Paper: arXiv 2510.15612

Authors: Nahid Rahman, Joseph Al-Chami, Jeremy Clark

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.

Complexity vs Empirical Score

  • Math Complexity: 6.5/10
  • Empirical Rigor: 3.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper introduces formal axiomatic definitions and taxonomy using mathematical notation, but it is primarily a survey and classification of existing designs rather than proposing new algorithms with empirical backtesting or data analysis.

Research Flowchart

  flowchart TD
  A["Research Goal<br>Systematize DePM Market<br>Microstructure & Identify Trends"] --> B["Methodology<br>Historical Survey &<br>Modular Framework Design"]
  B --> C["Data Inputs<br>2011-2024 Proposal Review<br>Truthcoin, Augur v1, Polymarket"]
  C --> D["Computational Process<br>7-Stage Modular Analysis:<br>Infrastructure, Market, Trade, Resolution"]
  D --> E["Key Finding 1<br>Modern DePMs decouple<br>market resolution from trading"]
  D --> F["Key Finding 2<br>Trade-off exists between<br>decentralization & manipulation resistance"]
  D --> G["Key Finding 3<br>Open Problem:<br>Scalable dispute resolution<br>mechanisms"]