The growth of prediction markets in recent years mirrors the broader adoption of online sports betting and gambling.
As these industries have surged, crypto prediction markets have gained momentum as well, particularly with regulatory rollbacks and advances in blockchain technology.
In this article, we'll dive in to the history of prediction markets, how they work in the crypto space, and the challenges they face. Plus, we'll highlight some key players, such as Polymarket and BET by Drift.
History of prediction markets
Prediction markets are not a new concept.
They date back to centuries-old financial betting systems that allowed individuals to wager on the outcomes of events, from political elections to wars. These early markets were relatively small and limited to local participants, but they showcased the core concept of using collective knowledge to forecast future outcomes.
One of the first modern examples of prediction markets came in the form of the Iowa Electronic Markets in the late 1980s. These markets allowed participants to bet on the outcomes of US elections, with the market prices representing the likelihood of a particular candidate winning. This proved to be an effective model for aggregating public sentiment and generating more accurate predictions than traditional polling methods.
As the internet developed, online platforms such as the Hollywood Stock Exchange and Intrade took prediction markets further, enabling global participants to bet on events such as the box office performance of movies or major political decisions. However, these platforms often faced regulatory challenges, leading to shutdowns or limitations on their operations.
What are prediction markets in crypto?
The advent of smart contract blockchains changed the landscape of prediction markets once again.
Crypto prediction markets such as Polymarket are decentralized platforms built on blockchain networks, allowing users to bet on the outcome of real-world events. Users bet on events by purchasing shares or tokens representing specific outcomes. The price of these tokens fluctuates based on the likelihood of each outcome, as determined by market participants.
The decentralized nature of Polymarket and the like is key to their appeal. Traditional prediction markets are often constrained by regulations and legal restrictions, but blockchain-based platforms operate without intermediaries and rely on smart contracts to automate the entire process.
This allows for global participation, low fees, a higher level of transparency, and resistance to censorship. Additionally, the immutable and transparent nature of blockchain technology ensures that the results cannot be tampered with or manipulated.
The role of oracles in crypto prediction markets
Blockchain oracles play a crucial role in prediction markets by connecting smart contracts to real-world data. Since blockchain networks themselves cannot access off-chain data (like the outcome of an election or sports game), oracles serve as a bridge between the blockchain and the external world.
For crypto prediction markets, oracles are essential for determining the outcome of bets. Once an event concludes, the oracle feeds the final result into the prediction market platform, enabling its smart contract to settle the market and distribute the rewards.
While oracles bring valuable real-world information to blockchain networks, they also introduce risks. If an oracle provides inaccurate or delayed information, it could disrupt the market and lead to incorrect settlements. Ensuring the integrity and reliability of oracles is therefore critical for the smooth functioning of crypto prediction markets.
Further challenges of crypto prediction markets
Despite their promise, blockchain-based prediction markets face several challenges:
- Regulatory uncertainty: Different countries have varying regulations on betting and gambling, and many crypto prediction markets operate in legal gray areas. This can limit their accessibility or lead to potential legal consequences for participants.
- Scalability issues: **Ethereum-based prediction markets often suffer from high gas fees and slow transaction times, making it costly and inefficient for users to participate, especially for smaller bets. This problem has led many platforms to explore alternative blockchains, such as Solana.
- Thin liquidity: Smaller prediction markets often lack sufficient liquidity, which can distort pricing and make it difficult for users to enter or exit positions. This is especially problematic in niche markets that attract fewer participants.
- User experience: Many crypto prediction markets are not user-friendly, especially for those unfamiliar with blockchain technology. Complex interfaces and the need for technical knowledge can deter potential users from participating.
Prediction markets on Solana
Polymarket is currently the largest and most dominant crypto prediction market.
However, Solana has emerged as a viable network alternative for crypto prediction markets, mainly due to its high throughput speed and low fees.
On Solana, there are two prediction market projects that have been gaining traction: MetaDAO and Drift Protocol’s BET product.
By leveraging Solana’s near-instant transaction finality, BET by Drift in particular solves many of the scalability issues faced by Ethereum-based prediction markets. Additionally, the low transaction fees on Solana make it feasible for users to place smaller bets, expanding accessibility to a wider audience.
Consequently, BET by Drift could represent the next step in the evolution of crypto prediction markets, offering a more efficient and user-friendly experience for crypto enthusiasts and newcomers alike.
How to get started with Phantom and BET by Drift
Prediction markets are poised to become an increasingly important part of crypto. And as they evolve, they will continue to bridge the gap between crypto and real-world events, offering new opportunities for participation and speculation.
Ready to get started? Here’s how:
- Head over to app.drift.trade/bet
- At the top right of your screen, click on “Connect”.
- If you're new to Drift, acknowledge the terms and click on “Agree And Continue”.
- Next, you'll be presented with multiple connecting options—select Phantom and then deposit some funds. Setting up a new Drift account might cost you some SOL, so please bear that in mind.
- As soon as you've set up and funded your Drift account, you can select a prediction market you're interested in.
- The order form on the right side of your screen will give you the option of purchasing a market or limit order—with the latter being the default.
- Complete the order form and submit your bet, done!
- You'll see all your bet positions, orders, and history in the widget just under the market’s price chart.
If you don't have a Phantom wallet just yet, read the next chapter below. And our “Onboarding to Phantom with Apple Pay & Google Pay” guide got you covered if you'd like to fund your wallet.
How to set up a Phantom wallet?
If you’d like a friendly multichain wallet for crypto, DeFi, and NFTs, try Phantom! We offer browser extensions for Firefox, Chrome, Brave, and Edge, as well as apps for iOS and Android.
- First, download Phantom.
- Then, create a new wallet.
Once you do that, you're ready to go.
How to bridge tokens to Solana with Phantom?
To bridge assets from the EVM ecosystem to Solana, read this guide.
And if you'd generally like to bridge funds to the Solana ecosystem, use our very own Crosschain Swapper. With our Cross-Chain Swapper, you can bridge tokens across Ethereum, Solana, and Polygon right in your Phantom wallet.
Here’s how:
Disclaimer: This guide is strictly for educational purposes only and doesn’t constitute financial or legal advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
