As far as expressions of crypto mentality go, leverage and prediction markets are about as pure as they come.
Luckily, protocols are now marrying the two — enabling traders to ramp up bets on Polymarket outcomes using borrowed crypto capital.
Onchain perp platform D8X, which runs on Polygon zkEVM, X Layer and Arbitrum, is the latest. It launched five leveraged orderbook markets based on Polymarket data, D8X told Blockworks exclusively. Development of the markets was first made public in July.
D8X itself is a white-label engine for managing perpetual futures markets onchain. While the Switzerland-based team behind the protocol, Quantena AG, offers a lite front-end, D8X is intended to be the technological and liquidity backbone that drives perp DEX apps built by others, similar to the Synthetix value prop.
Four front-ends currently use the D8X engine, which as of today includes the new leveraged prediction orderbooks: that Trump or Harris will win the US election, that Walz will be the DNC VP nominee, that the 49ers will win the next Super Bowl and that Inside Out 2 will be the highest grossing movie of 2024.
To mitigate risk, leverage, fees and slippage are all dynamically scaled to the state of the underlying Polymarket. Closer odds means lower leverage limits, as the market is at its riskiest for the protocol when bettors are split 50/50. Fees also operate on the same principle.
So, a Trump win traded for $0.484 — almost even odds — which converted to 2x maximum leverage during a live demo of the market on OCTOFI earlier this morning. 1x leverage would’ve cost 26.65% in fees, going up to 39.12% for 2x leverage.
Read more: Unpacking a potential Polymarket ‘ban’
Polymarket meanwhile prices bets for Inside Out 2 grossing the most of any film this year at $0.88, making it a heavy favorite. Leverage on D8X for that market went up to 2.6x, with fees of only 7.94%. (D8X, like Polymarket, is not available to US-based users, as well as for users in other restricted jurisdictions.)
Trump and Harris have been practically neck-and-neck on Polymarket since the start of August
The goal for D8X, co-founder Caspar Sauter told Blockworks, is to build “incorruptible financial machines” that can be used by anyone — even centralized entities like banks and other traditional financial institutions.
Sauter explained that over the long-term, a white-label model makes a lot of sense. It helps Web3 companies to retain their users, as they can offer new products without sinking development costs into building from scratch.
“But also, in Switzerland, you had essentially all retail-focused banks enter crypto spot markets over the past year, except the very big ones like UBS — state-owned banks now retail spot trading. The same evolution naturally leads to also offering derivatives,” Sauter said.
“All those players, they use white-label products, so we think that having a decentralized white-label offering is really important, because otherwise they all end up white-labeling a Binance-type of setup, which is not really what we want.”
As for D8X’s push to build on top of Polymarket, that perhaps reflects an interest in expanding the underlying social dynamics of prediction markets.
“A long time back, I used to be an economist, and I did a lot of academic research at the time — I love what Polymarket has built: markets that flesh out the views of people,” Sauter said. “It’s very effective to reveal what people really think, because you’re actually betting. That is beautiful, and building on top of Polymarket was a no-brainer.”
SynFutures, another derivatives protocol, launched its own leveraged markets on the US election outcome last week, while dYdX is reportedly looking to do the same later this year. Injective similarly launched leveraged prediction markets this week, while Wintermute has recently dabbled in prediction market tokens.
At least in the case of SynFutures’ markets, uptake has been relatively slow, with only $141 in volume over the past 24 hours for a Trump win, compared to over $5.1 million for the actual US election market on Polymarket.
But Polymarket weekly volumes hit record highs last month, at almost $473 million, and they’re on track to post similar numbers in September. I’d watch for the rate of leveraged bets to rise leading into November.
Polymarket is now considered a rare killer crypto app, after betting on the US election with USDC turned out to be a real “a-ha” moment in the wider culture.
Perhaps adding leverage to the mix can do the same for DeFi.
A modified version of this article first appeared in the daily Empire newsletter. Subscribe here so you don’t miss tomorrow’s edition.
