In-depth Analysis of the Development Prospects of Prediction Markets

Prediction markets, as a special trading platform, allow users to buy and sell "contracts" on the outcomes of future events. Essentially, this is a binary options market where the winning party can profit from the losing party's bets, while the losing party loses their entire principal. Users place bets on the likelihood of events occurring by trading contracts, thus the contract prices reflect the market's judgment of the probability of the events.

Prediction markets aim to leverage the collective intelligence by aggregating the trading behaviors of numerous users, thereby making accurate assessments of the probability of events occurring. For example, if the contract price for "Trump being elected President of the United States" is 60 Yuan, it means the market believes there is a 60% chance of that event happening.

Polymarket is currently one of the hottest prediction markets. It is built on the Polygon network and allows users to place bets directly using traditional payment methods to purchase USDC, without the need for complex wallet operations, making it very user-friendly for non-Web3 users.

Polymarket has recently performed impressively, with a betting volume of $387 million in July and daily trading volumes in the millions of dollars. The event of U.S. presidential candidates alone has over $550 million in unsettled contracts. The number of active users continues to grow, with a peak of over 23,000 weekly active users. Polymarket has become an important reference for public opinion in the presidential election, and Trump himself has repeatedly shared the leading data from the platform.

The rise of Polymarket is attributed to multiple factors:

1. In 2024, hot events are continuously emerging, such as cryptocurrency ETFs, the US presidential election, the Olympics, etc.

2. The crypto market is more closely related to the macro environment, attracting more users to pay attention to prediction markets.

3. The infrastructure is more complete, addressing issues such as deposits and bets in early prediction markets.

Polymarket has also made several optimizations at the product level:

1. Improve the user interface and experience, lowering the usage barrier.

2. Adopt an order book mechanism and incentivize market makers to provide liquidity

3. Encourage the community to provide event suggestions to ensure content supply.

4. Use UMA Oracles to achieve decentralized settlement

Nevertheless, Polymarket still faces some challenges:

1. Lack of liquidity may persist for a long time.

2. Difficulty in Token Utility Design

3. User acquisition and conversion rates are low

4. The degree of decentralization and fairness needs to be improved.

5. The participation in non-election related events is relatively low

Although the enthusiasm may decline after the U.S. elections, the prediction market still has long-term development potential:

1. The prediction market has a solid user base and history.

2. Political topics remain prevalent, and the supply of events will not be short.

3. User stickiness is increasing, with 15-25% of users converting to long-term users.

The future development direction of prediction markets may include:

1. Enable everyone to create events and gain ample liquidity.

2. Develop into a media platform covering a wide range of topics

3. As a supplement to search engines, provide the "conclusion" needed in the information age.

The development of Polymarket provides insights for market participants:

1. The existing infrastructure is sufficient to support the development of excellent crypto applications.

2. The infrastructure to lower the user threshold is basically complete.

3. You can first focus on validating demand in a specific market, rather than aiming for the global market right from the start.

4. Startups should be cautious in choosing the timing of financing news disclosure and maintain a low profile until the product is adequately prepared.