How Prediction Markets Have Become Crypto's Killer App

Transcript

welcome back to the rollup in today's episode we had a good conversation with Andrew Young from sxat so our second podcast with Andrew for this one we focus strictly on the idea of prediction markets on chain being the killer app for crypto Andrew explained it quite well as prediction markets are almost like the second iteration of crypto apps being popular with the first one being these crypto native defi applications we talked about their app chain on arbit from orbit the future of sports betting on as well as Andrew's predictions for where this entire prediction Market Niche scales to the next 5 years we're pretty below sh this idea we enjoyed this podcast and hope you do as well jum right in after a quick word from our

amazing sponsors car is your home for app specific rollups at the Forefront of developing new tools and platforms that enhance the capabilities of blockchain Technology carty enables applications that are flexible and built to scale build on a full Linux environment and use traditional software libraries but in blockchain development go to ci. that's cy. to learn more about building your own app chain today going on guys welcome back to the rollup at ethcc we heard a lot of there

is no apps and everything is infra today we're going to debunk that thesis and talk about one of the biggest use cases we believe in something that Rob's been pretty passionate about for some time since the auger days which is the idea of prediction markets on chain and I I'd like to talk about some of the self-fulfilling prophecies I saw anom getting arrested in 2024 odds that's kind of a wild one when you start to put people's livelihood at stake on chain um and more uh we're we're with Andrew from SX bet and longtime supporters and Friends pass it over to you Rob GM and uh what's up man yeah GM I'll keep my little rant here in the in the intro uh pretty short because I think uh if if I

get going on prediction markets I I tend to I tend to go for quite a while so yeah self-fulfilling prophecy something that I think is really really uh fascinating about prediction markets uh we'll probably get a little bit deeper into that and how markets can kind of like uh influence their own outcomes um Andrew obviously runs SX uh which is uh firmly in the prediction market and uh betting Market space uh newly deployed on arbitrum uh and and part of that L tip uh program that's going on over there which is uh a massive incentive program uh for a lot of projects on arbitrum SX included uh Andrew I think it's at least your second time on the podcast man so welcome back yeah happy

to be here I think uh I was on with sand deep maybe two or three years ago back in the uh Heyday of uh poly G's defi surge but uh yeah yeah happy to happy to be here now that uh prediction markets and uh you know gamble fi and sports betting is really finally getting it moment in the sun yeah I mean you foresaw this but why do you think you know this is happening now obviously the election plays a part in that and generally like how do you see this H like this this is almost a zero to one moment for crypto and and blockchain apps um now that you know they're getting recognized by normal-ish people you know like where do you think we go from like what is happening now and

where do you think we go from here yeah totally so for SX we are focused squarely on the sports betting side um SX is a peer-to-peer betting exchange so that kind of allows us to be classified as a prediction Market even though I would say like most of our users think of us as kind of like a more true sports betting platform but I think um I mean I think prediction markets is this thing that everyone's been talking about since quite literally the first white paper from uh like the ethereum white paper uh it was like the very first use case talked about uh by vitalic just because it's such an obvious um you know clear sort of Industry that deserves

disruption and sort of needs disruption and um that's particularly uh within like the sports and politics side so um I think a lot of it so I talk a lot about this because we've been we've been working on SX since 2019 um or I should say our launch was in 2019 so it's been a very long time and I think there's a couple things that are kind of happening that is allowing prediction markets as well as like gamble fi and sports betting to really uh to really take off right now the first is the infrastructure is finally ready so when we first launched SX back then it was called sport on ethereum mainnet back in March

2019 uh it was really bad ux so users would have to uh you know essentially use ethereum mayet with uh incredibly slow block times uh bets cost like a couple dollars in transaction uh you know transaction fees and uh and then at the same time like people were not used to using uh metamask or other types of wallets there's actually no other wallets at the time met was the only one I remember at the time when bitsky was kind of like the very first one to come out with a competitor that was like really big news um and then let alone there was no real like inbuilt Fiat onramps so things like Moon pay didn't exist um and if they did exist it was like 20 $30 fees it was just a total it

