The crypto derivatives market is having a hard time of late. October began with the news of CFTC civil enforcement action against the centralized crypto derivatives platform BitMEX.
BitMEX and its founders, including CEO Arthur Hayes, were charged with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement the required anti-money laundering procedures.
Less than a week later, the UK FCA announced a ban on the sale of crypto derivatives to retail customers. The final published rules ban the sale of any CFDs, options, futures, and exchange-traded notes that reference particular types of crypto assets, including Bitcoin, Ether, and XRP, considered by the FCA to be ill-suited for the retail market. The rules will apply to any firm acting in or from the UK, starting in January 2021.
Traders who are keen to find other options in light of these developments may find solace in a number of decentralized finance alternatives that have emerged.
The Rise of Prediction Markets
Prediction markets have been around for some time, though decentralized alternatives are a relatively new phenomenon. Decentralized prediction markets enable peer-to-peer trading on the outcome of certain events, with the market price indicating what the crowd thinks the probability of the event is at any point in time. It could be a market for predicting sports events, election results, even pandemic outcomes, and of course, crypto prices.
Augur (REP) developed the initial decentralized prediction market, following the first-ever Ethereum Initial Coin Offering crowdsale in 2015, though it took another three years to launch. It combines smart contracts and oracles to allow participants to predict real-world events without involving any third party.
Gnosis (GNO) is another project that has been in development since 2015, offering an open platform for creating prediction applications on the Ethereum protocol, giving the ability for anyone to create prediction markets in any realm.
Other examples include HedgeTrade, Numeraire, and Endor Protocol that combined account for millions of dollars in daily volume, with the market cap of the prediction sector now totaling nearly $600 million.
Ethereum co-founder Vitalik Buterin has also been a vocal supporter of the niche, commenting recently that “Honestly, prediction markets may be the one of the most underrated categories of Ethereum dapps right now. Omen and Augur v2 are both running and have active markets with pretty decent liquidity; go ahead and try them!”
New Kid on the Defi Block
Earlier attempts to launch decentralized prediction markets have suffered due to a lack of focus on building crypto-native markets and a lack of maturity in the ecosystem.
Challenging these incumbents is the new kid on the defi block, PlotX (PLOT). It builds on development in this niche with a more gamified and user-friendly alternative, focusing on digital asset prices. PlotX is a decentralized prediction market protocol on the Ethereum blockchain, designed to bring real value to the defi space and provide traders with an alternative to derivative markets in gaining exposure to crypto-assets.
Though new to the scene, PlotX has been developed by an established team with active participation in the developer communities of the Nexus Mutual, MakerDAO, Uniswap, 0x, Bancor, Compound, and dYdX defi projects. Despite the recent slowdown in the defi niche, it has seen its community offering oversubscribed by 15x in the lead up to mainnet.
How Does PlotX Work?
Traders can enter various prediction markets and earn yield for correctly determining the direction a particular asset will move in a given timeframe. Each market uses an Automated Market Maker, with a unique algorithm to calculate the prediction odds, and with all transactions processed on-chain for complete transparency.
Rewards get distributed instantly, and players can also use leverage to manage their exposure. Additionally, participants benefit from liquidity mining, earning further rewards for staking.
It effectively operates like a skills-based game where crypto enthusiasts can leverage their knowledge of the space to profit from correctly predicting future prices of digital assets like BTC and ETH.
Decentralized markets such as Augur and PlotX provide a means for traders to gain exposure to synthetic assets, derivatives, and predictions options in a permissionless environment. Anyone can participate and anyone with skin in the game can profit from correctly calling the outcome of the event.