Author: Nancy, PANews

With the continuous evolution of historical culture and technological background, prediction markets have transformed from simple win-lose competitive games into more valuable reference tools, even becoming a powerful means to gain insights into market trends. As this traditional betting event enters the on-chain world, riding the wave of the U.S. elections, crypto prediction markets have become a hot narrative. The market size is expanding as more participants join, pushing crypto culture towards the mainstream.

However, the overall scale of decentralized prediction markets still lags far behind the traditional world. The lack of leverage is considered one of the key reasons limiting demand, and the newly launched Trump perpetual prediction market by DeFi derivatives leader dYdX may stimulate more liquidity to join.

Prediction Markets Become a Trend Narrative, dYdX Launches Trump Perpetual Contract

In the current landscape where most crypto narratives are "failing," prediction markets are seen as a trump card for the crypto industry to achieve large-scale application.

"Prediction markets and community notes are becoming the two flagship social cognition technologies of today, both seeking truth and democracy, built on public participation rather than pre-selected elites," said Ethereum founder Vitalik Buterin. He previously noted that the interest in prediction markets lies in their role as a social cognition tool: the public can understand the significance of certain events and what might happen, and compared to social media or news websites, prediction markets are less susceptible to biased opinions. Additionally, unlike conventional prediction markets, crypto prediction markets do not face issues such as access difficulties, fees, and trading restrictions.

A Grayscale Research report also pointed out that over the past two decades, technology and economic incentives have reshaped the traditional media landscape, and decision-makers seem to be looking for alternatives. Prediction markets can be part of the solution, especially those leveraging the power of blockchain technology. By utilizing the transparency and record-keeping capabilities of blockchain technology, market incentives, and the collective wisdom of users, prediction markets powered by blockchain have the potential to become a "source of truth."

"Prediction markets will be the next market to attract mainstream attention," believes crypto investment firm 1confirmation, stating that prediction markets are a breakthrough use case emerging in the crypto space in 2024, representing the first crypto product people use daily (for information gathering), with many not even realizing it is a crypto product. The market size is expected to grow 100 times in the coming years.

Currently, the influx of market funds also confirms the popularity of prediction markets and showcases the appeal of the crypto market. According to DeFiLlama data, as of October 17, the TVL of the prediction market sector is close to $250 million, reaching an all-time high, more than 7.1 times higher than the beginning of this year. Moreover, the trading volume of crypto prediction markets has repeatedly hit new highs. For example, on the prediction platform Polymarket, Dune data shows that as of October 17, Polymarket has processed over $1.65 billion in trading volume, setting a new historical record and showing a month-on-month upward trend this year.

As the popularity of crypto prediction markets surges, dYdX recently announced the official launch of the TRUMPWIN-USD perpetual contract, allowing traders to adopt a fully decentralized and leveraged approach to trade their views on Trump's election prospects.

Similar to the trading mechanisms of other perpetual futures contracts on dYdX, the TRUMPWIN-USD perpetual market allows traders to establish positions based on Trump's winning probability in the U.S. presidential election. dYdX will settle based on the U.S. election results (settlement date November 5, 2024); if Trump wins the U.S. election, the market will ultimately settle at $1, otherwise at $0. This binary settlement price structure provides clarity, ensuring traders understand the exact outcome and the potential gains or losses based on that outcome.

Breaking Through Multiple Dilemmas of Traditional Prediction Markets, Leveraging Opens Incremental Space

Prediction markets are not only a convergence point for information and funds; the rapid rise in the crypto space is actually a revolution pushing traditional prediction markets forward.

Creating a Fairer and Safer Trading Environment

It is well known that traditional prediction markets often limit user participation and flexibility, while decentralized prediction markets will promote greater accessibility in this field, including no restrictions on participation amounts and groups, bringing higher fairness and security. dYdX's Trump perpetual market operates within a fully decentralized framework, meaning it can create a more transparent, fair, and secure trading environment for users, eliminating the risks associated with reliance on centralized institutions and allowing for more liquidity.

Multi-faceted Approach to Address Risks in Decentralized Prediction Markets

However, the on-chain prediction market sector also faces risks from liquidity, market volatility, and oracle issues. In response, dYdX attracts liquidity providers by incentivizing them to deposit funds into the market to ensure smooth trading, thereby maintaining a robust trading environment. Additionally, to prevent misleading information and financial loss risks from oracles, dYdX relies on PolyMarket to ensure the accuracy and immutability of market prices and election results, with the integration of decentralized oracles ensuring market transparency.

Moreover, to ensure that contract prices align with Trump's real-world election probabilities, dYdX's Trump perpetual market also employs a funding rate mechanism. If Trump's winning probability begins to trade at a price higher than its fair value, long position holders will pay funding fees to short position holders, and vice versa. This mechanism helps balance the market and maintain price accuracy.

Enhancing Flexibility and Returns Through Leverage and Risk Management Strategies

However, decentralized prediction markets still cannot compete with the hundreds of billions of dollars in market size of traditional betting fields, which is significantly related to limited user participation, insufficient market diversity, and regulatory issues. The introduction of leveraged betting is seen as a favorable tool to unlock growth potential in decentralized prediction markets. In fact, although the current crypto prediction market shows strong growth momentum due to the U.S. elections, the lack of more diverse prediction events to maintain and attract more users makes returns particularly important, especially in the crypto market chasing higher interest rates.

In dYdX's Trump perpetual prediction market, whether traders establish long or short positions, they can use leverage of up to 20 times to amplify their positions, thus opening the door to potentially huge profit returns with a smaller amount of capital, and offering more flexibility compared to traditional prediction markets. dYdX is also one of the few prediction markets that provide such a high ratio of market leverage.

Of course, leverage is a double-edged sword that comes with both allure and risk, capable of amplifying both gains and losses, testing emotional control and risk management. To this end, dYdX introduces advanced order features (such as limit orders and stop-loss orders) as important tools for users to enter the market and manage risks, allowing them to better manage risks and maximize trading returns in a rapidly changing market, rather than being limited to speculative trading. Furthermore, dYdX also offers professional-grade charting tools to provide traders with better trading decision-making.

In other words, compared to a purely prediction market, dYdX, through leverage, advanced order features, and charting tools, will provide users with more flexible and professional trading strategies and greater potential for imaginative returns, particularly appealing to experienced traders, thereby promoting a larger space for decentralized prediction markets to flourish.

In summary, current prediction markets are no longer just trading tools with economic value; by aggregating trading behaviors from different participants to gain collective wisdom and market sentiment, they can effectively gain insights into public demand and market changes. The openness and flexibility of decentralized prediction markets will further enhance market activity and liquidity, and platforms like dYdX that introduce leverage mechanisms will further stimulate participant demand, injecting more vitality into market prosperity, thus promoting prediction markets to become a powerful tool for conveying "public opinion."

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