was insane like I to be honest you I don't know why we built at the time you had to have a lot of like conviction in the space getting more usable because uh it was very far from being usable back then so all of those things are no longer true though so you now have inbuilt wallet uh you know fat onramps uh you have much uh cheaper much more scalable chains infrastructure you know where're we have like a 100 different l2s at this point you have salana um you have all sorts of new l1s that are exciting and then finally you also just have like a larger pool of onchain users already um back in 2019 the the biggest app appap in the world I think was idex

which had like 800 daily active users now there's like millions of onchain users every day so I think like it's just like all the this the infrastructure in the sort of tech has finally caught up to the use case um and that's why I think we're kind of like about to see an explosion a further explosion in uh in prediction markets and Sport studing I think prediction markets is really taking off right now just because of the it's like a really good time in terms of uh politics but I actually think um and obviously that's like how we built our company I think the the bigger explosion long term is is actually going to be sports betting uh just because like sports betting completely dwarfs politics betting uh

just given the fact that you know politics only happen like big us elections only have happen every four years whereas you know there's thousands of matches every day so um yeah I think it's like finally Our Moment In The Sun for prediction market and uh and gamble five more broadly yeah yeah I also think that the world is just like getting slightly more degenerate like after co co kind of set a way of life for people I think in a way um and so I think that the world also is just getting more speculative I think like the zero interest rate phenomenon kind of has has led to more people just taking speculative Behavior to the max but like I I guess to POS a question on you with regards to strictly prediction markets

outside of sports betting and kind of get your take on on this are are prediction markets on chain is this like one of the best use cases for blockchain technology like when I think of onchain use cases I think of blockchain is and when people people are asking me like okay what app do I build I often think like okay think of a a industry which has some sort of arbitrary middleman or third party which effectively uh solves two people's problems or two people's uh coordination or ar arbitration of a result and then just put a blockchain in there make some smart contract rules and tell both players of the game the rules and then open up the floodgates for everybody and I feel like prediction

markets are almost like a perfect way of kind of opening this this kind of uh I don't know what the analogy is when they say Pandora's Box so p uh sports betting prediction markets like is this like idea of like opening up markets for anything is this something that that you believe that uh uh blockchains have been B one of the killer use cases that we're kind of opening up now um and kind of if so maybe can alliterate or like add on to kind of why yeah I think that's a a really good question so I think prediction markets sit firmly in the second phase of crypto blockchain app adoption so uh and I can get into why but so the first phase was essentially

internal blockchain apps so what I mean by that is um like something like Unis swap only really exists within the like context of crypto Natives and and and and like people who are already using the blockchain because it's allows you to you know swap tokens between blockchains or swap tokens uh you know swap tokens in general or just broader G defi which um you know is essentially like in a way it's like its own like completely self-enclosed Financial system um but it's not at all um related to like the outside world right so um It's Kind like it's fully its own self-enclosed thing prediction markets um are kind of the second phase where

it's a combo of kind of like part of the self-enclosed system and also obviously part D5 but then also has elements of like general purpose uh consumer crypto and then I think obviously the next phase is like just pure consumer crypto so things like um you know social media or like onchain video games things like that um which which I think are kind of like still people are getting really excited about them but they're kind of like still not there um so I think this is like this hybrid role of prediction markets is part of the reason why where it's like it's part consumer crypto but also part uh defi in a lot of ways um is why it's been it's been able to start to like take off and and sort of being cited uh with that being said like it's

prediction markets are still very small um relative to like the total amount of users trading meme coins for example right so like that first phase of adoption of like this whole self-enclosed defi ecosystem is still far bigger than uh you know anything in prediction Market world as well as anything in the consumer crypto World um but yeah I think like I would just say like I guess like the hybrid nature of prediction markets allows that um and one other thing too is prediction markets um they have lower average transaction sizes than traditional defi uh like traditional defi applications so like average prediction Market bet for for example for SX it's about1 to

$200 whereas like the average swap size on Unis swap um you know can easily be thousands of dollars tens of thousands or even hundreds of thousands of dollars I should say even millions of dollars um whereas like that doesn't really uh there's some really big bets in prediction markets but they're for the most part they're much smaller and so that also is part of the reason why it's taking longer for prediction markets to kind of take off is that uh it's only really in the last two years with the you know launch of like polygon salana all this like wave two of a very fast uh smart contract change that you can even like have uh you know have a mainstream prediction Market take off yeah well then real quick and and Rob

