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Executive Summary

• With the largest trading volume in the market, Polymarket has been one of the most discussed players in Web3 prediction markets lately. There are other players, however, including Azuro and new players like Drift (BET).
• Capitalising on the year of US elections, Polymarket has accumulated $473 million in total trading volume in August 2024 (60 times higher than in August 2023). Its polls are increasingly cited by mainstream media to gain insights to outcomes across politics and business.
• Polymarket has stood out due to factors including its simplicity. It features mostly binary outcome markets, and users can bet with USDC. It also represents one of the earlier hybrid-decentralised, low-fee prediction market platforms. 
• Established in 2021, Azuro is an infrastructure and liquidity layer for hosting on-chain predictions, betting, and game applications. At the time of writing, it hosts over 30 applications, most of which are sports-focused. 
• Azuro adopts the peer-to-pool mechanism, where users can contribute to a liquidity pool and in return earn APY. In addition, Azuro primarily focuses on sports betting, which is an ‘evergreen’ market given the regularity in occurrence of global sports events. The protocol also diligently launches new features like live betting and AI partnerships.
• In August 2024, BET was launched as a natural extension of trading by Drift, a perpetual futures exchange on Solana. BET exceeded Polymarket on 29 August in terms of daily trading volume. 
• Capitalising on Drift and Solana’s native audience and total value locked (TVL), BET has had access to liquidity, potential users, and capital since day 1. In addition, it has more features than a pure-play prediction market platform due to Drift (for example, hedging and DeFi features). Moreover, BET supports more than 30 tokens to place bets.
• Given liquidity is one of the major issues for prediction market platforms, BET by Drift provides a new angle to competition in the predictions market. Competition does not only come from pure-play prediction market platforms, but also horizontal expansion from platforms with existing liquidity (e.g., DEXs). While Polymarket is likely to continue its dominance in the short term towards the US presidential elections, it has to figure out how to sustain volumes post elections.

1. Introduction

Prediction market has been called the “holy grail of epistemics technology” by Vitalik Buterin, who was excited about prediction market’s use cases in governance back in 2014. It also allows users to speculate on the results of diverse topics ranging from politics (election outcomes), sports (competition results), and macro events. It is not a new concept, as there have been Web2 prediction market sites that settle bets in fiat currency (e.g., PredictIt and Kalshi). 

The trend has recently gained a lot of attention in Web3, led by platforms like Polymarket, largely due to the US presidential elections.  While there were multiple iterations in web3 prediction markets before Polymarket, none of them were particularly successful. Augur, for example, was one of the earliest on-chain prediction markets, but issues arose due to high gas fees, as well as slow and unreliable transactions. 

Potential use cases of prediction markets include: speculation to earn money, gathering insights for forecasting, hedging, and governance (making decisions in a DAO). 

This report looks into some existing and upcoming players in prediction markets to review the latest developments. 

2. Players in Prediction Markets

Polymarket has been one of the most discussed players in Web3 prediction markets lately, and although it has the largest trading volume in the market, there are other players, including Azuro and Hedgehog, as well as new ones like Drift (BET). Azuro differs from Polymarket by focusing on sports betting, and Drift (BET) is a decentralised exchange (DEX) player adding prediction market features to its platform. 

The table below compares these selected key players in the prediction market. 

2.1 Polymarket

Polymarket was launched in 2020, a year when the US presidential elections were held. During that time, the platform gained market interest with its election-related markets, which dominated 91% of total volume on the platform, according to the Block. Polymarket represented one of the earlier movers in the prediction markets space and gave users an alternative betting option from traditionally popular sports-focused platforms. 

In 2024, capitalising on another year of the US elections, Polymarket has accumulated $473 million in total trading volume in August 2024, which is 60 times higher than the $8 million in August 2023. Instead of being seen as a platform for pure speculation, its polls have been increasingly cited by mainstream media to gain insights to outcomes across politics and business. In addition, Polymarket’s US presidential election odds were recently integrated into the Bloomberg Terminal. 

Polymarket initially stood out in the predictions market space due to factors like its simplicity. Polymarket features mostly binary outcome markets (Yes/No), and prices change in real-time representing probabilities. It is easy for users to understand the concept, betting odds, and potential rewards. In addition, Polymarket does not yet have a native token; hence, it does not require users to use a specific native token to bet. Instead, users can bet with USDC. Polymarket also recently collaborated with MoonPay to enable users to use payment methods like debit/credit cards and bank transfers. This simplifies the user experience and helps Polymarket in its user onboarding. 

In addition, Polymarket represents one of the earlier low-fee, hybrid-decentralised prediction market platforms, where order matching, ordering, and execution happen off-chain, while settlement is on-chain. This gives users an option against centralised counterparts (for example, PredictIt).

Polymarket also runs a Liquidity Rewards Program, which rewards users for placing limit orders close to the market’s average price, to maintain the healthiness of the market. Reward amounts depend on how helpful the orders are based on size and pricing. This incentivises user engagement to enhance liquidity on the platform. 

