The 5 Things That Make a Prediction Market Decentralized

I think there are five main vectors to look at when considering how decentralized a prediction market platform is. By decentralization here, I mean resistance to central control or censorship.

Market Creation
Can anyone create markets, can only one privileged party do so, or somewhere in between, like a DAO or whitelist of creators?

Exchange
Are outcome shares and/or the funds used to trade those shares custodial or non-custodial? Can anyone place orders or just a centralized bookie? How centralized is the currency that trades are denominated in? For instance, USDC is more decentralized than USD, but a central entity may still freeze funds, so it is less decentralized than DAI.

Settlement
Does a single party determine the outcome and payout of markets or is the process distributed? Is this process resistant to interference or manipulation by state actors, well-funded attackers, and other entities?

Development & Code
Is the code base open source or closed? Is the code deployed on a centralized server or a distributed system like IPFS? How distributed are the developers?

Equity & Capitalization
Can anyone capitalize the development and distribution of the protocol and thereby access a stake in its success, or does equity belong to a centralized party or small number of privileged parties? If equity is permissionless, are actual holdings dispersed or concentrated among a small number of holders?

For a simplified mental model, you can think of three levels of decentralization:

Centralized

Example: PredictIt. A central entity creates markets, custodies user’s funds, determines market resolution, develops the platform, and takes fees. Trades are mostly denominated in USD, though USDC support was recently added.

DecentraLITE (mostly decentralized with centralized elements)

Example: Omen. Market creation and trading are decentralized (it’s currency agnostic, so more or less centralized currencies may be used), and it is open source. For market resolution, the final arbitrator is dxDAO.

Decentralized

Example: Augur. Market creation, trading, and settlement are all decentralized, and Augur is open source.

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