I'm sure you've got a ton just one last thing on the prediction Market side for for poly Market um if you're more bullish on sports betting than you are on prediction markets for politics particular or just in general because of the cyclical nature of sports betting um poly Market has sports betting but it's not nearly used as much like to the degree of like oneth or 12th as much as their politics or their other random prediction markets does that defeat your thesis or is there another reason as to why that their sports betting offerings haven't gotten as much attention as they're kind of more I guess D genish offerings yeah I mean like without

getting too much into poly Market but I think poly Market is very much designed as a prediction Market platform so just like for example everything's quoted in cents out of a 100 um that is a very like there's no there's almost no sports betting Platforms in the world with a UI that looks like that uh it's just so for example their UI is very different their target markets very different for the most part from what I can tell uh poly Market's done in a incredible job of getting predicted Traders onto their platform uh so predicted is like this like centralized uh prediction Market um the only issue is that there's a cap on the amount that you can sort of trade so like there's like an $850 cap when you

when you use I predict it whereas obviously poly Market is uh you know has no cap so that's like a huge Edge and um from what I sort of gather again I'm not I'm I'm obviously on the SX side not poly Market but I think like done a good job of sort of attracting those like political Traders um I think Sports is so Sports is like a much much bigger um like much more competitive uh Market but it's it is the bigger prize at least in my in my opinion I think it's like the bigger more sustainable more uh and also just like better uh Market to be disrupted that does mean it takes like longer to build uh you know things towards it though um you know SX does do like we're

just about to hit 500 uh $500 million in bets um like we are starting to do we now also have the best odds in the world for pregame MLB NBA and NFL so we've sort of achieved that milestone in the last uh four months so that's across not just like crypto Sports books like stake and rbit but actually across like traditional Sports books like FanDuel uh you know DraftKings all those types of platforms uh and that's taken like a long time to obviously build and so um yeah I just think like the it's very early days in like the onchain gamble f space which is kind of like I would say a little bit different than onchain prediction markets in terms of its focus um and I think it's going to have like a crazy surging growth just

like one last thing that's kind of interesting onchain gamble FY usage uh or in terms of I should say in terms of Revenue is like roughly like 20 to 25 basis points of the centralized crypto betting uh revenue of like something like stake and and roll bid so what I mean by that is essentially onchain gamble FY is very similar to like uh 2019 levels of Dex trading When de uh when at the time Unis swap was like 0.25% of the volume of coinbase that's essentially where we are right now with uh onchain Gamble fi so to me it's like I think there's a very

similar surge because I think now Unis swap do about 35% of coinbase's daily uh daily volume so I think there's like a similar like 100x increase in relative market share coming for for for sports betting um and I think like prediction markets is for political prediction markets is kind of like the first uh first sign of that yeah I there's kind of like two paths that we can take this this podcast and I kind of want to take both but since we're in the sports betting uh like path now I'm curious as there's there's one hypothesis hypothesis as to why sports betting hasn't taken off on poly Market I'm curious if if you are facing a similar

uh phenomenon on on SX and it's that on a traditional sports book like DraftKings FanDuel those sorts of things you're betting against the house and so there's always someone there to take the other side of your bet but on poly market and I think it's the same on SX you have to Source both ends of liquidity and so what you end up seeing is like really thin order books on prediction Market Sports because well a lot of times it's like a lot of the money is just coming in on one side and then you don't have a house to take the other side and so you're not able to matchmake a lot of those orders um that results in thin liquidity and not great prices and you know yada y ya down the

line centralized Sports books offchain Sports books don't have that problem so I'm curious like when you're thinking about like especially some longtail sports events maybe like you know the Olympics is going on right now how do you guys think about sourcing liquidity for some of those longtail Sports markets yeah so that that is actually a really good question that's kind of like uh that's like hitting the nail on the head um so for for us like we have a network now of over 50 market makers that uh we sort of like painstakingly uh introduced into onchain sports fighting over the years uh and that was kind of just like a traditional BD process just getting them you know familiar excited um and sort of understanding and like integrated into the platform so uh

with that being said though you you are totally right um the longtail of sports betting is very tough to Source liquidity and that's actually not necessarily specific Sports it's actually more things like player props or um sort of like exotic markets of uh like very popular sports um um so like player props is like oh you know well um you know will LeBron score 30 plus points today um that one would actually be a bit more popular so it probably be somewhat easy to get liquidity but like will LeBron get 4.5 rebounds or more or less tomorrow um those are very tough to Source liquidity and they're also more inefficient so what that means is they're much harder to provide liquidity