2.2 Azuro

Established in 2021, Azuro is an infrastructure and liquidity layer for hosting on-chain predictions, betting, and game applications. At the time of writing, it hosts over 30 applications, most of which are sports-focused. 

Azuro uses a hybrid oracle and Automated Market Maker (AMM) solution to determine the odds of outcomes and handle the liquidity for the various dapps. It adopts the peer-to-pool mechanism, where users can contribute to a liquidity pool and in return earn APY. At the time of writing, the USDT pool has $6.5 million TVL and pays 19.5% APY. The decentralised way of handling liquidity provides incentives for the liquidity providers, and at the same time, ensures capital to cover payouts. Different from Polymarket, which is a predictions market protocol, Azuro provides the tools for developers to launch new prediction market dapps. With Azuro, the dapps can focus on front-end developments and user experience while outsourcing liquidity to Azuro. 

In addition, Azuro primarily focuses on sports betting, which is an ‘evergreen’ market given the regularity in occurrence of global sports events. This suggests potential longevity in Azuro’s operations compared to Polymarket, which has a heavily concentrated liquidity in US elections. This is evident in the percentage of returning users on Azuro (44% in August 2024). Moreover, sports betting potentially attracts fewer disputes compared to social, cultural, or political-related topics, as seen from several disputes recently from markets on Polymarket. 

One of the potential successful factors of Azuro also includes the diligence in launching new features and partnerships. In April, Azuro launched a live betting feature, becoming one of the pioneers in Web3. In June, Azuro partnered with Olas, a network for autonomous AI agents, to develop an AI agent to accurately predict outcomes of sports events. In the same month, it also introduced a new gaming solution within its development stack for developers to integrate games into their apps. These new features and development stacks enhance user experience and, at the same time, attract developers to continue to build on Azuro. 

Azuro had $11 million in trading volume in August 2024, still a small percentage compared to Polymarket’s $473 million in the same period. However, Azuro became the number 1 revenue-generating protocol on Polygon, according to a report by DappRadar in June 2024. 

2.3 Drift (BET)

Standing for Bullish on Everything, BET by Drift is one of the newest players in prediction markets, launching in August 2024. It is a perpetual futures exchange on Solana and is launched as a natural extension of trading on Drift. At the time of writing, BET has four markets centred around US elections, with a total bet of $24 million from 18-31 August. In comparison, Polymarket had $212 million total volume in the same period. However, BET exceeded Polymarket in terms of daily trading volume on 29 August.

BET is differentiating in a few ways compared to existing players in prediction markets, largely due to its ties to Drift. 

First, BET has had access to liquidity, potential users, and capital since day 1. It can capitalise on Drift and Solana’s native audience and TVL, as well as leverage Drift’s liquidity of over $500 million deposits to get instant access to liquidity. This gives BET inherent advantages to scale compared to starting as a completely new platform. 

At the same time, BET has more features than a pure-play prediction market platform like Polymarket. BET users can utilise Drift’s trading features for hedging (e.g., long on prediction market, short BTC) and DeFi (e.g., borrowing/lending). 

Another unique feature is that, unlike Polymarket, which supports USDC for trading, users on BET can use more than 30 tokens ranging from stablecoins to liquid-staking tokens to place bets while earning lending interest on these supported collateral at the same time.

Given liquidity is one of the major issues for prediction market platforms, BET provides a new angle to competition in the predictions market. In addition to pure-play prediction market platforms, competition also comes from horizontal expansion from platforms with existing liquidity (e.g., DEXs). BET came into the market offering topics of similar themes as Polymarket (elections, economy, or politically focused). In addition, it also provides users with ease of use (for example, supporting a wide range of collateral, enabling yield-earning on collateral, and offering potential integration with Blinks on Solana in the future). We believe BET could potentially attract user attention and push forward innovations in the space. 

3. Conclusion

Polymarket is still undoubtedly the leader in the Web3 predictions market, hitting fresh all-time highs in trading volume in August 2024. 

Other players in the market vary in focus and features, as we have explored in the examples of Azuro and BET. Azuro taps into the sports-betting market, while BET is a new contender, providing attractive features in hedging and variety in collateral support as compared to existing players. Although currently small in trading volume compared to Polymarket, they represent continuous innovation in the space, aiming to improve user loyalty and enhance user experience. 

While Polymarket is likely to continue its dominance in the short term towards the US presidential elections, it will have to figure out how to sustain volumes post elections (for instance, growing its liquidity in sports or big crypto events). This is especially true in the face of heightened competition, where more players (including DEX players) have come in after seeing Polymarket’s success. We think players with existing liquidity and horizontal expansion capabilities (e.g., DEXs) could be a serious contender in the space. 

Overall, we believe prediction markets have a role to play in Web3. Instead of just speculating on the direction of cryptocurrency prices, prediction markets offer Web3 users an option to bet on real-world outcomes and gather insights.

Read the full report: Prediction Market

Authors

Crypto.com Research and Insights team

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