From time to time, Crypto tweetsr keeps popping up with messages predicting that the DeFi prediction market could become one of the hottest stories in 2023.
Daily Queen I decided to take a closer look at the market and check if there is any basis for such statements. Are the odds high that the decentralized prediction market will suddenly grow this year?
This is what we discovered.
What is DeFi prediction market?
Decentralized prediction markets allow users to bet on the outcome of future events. Simply put, they can bid on highly debated topics and make money on being right.
Unlike the futures market, the predictions market is focused purely on real-world events: from sports victories and Oscar winners to new product launches or the outcome of presidential elections anywhere on the planet. Meanwhile, in the futures markets, the main focus is on the price changes of the underlying asset.
Most DeFi prediction markets use a similar business model and offer to bid on binary options. Users bid by buying shares of the chosen outcome. These shares are usually priced from $0.1 to $1. It represents the probability of the outcome and fluctuates according to the number of bids placed.
This is what it looks like on a decentralized prediction market, Polymarketwho asks if Avatar: Water Road It will gross over $650 million domestically by January 31, 2023:
Each option reflects the market value, indicated in cents. Both always add up to the total value of $1.
Let’s say you buy $10 worth of Yes option shares. In this case, you could have a potential return of $152.98, or 1.430%, more than your initial investment.
Value moves in and out
A deeper look into the decentralized prediction market ecosystem shows that it has more than two dozen protocols.
The total value locked (TVL) on all of these protocols is just over $15.6 million at the time of writing. $14.87 million or 95% of all TVL in DeFi prediction markets held on four leading protocols.
Each of the four leaders has a net worth of over $1 million. and this is azzurro ($5.37 million), Polymarket ($4.2 million), Gnosis protocol V1 ($4.02 million) and Augur ($1.29). These four leading protocols account for an 18% share of all prediction markets calculated for DeFi.
All four represent a 17.66% increase in the cumulative total value locked on the platforms over the past 30 days.
The current combined TVL is 28.42% lower than the total value locked on the four protocols three months ago and 121.66% lower than the cumulative TVL a year ago.
The numbers above represent the general trend of where the four largest DeFi prediction markets are moving to. However, each protocol displays user activity patterns and TVL movements.
User activity and motivation
Although user activity on different platforms varies, they are all driven by similar motives.
Many behavioral researchers analyze what drives people to bid on prediction markets agree Earning money through betting is one of the most important motivating factors.
to me data Posted in Dune analyticsthe average user in the leading market, azzurroHe places about 23 bets and wins 11 of them. The average amount spent on bidding for future events is $472, which means the average bid comes in at $20.5.
According to the statistics, the platform has paid out 41,390 bets out of a total of 87,781 bets. This means that the odds of winning are close to 48%. The total amount wagered on the platform since its mainnet launch in June 2022 is close to $1.84 million.
Three of the four leading decentralized prediction markets offer bets on future sports-related events. This sector is an absolute leader in the decentralized prediction market and the vast online central betting markets.
"The global sports betting market size grew from $96.84 billion in 2022 to $104.78 billion in 2023 at a compound annual growth rate of 8.2%, "says The Business Research Company, a betting market statistics provider.
Central betting markets are growing
When analyzing the reasons that fuel the growth of all types of betting markets, one time-tested argument is that people tend to shift towards luck-based gambling activities during economic downturns.
Last year was a prime example of hard times: Russia’s invasion of Ukraine disrupted the global economic recovery after the Covid-19 pandemic. It led to a global rise in commodity prices, causing a domino effect.
Prices of products and services have risen, which automatically leads to inflation, a decline in purchasing power, and an economic slowdown.
The cryptocurrency market has had one of the most challenging years in its history, losing more than $1 trillion by 2022.
Meanwhile, last year’s statistics for the sports betting market show that difficult economic times may be associated with an increased interest in gambling activities.
According to the data, New York reported, the largest mobile sports betting market in the United States $16.2 billion Of the total money bet throughout 2022. Considering that the same market recorded $21.1 million As the overall handler in 2021, the change represents a staggering 76,568% increase in inflows.
The impressive change came after the country started mobile betting. However, the amount of inflows does not refute the magnitude of the current potential.
For the cryptocurrency economy, the question is whether decentralized prediction markets can expect even a small fraction of similar growth in the near future.
Slow down cryptocurrency adoption
Historically, greater user engagement in crypto-related activities has always been associated with a higher adoption rate.
According to blockchain analytics firm Chainalysis, cryptocurrency adoption in general Slower in 2022, though it is still “well above levels that preceded the 2020 bull market.”
The total value of DeFi locked on its protocols has fallen by 73%, from $165 to $44 billion in a year, according to devilama. Despite this fact, the amount of capital reserved is still about 70 times greater than it was three years ago.
Industry researchers anticipation The DeFi market will continue to grow at a compound annual growth rate (CAGR) of 42.5% from 2022 to 2030.
"The emergence of blockchain-based prediction platforms is anticipated to create growth opportunities for the industry over the forecast period," the research says.
What are the prospects for a booming predictions market?
On the other hand, we have a proven example that people are more willing to bet during economic downturns. On the one hand, we still have a bear market and, accordingly, a slower rate of adoption, which is the decisive factor in attracting more new users and new money to the ecosystem.
There may be more choices of small scales that can change the odds in one direction or another. DeFi prediction markets may come up with new potential partnerships and technical innovations that can lead to user engagement and interest.
But they may face stricter regulations that could restrict the availability of platforms in some jurisdictions.
With this in mind, the potential for DeFi prediction markets to boom is suddenly emerging.