for uh because as a market maker um you're sort of at an inherent disadvantage um because like you know if if some news comes out that LeBron's injured or or someone else someone else on the team's injured uh then you there's a ton of ways to like hit people's liquidity um like what's called Fast clicking we call that fast clicking in sort of the prediction Market world uh and take people's offers before they can sort of left them so for us uh we're very focused on like the main uh Sports and the main markets within those Sports and then our idea is like as we add more market makers we slowly SC scale into those other uh those other other markets it definitely takes a little bit longer

um but there there's really no reason that you shouldn't have better liquidity on those things as well just because of like the way baying exchange or prediction Market works right like you can have multiple people providing liquidity versus just like the house um so and then finally one last thing like I should really mention this the liquidity on a lot of these Sports books for those longtail events is very lucer so what I mean by that is if you actually take that liquidity and consistently win uh those Sports books will ban you very or they what's called limit you very quickly so they'll they'll essentially lower your max bet to like an insignificant insignificant amount like say like

$2 um and and in some cases like they'll actually just like steal your steal your money as well uh steal your balance or prevent you from withdrawing which is essentially the same thing uh and it's particularly egregious those small markets because it's uh it's easier to essentially identify people who are um positive EV or essentially consistently profitable or the defi term uh toxic flow um when you're betting those like more esoteric markets so um yeah I would say like overall we still have some you know we still have some work to do to catch up there but I think we're taking like a very like disciplined approach starting with the big Sports and then just working downwards

um and we actually just recently launched peer-to-peer parlays for example uh which I think is the first peer-to-peer parlay betting system in the world where essentially parlays for example is when you combine multiple bets into like one megabit and previously you know betting exchanges never had that because it's such an esoteric type of Market whereas we created this essentially like um almost like RFQ system where you can you can request a quote for a market and we build like a private order book in real time and then uh market makers can submit their best bit and so yeah I guess what I'm trying to say is there's you can eventually we're going to eventually build all that way to the point where you know you'll have same game same game parlays but it'll be unlimited liquidity instead of limited you guys are not the only ones working

on this problem right and this this sort of like liquidity sourcing problem pops up in a lot of places like you guys are primarily looking at it through the through the lens of sports and and same game parlay even down you know I I've seen some of these micro betting plat forms all the way down to like the snap right is is this play going to be a pass or a run or is this guy going to hit this free throw or is this guy going to make this putt you know all the way down to like the play level but we see this this same problem in a different form um in in prediction markets where it's like well you know is this thing going to happen is this thing going to happen very esoteric markets where not a lot of people are paying attention how do you

Source liquidity for that and then more generally like like we're we've spoken with Arun from connect and now Everclear who are who are looking at this problem from like a bridging perspective and it's like well how do you get solvers which are basically liquidity providers to provide liquidity on some of these longtail chains and the solution that they've come up with is almost like this Clearing House method where you're trying to look at everyone who's looking at one side everyone who's inflows on one side outflows on the other side and kind of find the coincidences where you have both of those match up um and for like a sport just to bring it back to

the sports book analogy like you know if you guys had a way of reading the flow of orders from DraftKings from you know all of the onchain sources and then you could kind of like aggregate that and match that and clear that against flow coming from the other side I feel like it would overall be a much more ient market and so I'm curious if you're like how how are you because I think one thing that I I'll I'll close up this rant now one thing that a lot of people want but can't have right now is permissionless markets permissionless Market listing where if I have an idea of something that I want to predict I can just type it in and then all of a

sudden it's a market on the UI and people can come bet on it but again that is like esoteric to Infinity how do you get market makers to provide liqu liid to some Market that I just thought about on a whim yeah so there's there's two things there I I want to address so I'll talk about the the second part uh in a second but I think first of all in terms of like the the idea of like having all the flows in one spot that's actually the vision of SX is to build effectively Like This Global liquidity hub for sports betting because if you look at the sports betting world right now it's a highly fragmented um effectively like thousand of different like closed pools of

