Understanding Prediction Markets in Web3: A Beginner’s Guide

#webdev #programming #ai #beginners

By: David J.
For Trepa x Superteam Korea

Understanding Forecasting Systems and How Trepa Is Changing the Game
Prediction markets are one of the most exciting use cases in crypto. They let people bet on future events—like elections, sports, or crypto prices—and earn rewards if they guess right. But behind the scenes, these systems vary widely in how they work.
In this post, we’ll break down the different types of prediction markets, explain how they work, and show how Trepa is building a flexible future for forecasting in Web3.

What Are Prediction Markets?

Prediction markets are platforms where users buy and sell shares tied to the outcome of future events. The price of each share reflects the crowd’s belief in how likely that outcome is.
For example:
If a share predicting “Bitcoin will hit $100K by 2026” is trading at $0.40, the market believes there’s a 40% chance it will happen.

Why They Matter in Crypto

Crowdsourced Intelligence: They aggregate public opinion into probabilities.
Incentive-Aligned Truth: Users are rewarded for being accurate.
Decentralized and Transparent: Many are built on blockchain, reducing bias and censorship.

Meet Trepa: A Modular Forecasting Protocol

Trepa is a Web3-native protocol that helps developers build custom prediction markets. It’s designed to be:

Modular: Choose how outcomes are resolved.
Transparent: All logic is open and verifiable.
Flexible: Works for crypto-native and real-world events. Trepa supports different resolution methods, infrastructure setups, and market mechanics—making it ideal for builders who want full control.

How to Classify Prediction Markets

To understand how different forecasting systems work, we’ll look at three key dimensions:
A. Outcome Resolution
How does the system decide what actually happened?

Oracles: Automated data feeds (e.g., Chainlink, UMA).
Human Review: Community voting or expert panels.
Automated Feeds: APIs or scripts that pull results from trusted sources. Pro Tip: Oracles are fast and reliable, but they depend on secure networks and accurate data.

B. Technical Infrastructure
Where does the logic run?

On-Chain: Everything happens on the blockchain.
Off-Chain: Logic runs on servers or apps, then posts results to the blockchain.
Hybrid: Combines both for flexibility and speed.

C. Market Mechanics
Other features that affect usability:

Liquidity Models: AMMs (like Uniswap), order books, or bonding curves.
Tokenization: Are outcome shares ERC-20 tokens or something else?
Governance: Who decides the rules—users (DAO) or a central team?

Four Types of Prediction Markets

Let’s group real-world projects using the framework above.

Type 1: Fully On-Chain with Oracles
How It Works
Smart contracts handle everything. Oracles provide the final result.
Pros
✅ Transparent
✅ Composable with DeFi
✅ Secure
Cons
❌ Can be expensive
❌ Depends on oracle accuracy
Examples

Polymarket: Uses UMA’s Optimistic Oracle.
Omen: Built on Ethereum, uses conditional tokens and oracles.

Type 2: Hybrid with Human Review
How It Works
Bets are placed on-chain, but humans vote or decide the outcome.
Pros
✅ Good for subjective events
✅ Community-driven
Cons
❌ Slower
❌ Risk of bias
Examples

Reality.eth: Uses community voting.
Kleros: Jurors resolve disputes and outcomes.

Type 3: Off-Chain with Automated Feeds
How It Works
Markets run on a website or app. A script checks an API and posts the result to the blockchain.
Pros
✅ Fast
✅ Cheap
✅ Great for real-time data
Cons
❌ Less transparent
❌ Risk if the data source fails
Examples

Kalshi: Regulated platform using government data.
Zeitgeist: Built on Polkadot, uses off-chain resolution.

Type 4: Modular Protocols (Like Trepa)
How It Works
You choose everything—resolution method, infrastructure, and mechanics.
Pros
✅ Highly customizable
✅ Works for any use case
✅ Future-proof
Cons
❌ More complex
❌ Requires technical knowledge
Examples

Trepa: Modular, flexible, and open-source.
Augur Turbo: Faster version of Augur with modular oracle support.

Final Thoughts

Prediction markets are more than just betting—they’re tools for truth-seeking, decision-making, and community engagement.
Understanding the different types helps:

Developers build better systems.
Users choose platforms they trust.
Investors spot scalable and secure projects. The Future As Web3 grows, prediction markets will become smarter, faster, and more reliable. Trepa is leading the way by giving builders the tools to create forecasting systems that fit any need—from crypto prices to global events. With Trepa, the future of forecasting is open, modular, and community-powered.