The prediction market is a big business worldwide and is known as the earliest form of entertainment. It dates back to at least the 1500s, when people were speculating on the papal successor. In the United States, the earliest recorded instance of the prediction market is from 1884, when political predictions took place on Wall Street. These instances show that this industry has been associated with entertainment for centuries now.
With the rapid growth of technology and innovation in theatrics, we were introduced to new forms of entertainment. Yet, the prediction markets continued attracting users in huge numbers. It points to the fact that despite its centuries-old history, this industry has evolved to meet the demand of current times. Amid its evolution to the next phase, the prediction market lost the entertaining aspect due to the higher risk of losing money.
Time for transformation
A new kid on the gamified finance block, Nezha, is eyeing the centuries-old financial practice, which despite its evolution, has continued gaining momentum even today. In fact, we’re looking at an expected growth rate of 11.5% between 2019 to 2027. The global prediction market was worth over $50 billion in 2019, which will touch the record $120 billion by 2027. What’s significant here is that the crypto prediction industry will consist of a large part of it.
That’s where the new DeFi protocol aims to make an entry with a concept that is vastly different from the first-generation prediction markets. It essentially makes Nezha a next-generation prediction market protocol. According to Ivan Gowan, Co-Founder of Nezha, “When it comes to the crypto space, it’s the DeFi segment that will have the biggest impact on the prediction market. Decentralized technology will be accessible to the masses and pave the way for unprecedented innovation.” That being said, not every DeFi prediction market is the same, as the technology, the concept, and the blockchain platforms they are built on are some of the leading differentiating factors.
De-risking prediction markets
Nezha is the first-ever insurance-backed prediction market built on Solana, which can process up to 65,000 transactions per second (TPS), far more than Ethereum’s capacity of 13 TPS. It also enables Nezha to process transactions at a fraction of the cost, which on average is around $0.00025. However, Nezha isn’t limiting itself to Solana, as multi-chain is the future of the crypto industry. So, Nezha will also be available on Cardano & Ethereum blockchain once its roll-out on Solana is complete.
However, here’s the most interesting part of Nezha’s concept. Any users on Nezha do not risk their principal amount. Instead, they are wagering the yield they receive on Nezha. With this move, the protocol has removed the looming sword of financial loss that prediction market users fear. At the same time, this enables it to leverage the entertainment factor of the first generation prediction markets. In short, Nezha is bringing back entertainment to this industry by reducing the risk of losing staked funds that have become an identity of sorts for this industry.
As for how Nezha generates the yield, it does so with smart yield routing that ensures the highest possible yield on user funds. At first, the liquidity engine aggregates the user funds, and then, directs the pooled funds into various yield-based protocols. Examples for the protocols could include market-leading DeFi platforms such as Solend or Tulip.
Nezha’s pools are also an important part of it and consist of multiple pools with varying utility. The most important is the prediction pool, as it is where the yield generated on user funds is transferred. This pool receives a major part of the weekly yield. From this pool, the funds go to the yieldpot, which hosts 100% of the prediction pool funds.
Now, depending on the outcome of the prediction game, the winning wallet addresses can claim their wins from the yieldpot. As for how the winners will be decided, its outcome will depend on the weekly game cycle.
The First Iteration
For its launch, Nezha has come up with a prediction draw game. In it, any user who enters the prediction draw will receive six numbers for every entry. The number of entries available to a user will depend on the number of tokens staked. These entries will come with unique identity numbers, along with the series of the numbers that will decide the winner.
The amount you can win from the yieldpot depends on the tier, as Nezha has opted for a tiered approach to decide the percentage of yieldpot you will receive as a payout.
“For the first iteration, we have come up with a unique mechanism, which will change with time as the protocol grows and holds more games,” Gowan says. “If the outcome of a game cycle doesn’t result in the distribution of at least 50% of the funds, it will automatically trigger the second-tier distribution.
Accessing Nezha prediction markets
Anyone who wishes to use Nezha first needs to stake their tokens into the protocol. The staking period will continue till the end of each game. These funds are routed into a pool by Nezha’s liquidity engine, and from there, the funds are moved to yield-generating protocols, which are chosen by Nezha’s digital asset management partners. These experts also factor in the default risks of the individual protocols to hedge against the risks.
Once these funds are deposited into the external DeFi lending protocols, Nezha will start generating daily yields. These funds are added to Nezha’s liquidity pools every week. As for the locking period, it will end once the game cycle ends. After that, the users are free to withdraw their principal along with their gains, if any. If they wish, they can also keep their funds staked and continue participating in the next game cycle.
What the future holds
According to Gowan, the only thing holding back the prediction market from realizing its true potential was the financial losses it used to deliver. Such was its impact that the fear of financial losses turned away users despite the earning opportunities the prediction market offers. But with Nezha’s entry, the industry will change for good.
If you believe the next-gen protocol founders, Nezha is ushering us in the next step of the prediction market’s evolution, which we can term Prediction Market 2.0. Thus, the project doesn’t aim to be another name trying to carve a niche for itself in this attractive market. Instead, it wants to be a true disruptor that could open the prediction market to the (crypto) masses.