liquidity where there's no data in any of the flows it's completely uh proprietary there uh there's really hard to like connect these different flows of liquidity like there's some aggregators that have been built um but for the most part it's like quite limited um SX is actually about to get added onto one of the biggest uh one of the biggest aggregators in the world for this which is pretty cool will be the first crypto PL uh cryp first crypto Sports B platform on that but but still it's still like very it's very different than like what Dex is are right now um and then finally like you said like it's not permissionless you know it's completely closed Source like it's just not uh it's it's it's like the most non defi thing

you can you can find put it that way um and so like our vision is to essentially build this like Global liquidity hub for onchain sports betting um and uh and that that really is kind of like the vision and and goal of it and and by doing that we can essentially lower uh The Vig from the industry standard of 5 to 7% down to less than 50 basis points so less than 0.5% uh and like that's effectively the goal of SX is to drive like a you know 15 20x decrease in the cost of transacting uh when you're when you're trading Sports in a lot of ways like SX is kind of like an Institutional betting exchange um uh in a lot of ways just because or institutional liquidity hub

for for sport setting um but anyways on your second point on the permissionless markets so so okay so everyone wants to create whatever Market they want but no one wants to provide liquidity on it so that is like the core issue with a lot of these markets um it's part of the reason why you haven't really dived too deeply into that I also think like poly Market's doing a pretty good job there they sort of get around it by subsidizing it um so like they they essentially I think they spend like something like 15 to 20K a day that's what I was seeing from I think sisifus something like that of like uh of incentives per day to reward market makers to to provide

liquidity um and uh you know that's like it's somewhat expensive I think a lot of it goes to like us elections and stuff but uh that's actually a pretty good way of getting people to provide liquidity it obviously comes with a cost um I don't think poly Market charges a fee right now so like eventually like long term you have to have some sort of like uh you know value acrel there to to sort of like you know you can't just subsidize it forever and not charge fees um so yeah I guess what I'm trying to say is I think it's a bit of an unsolved problem like in the short term you can kind of throw subsidies at it but like eventually you need to actually solve solve for it in like a sustainable way um another issue with permissionless markets is as soon as you start getting

Beyond Sports and even to a certain extent politics um you start to get into this issue where it's unclear how to actually resolve these markets uh you can kind of have like ambiguous uh settlement and that's even true even if you like decentralize it and use something like Yuma for example I think like what Yuma is doing is really really cool it's it's probably the best um sort of best possible strategy to try to like solve decentralized uh like the decentralized Oracle problem I'm sure you guys have had like heart and the Yuma guys on on your podcast so uh don't need to go too much into that but it's still like even if you have even if you have like a good decentralized model for it it's still like a very I would say almost potentially unsolvable problem for for

like these types of like permissionless esoteric markets I think there's some things that are kind of interesting though with that some people are trying to use AI to solve that like essentially like you um Outsource uh Market creation and reporting to like an AI or chat jpt it's still very early there and yeah who knows if that will work but I guess what I'm trying to say is like it's a very thorny issue getting into these like permissionless markets um and so we're yeah we're just very focused on like the markets that we know there's demand for and that we know that will work and that we just know that the current industry is just like not at all uh up to par with like the standards that we're we're all used to in D5 Manel was a layer to blockchain with one of the biggest

onchain treasuries in all of crypto and they have a 100 day campaign called morphosis live now what this is is it is a campaign for their liquid staked eth token M eth as well as their upcoming liquid reaking token CM where you can utilize this token on the mantle Network in a variety of different apps some of your favorite reaking protocols and defi protocols and earn yields in the form of powder which will eventually be turning into a a governance token Mantle's been around for a while we like them because they use their own form of I uh they have a good ecosystem and they're growing so check out this 100 day metamorphosis campaign and hope you guys enjoy the rest of this video a good

example of just like even from today I think poly Market had like uh prediction markets on the Venezuelan Venezuela election uh in terms of like Nicholas Maduro uh who like by all accounts of by all accounts it looks like he just like rigged the vote to win um so like that would be a very thorny thing to try to figure out how to report because yeah like did he win or did he just you know like I guess he won but he kind of cheated so like does it count um you even have that a little bit with sports even like for example over the weekend Max ver stappen um he won qualifying for for the F1 Formula One race uh but then like after the fact was um was given a

