SoK: Market Microstructure for Decentralized Prediction Markets (DePMs)
It provides a systematic analysis for researchers and developers working on DePMs, but it is incremental as it synthesizes existing knowledge without new empirical results.
The paper reviews the history and design of decentralized prediction markets (DePMs), presenting a modular workflow with eight stages and analyzing trade-offs in decentralization, expressiveness, and manipulation resistance.
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 eight stages: underlying infrastructure, market topic, share structure and pricing, market initialization, 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.