | Worldwide | Worldwide |
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Disclaimer: CoinFabrik does not provide financial advice. This material has been prepared for educational purposes only, and is not intended to provide, and should not be relied on for, financial advice. Consult your own financial advisors before engaging in any investment.