grid penalty and so like he didn't actually start in poll position on Sunday he actually started I think at like 11th um so you have that a little bit with sport um I guess that's actually one other thing that sort of separates how we built our site versus a lot of these other prediction markets um so SX is built in a way where we can actually effectively void uh void Mar so when we void markets it actually unwinds trades um and completely so um the way to think about that is SX only allows like primary trading on contracts um which is very different than poly Market or nosis or these other like prediction Market sort of templates

uh which allow secondary trading so like you essentially uh you're actually trading a token uh that represents the event not uh not trading into the event directly yeah it's a it's a very like technical uh aspect but the difference is is that when we void markets as like a when we report markets as a void um people get back exactly what they put in into the into the beted whereas uh this other design um there's no actually there's no ability to do that like you can't unwind trades perfectly so they just you just everyone gets back like 50 cents on the dollar um which doesn't really work because like if you bet on a huge Underdog or sorry if you bet on a huge favorite and then like the match gets cancelled and you only get 50 cents

back you actually lost a lot because you might have paid like 90 cents uh for the BET and then now you only get so it kind of distorts things a little bit um but again that's we don't have to get too much into that it's kind of like a technical sort of aspect of how but again like that's just sort of like how we we went our design is is definitely more tailored for for sports betting than uh anything else I I think even with sports like I think one of the most valuable aspects of prediction markets is the the arbitration of Truth like you know Max for stappen and it's a mild example right the Venezuelan president uh prime minister example is like a one with like much more drastic consequences but we're we live in an age with like so

much information overload from both sides and everyone is biased and it's like well who knows what to believe but when you have a market that almost necessitates an outcome it's like well there are people incentivized to come to some consensus uh as to like what the truth of the matter is I think that aspect of prediction markets is really cool like the the fact that it produces this public good which is the which is the information itself um yeah so I think that part is is really good I think the part that needs to be solved for is like the econom like someone needs to pay for that public good um uh so like it's it's G to be Cur like um yeah I mean I I I

actually don't know the answer to it but uh I I definitely agree I think like the public good aspect of like prediction markets is is really cool and I think it makes a lot of sense particularly for like politics and and things like that just because people want to bet on it for fun even um it starts to get hairier when you get into like very esoteric prediction markets where um like you as a market maker the only people who are going to be betting against you are people who have uh Superior information like there's no like there's no like no noise Traders or whatever you want to call them like people just betting on things for fun um it's just like in a way it's almost like pure toxic flow and so um in a market with just like pure toxic flow where uh the only way to

really survive as a market maker is to is to provide liquidity with like really wide spreads um so yeah I mean I think like again though I don't think that sort of applies to things like politics and sports and and some other types of markets you know maybe some pop culture things as well um yeah Ever Clear is pioneering the clearing layer the clearing layer can almost be thought of as splitwise when you go on a trip with friends but for the blockchain what I mean by that is when users are sending cross chain messages there's oftentimes fillers and solvers who have balances left on different chains that they need to rebalance and reset their positions this is where ever comes in ever is

pioneering a collaborative approach to the chain abstraction future and they are willing to work with interoperability Partners solvers and other providers in the space to build a interoperable and chain abstraction future check out Everclear ever clear.org and welcome back to the coent is solving the longterm data availability problem where a lot of the data availability providers today in the modu space when you post data to them they actually only hold that data for about 12 to 16 days and then it's basically they can go into archive note or often times it's just kind of put away into the abyss and what coill is trying to do is build this long-term

data availability solution which can plung into some of these modular data availability providers and provide this longer our Perpetual data solution so what we try to think of this as is when you post transaction data onto Celestial or Veil or any of these mod da Solutions or even ethereum coal is able to provide a long-term data storage and data availability platform for that data after the time period blockchains are Billboards not databases and you know we need these providers in the space to be able to kind of hold on to the longterm data that is provided from these providers and the blockchain state this is where coent comes in they just had a nice Rebrand check them out on Twitter

as well as the website thank you for being here hope you enjoy the rest of the show one of the things I'm like most proud about for SX is the fact that um uh recently we just had our best Q2 ever in terms of betting volume as well as users um and at the same time we had just cut uh look Equity incentives to to zero about halfway through the quarter and so to me that was like our strongest um signal yet that we've kind of like achieved a measure of product Market fit where there's no um you know like we essentially don't have to subsidize market makers anymore um and and if anything actually our volume's just

