Decentralized prediction markets

Introduction
Humans are obsessed with uncertainty. Maybe that’s why people always bet on the outcomes of future events. Betting has been with us for ages. Retrospectively it seems inevitable that large market around the betting on results of events in different domains, such as sports, business, financial markets, and politics was established. The Internet changed the shape of betting and prediction markets by giving a birth to online betting.
There are many problems with the modern betting industry. Perhaps the worst one is that betting, especially sports betting, is claimed at times to be rigged. The situation is exacerbated by bookmakers who decide to take or not your bet. Liquidity is another important issue. From my personal experience I can say that sometimes even the largest betting exchange Betfair lacks liquidity. That is, there cannot be enough liquidity for you to bet or your bet can significantly change the odds, especially in the sports event not popular with lay bettors.
A prediction market is a place where participants can bet on outcomes of future events. These can be anything from elections to sports events. A decentralized prediction market is like a traditional market which is not governed by any single entity.
Why does on-chain betting matter?
On-chain decentralized betting have many advantages:

• That every transaction is recorded on blockchain increases transparency of the markets.
• On-chain prediction markets tend to have lower fees than their centralized peers do.
• Independence from market operators. You are not at the mercy of operators, e.g., bookmakers, who can void the result of your bet or simply don’t accept your order. Since they are decentralized, on-chain betting markets are not governed by a single entity.

 
Augur
One of the most notable builders in this space is Augur protocol. Note that Augur itself is not a prediction market. It is a decentralized and peer to peer protocol that allows users to create their own prediction markets based on it. A user can create a market by indicating the event (i.e., market question) and time. A typical market question may be, “Will Bitcoin price exceed $30,000 between April 1, 2023 and April 8, 2023 according to tradingview.com?” There are three kinds of markets on Augur right now: binary or yes / no, categorical or multiple-choice, and scalar markets.
A designated reporter, a resolution source, a creator fee, and a validity bond are also creation parameters which means that they too should be specified when a market is being created. It should be noted that though the designated reporter resolves the market, the community can always dispute the market’s outcome and correct the reporter’s report. A validity bond is a DAI deposit which decreases the likelihood of creating markets that can be resolved invalid. If everything goes well and the market resolves valid, the creator will get his deposit back; otherwise, the validity bond is added to the fee pool. Its purpose is to incentivize the market creators to craft bets with well-defined events and unambiguous, clear outcomes. The creator fee is imposed upon the traders who decide to trade the market. The resolution source can be anything from the latest UN report to binance.com. Once the market has been created, the next phase in its lifecycle is trading. Users can bet on the market by trading shares on specific outcomes.
 
 
Thales protocol
Thales is a decentralized protocol for creating peer-to-peer parimutuel markets. First, let’s explain what the parimutuel betting is.
Parimutuel betting is a betting system different from the fixed-odds betting that most people know. As the name suggests, you know what you can potentially win in fixed-odds betting. If you bet $100 for Manchester United win against Liverpool at odds of 2.56, and MU wins the match, you’ll get $256. In parimutuel betting, all bets are pooled in one place. Odds are computed when the pool is shared among the winning bets. An example will make it clear.
Let’s say, there are 6 potential outcomes for a given event:
1
37
2
208
3
140
4
52
5
371
6
186
 
The total amount of money bet on this event is $994. The match is over with the outcome 2 being realized. The wager company’s commission is 10%. After deducting 10% from $994, $894.6 is left which will be shared among the winners. Thus, each winner will get 894.6/208, or $4.3. Note that there is a direct, inverse relationship between the amount wagered in a certain outcome and the amount won. If many bettors wagered on an outcome, every bettor will get less payout than if the outcome with the less amount wagered would be realized. In our example, the most payout for each bettor would be made if the event ended with the outcome 1.
Thales makes it possible to bet on such kind of wages, such as the price movements of cryptoassets. But if you think that you can only bet on the prices of cryptocurrencies on Thales, you’re wrong. Since the protocol employs decentralized oracle networks, theoretically any event known to the oracle can be used to make a market on Thales.