Future Development and Challenges of Prediction Markets

Prediction markets as a trading platform allow users to buy and sell contracts on the outcomes of future events. By trading, users are essentially betting on the probability of a certain event occurring, and the contract prices reflect the market's judgment of the event's probability. Prediction markets aim to leverage collective intelligence to make accurate assessments of the probability of events occurring.

The most popular prediction market platform at the moment is Polymarket, which is built on Polygon. The platform allows users to place bets using traditional payment methods to purchase USDC directly, without complicated wallet operations, making it friendly to ordinary users. Polymarket has performed impressively recently, with a betting volume of $387 million in July, daily trading volumes in the millions, and over $550 million in unsettled contracts related to individual U.S. election events. The number of active users on the platform continues to grow, with weekly active users exceeding 23,000 at its peak.

The rise of Polymarket is attributed to multiple factors: the continuous emergence of hot events in 2024; the closer correlation between the crypto market and macro factors; improved infrastructure, etc. In addition, Polymarket has also made many optimizations at the product level, such as:

1. Optimize the user interface to lower the barrier to use.
2. Provide liquidity through incentives
3. Improve content supply and decentralized settlement

Despite this, Polymarket still faces some challenges:

1. Insufficient liquidity may persist for a long time.
2. Difficulty in the design of platform token utility
3. The user acquisition and conversion rate is relatively low.
4. Complete decentralization and fairness are still a distance away.
5. Difficulty in increasing participation in non-election related events

The decline in the popularity of prediction markets after the U.S. elections is inevitable, but there is still room for development in this category:

1. The prediction market has a solid user base.
2. Political topics will not disappear.
3. User stickiness is increasing, with 15-25% of new users converting to long-term users.

The prediction market still has three major potentials to be tapped:

1. Enable everyone to create events with ample liquidity.
2. Develop into a media platform that covers a wide range of topics
3. As a supplement to search engines, provide the "conclusion" needed in the information age.

The development of Polymarket also provides insights for market participants:

1. Focus on application development, the infrastructure is relatively complete.
2. Can start targeting a wider non-crypto user base.
3. You can initially focus on validating demand in a specific market, rather than aiming for the global market right from the start.
4. Reasonably control the timing of financing news disclosure and develop products discreetly.