SoK: Market Microstructure for Decentralized Prediction Markets (DePMs)
Nahid Rahman, Joseph Al-Chami, Jeremy Clark
TL;DR
This SoK analyzes decentralized prediction markets (DePMs) by mapping the design space onto a seven-stage modular workflow that covers infrastructure, topic definition, share structure, trading, resolution, settlement, and archiving. It contrasts early CePM-inspired designs with modern DePMs, illustrating variations in WTA, YNB, YNB-NR, and scalar market formats, and highlighting first-trade mechanisms, on-chain/off-chain trading, and oracle architectures. The paper emphasizes composability, regulatory considerations, and a forward-looking research agenda focusing on microstructure comparisons, robust topic definitions, and reproducible archiving. Overall, it provides a practical framework to compare diverse DePM implementations and identifies open problems for future work in decentralization, resilience, and governance.
Abstract
Decentralized prediction markets (DePMs) allow open participation in event-based wagering without fully relying on centralized intermediaries. We review the history of DePMs which date back to 2011 and includes hundreds of proposals. Perhaps surprising, modern DePMs like Polymarket deviate materially from earlier designs like Truthcoin and Augur v1. We use our review to present a modular workflow comprising seven stages: underlying infrastructure, market topic, share structure and pricing, trading, market resolution, settlement, and archiving. For each module, we enumerate the design variants, analyzing trade-offs around decentralization, expressiveness, and manipulation resistance. We also identify open problems for researchers interested in this ecosystem.