Prediction Markets Like PredictX Have Perhaps the Greatest Potential in all of DeFi

Predictions are something we all make from time to time and to most of us they seem like something very mundane. However, decentralized finance (DeFi) has taken the mundane act of making a prediction and made it into something revolutionary. DeFi allows predictions to carry an immense amount of weight by creating liquidity backed predictions.

Liquidity backed predictions are something really unique even for DeFi because there are few projects actually pursuing them. A new project that just came out in DeFi called PredictX is creating a liquidity backed predictions platform. Liquidity backed predictions can give rise to a decentralized derivatives market. There is a lot that can be said about liquidity backed and their ability to create decentralized financial derivatives, but in this article we will focus on just Futures.

Liquidity Backed Predictions

Liquidity backed predictions are an extremely new market even in DeFi so a lot of people are perhaps unfamiliar with what they really are. The liquidity backed predictions market on PredictX is essentially a platform where people can go to participate in predictions. However, unlike traditional predictions these predictions made on PredictX will be backed by liquidity.

The liquidity backed nature of the predictions made on PredictX makes all predictions on their platform really valuable. The way it works is if an individual wanted to participate in a prediction on PredictX he would have 2 options, true tokens & false tokens each at a certain price. Once the person decides he wants to purchase true or false tokens he can deposit stablecoins on the platform to receive them.

Eventually, the time will come when these predictions results will be made clear. Now, if the prediction comes true then anyone who bought true tokens will win the prediction and each of his true tokens would become worth $1. On the flipside if the person’s prediction is false then each of his true tokens would be worth $0.

Liquidity Backed Predictions & DeFi Derivatives

In traditional finance a derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset. The financial asset can be anything like a stock, bond or commodity but in many cases derivatives can even be made on currencies.

A Futures contract is one of the most popularly used derivative contracts on the planet. The sheer versatility of Futures contracts make them popular among traders and businesses. A futures contract is a standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties that do not know each other.

There are two ways a Futures contract can be used either for buying or selling an asset. People who use buying Futures contracts predict that the underlying asset’s market price will eventually rise above that in the contract. People utilizing selling based Futures contracts predict that the underlying asset’s market price will eventually drop below the price on the contract.

PredictX’s liquidity backed predictions market can potentially emulate many of the features of a Futures market. Similar to a Futures contract, a prediction contract on PredictX will have a particular event occurring at a specified time in the future. People are allowed to participate in these events by depositing tokens and predicting whether the event will occur or not. Depending on whether they predict correctly people on PredictX will also stand to make a profit from their predictions.

For example, on PredictX an event can be created which states a certain token’s market price will rise above $10 by a certain date. The people who predict “true” are predicting that the token’s market price will rise above $10 by that date. Those individuals who pick false are predicting that the token’s price will not reach above $10 by that date.

Potential of DeFi Futures

As the cryptocurrency market grows and gains more popularity centralized financial institutions are beginning to offer derivatives for cryptocurrencies as well. However, there are only a handful of decentralized projects that have the ability to provide financial derivatives.

Futures are one of the most popular kinds of derivative contracts because they allow traders and businesses to create multiple trading strategies. One of the best methods of utilizing a futures contract is to hedge against potential losses. Another method is to make some really risky trades by using their leveraged nature.

Ultimately, the predictions markets are one of the earliest endeavors of DeFi that have potential to venture into the world of derivatives contracts.