Ethereum has seen a new wave of entrants looking to establish their own decentralized prediction markets. Despite being one of the original use cases for the Ethereum network, there has yet to be a dominant player in the space with adoption struggling to take hold.
The general premise of decentralized and permissionless prediction markets is rather enticing: anyone in the world is able to bet on the future outcome of any event. With enough liquidity, such activity could create the basis for insurance products, sports betting and forecasting with all data being sourced on chain and available for public use.
In 2018 Augur broke new records when $2.1 million was staked in its US midterms market, however the 2016 ICO has since struggled to generate any meaningful adoption. The platform came under fire in 2019 from an apparent design flaw which enabled bad actors to game the system by deliberately creating and profiting from invalid markets. Since then, excitement for Ethereum prediction markets has waned.
While Augur has spent much of the last 2 years focusing on their V2 (expected at the end of the July), a flurry of other prediction markets have been developed and deployed to Ethereum mainnet.
The New Entrants
Omen is the newest player in the prediction markets space. As stated in their release post this week:
“Omen is a decentralization maximalist prediction market platform launched, maintained, and governed by the DXdao.”
Omen’s prediction market is built on top of Gnosis, allowing anyone to create markets by posing a question of their choice along with a range of customizable features including outcomes, collateral types, expiration dates, categories (like technology, crypto, sports, or politics) and arbitrators (i.e. oracles).
The last point is worth expanding on given Augur’s historical issues. Omen is an oracle-agnostic platform, meaning anyone can specify the custom data source they’d like to use as an oracle. With that in mind, Omen V1 uses the decentralized tool Realit.io as an oracle with Kerlos dispute resolutions as the final arbitrator. But in theory, potential Omen oracles could include Chainlink, Aragon Court and even traditional legacy news outlets.
Creating an open and modular predictions platform was one of Omen’s core design goals during its development. The most interesting piece about Omen though is the introduction of “conditional tokens”, a framework that allows users to:
- Create simple markets on the likelihood of a given event.
- Create complex markets about the likelihood of an event which is affected by other events. (e.g., what is the probability of a global recession, if a trade war breaks out between the United States and China in the next year?)
- Trade any asset under the condition that a specific event happens.
This ERC20-compliant framework paves the road for global access to cross-platform liquidity.
Polymarket is another new entrant in the prediction market sector. The product, which launched in mid-to-late June, is non-custodial and permissionless and also features the conditional token framework developed by Gnosis.
The difference between the two is that while Omen is aiming to be maximally decentralized, Polymarket has more centralized functionality in order to improve and streamline the user experience. Some of the more popular markets right now on the platform include “Will Ethereum 2.0 Phase 0 launch before 2021” and “Will Trump win the 2020 U.S. presidential election”.
Users can also provide liquidity to the market’s liquidity pools and earn fees every time someone trades. Those who elect to become LPs on Polymarket are ultimately helping the market produce more accurate information on the underlying predictions.
Equally as important, users can withdraw their liquidity at any time.
Despite Augur’s struggle to garner significant traction over the years, the prediction market’s V2 upgrade – which is set to release on July 28th – has been highly anticipated by the Ethereum community.
Augur V2 will feature DAI denominated prediction markets, eliminating the volatility and friction associated with using ETH. In addition, Augur V2 will address those using and exploiting invalid prediction markets. In the next upgrade, “invalid” will be a tradeable outcome like any other, enabling traders to hedge the risk of invalid outcomes and gauge their likelihood via market forces.
While Augur was the lone Ethereum prediction market for several years, the arrival of new participants has rejuvenated interest in this long-awaited use case.
Better yet, both Omen and Polymarket offer notable improvements over Augur V1 (and arguably V2 as well). However, Augur has a secret weapon up its sleeve that neither of the new participants have – tokenized incentives. With the recent yield farming mania happening in DeFi, Augur has the potential to integrate similar incentives for users to participate in the protocol’s new upgrade.
While nothing has been announced, we can only hope that this would be a late addition to give prospective users an attractive incentive to deposit and bootstrap liquidity for Augur’s V2.
But we shall see. If anything, it’s exciting to see a new resurgence in prediction markets, especially with the upcoming US presidential election – an event that is likely to see millions traded across these markets on Ethereum.