grown since then um so yeah I guess to to answer your question like initially we we did subsidize uh liquidity on on the SX bet exchange um through this thing like I said called bet mining where essentially um you know users that traded on the platform or offered liquidity earned SX tokens but again that's that's now effectively been discontinued so um I think that's like one of yeah probably one of the most bullish things about about what we've done um in terms of what SX uh token it like what the like tokenomics all that type of stuff um so there's two things so one is um SX is a bit unique in the sense sense that um we're actually also

our own rollup which I'm sure you guys are going to want to talk about as well uh because we we've been chatting about it offline for a while but um so in one sense like SX is like a traditional like L2 token where um you know sequencer Revenue um like all sorts of like all the revenue from from essentially being a tone rollup uh can can go to the Token so I think that's like one aspect of it uh and then the second is obviously like it is a uh betting exchange as well both like the app and the sort of underlying protocol um and so right now SX doesn't charge a commission but um has in the past and like it sort of it's up to the community but like you know it could

could easily happen in the future um and so that that would be like one obvious sort of source of value acrel for the token um uh I think like it makes sense to do have some sort of fee structure that um allows SX to sort of maintain its Superior liquidity without you know compromising on that um but um yeah I would say that those are kind of like the the two to two big things and then there's also like a staking element there's governance um you know a lot of the kind of like basics of of any real D5 project yeah let's let's definitely dig into the rollup part of that like you know because you guys have flow whether it's toxic or not and maybe can decipher like what that means you guys are also in a position where you can

internalize that Revenue similar to how like these other blockchains that maybe have some trading functionality they're graduating in their app chain life cycle they're going from uh apps that are built on a general purpose rollup launching their own app chain so that they can kind of like internalize a lot of the sequencing and and uh me that they otherwise would have leaked to like a ecosystem layer and so you guys have taken an app chain approach from like a very early stage um and that comes with a ton of trials and tribulations like you said we've talked about these you know offline um you know when you when you guys think about like those yeah I mean walk us through that

and then um I definitely want to you know take most of the time to think like where you guys are now and where you're headed but briefly walk us through like you know kind of like where you've been in this app chain life cycle um and like what those trials and tribulations were yeah it's a it's a great question uh I would say we were extremely early the uh the app chain uh uh like meta whatever you want to call it um and that like you said it came with some challenges um so part of it is like SX was launched a very long time ago relative to like the vast majority of blockchain apps we we launched in March 2019 on ethereum and the um we we ran into a lot of issues obviously being on ethereum

mainnet and the the those issues kind of came to a head during defi summer uh that was back in like August 2020 that was kind of like right when you know compound launched their token all these defi protocols started going crazy and at the time uh gas fees on ethereum Main net went from like 50 cents to I think it was like $50 at one point and so for us where our average transaction size is $100 uh it effectively forced us to shut down the app and so um one that was like kind of a scarring experience because like we had been building you know user base in a product and essentially for reasons outside of our control we had to effectively shut down the platform and and also like a lot of our

users um we have some like crypto native users but a very large percentage of our users are just like sports bers who want good odds they don't actually really care about the blockchain or crypto element at all um if anything it's kind of like a small disadvantage that it's crypto-based um or just like a means to means to an end for them so um so we we essentially ended up launching on polygon POS back in I think September October 2020 I think this we would have been like the first or second app on polygon at the time actually think poly Market was maybe the other the other one as well as like a lending like an a for um and that was amazing it allowed us to scale uh pretty dramatically like our volume grew

uh very dramatically in 2021 uh because like we now finally had like you know it didn't cost like 50 cents to or let alone $50 to place a bet you could you could do it for free effectively uh but then we ran into a lot of issues with polygon POS as well um uh again this is sort of like back in the day they've they've resolved I would say a good chunk of them but there was a lot of issues with like Network instability you know it was a very sort of new chain at the time it was also it also began to see a quite a dramatic increase in transaction cost as well when they hit their kind of like D5 summer in I would say like February 2021 so transaction costs went from like fractions and fractions of a penny to like a couple

cents um which was still like fine for us but given that we had seen this story play out before we it worried us a lot and so we kind of just realized that like if we wanted to build this platform sustainably long term uh particularly because like a good chunk of our users is is like sports betters non non say not crypto natives uh we realize we need to have our own infrastructure and so we started building that out um yeah back in like end of 2021 and at the time there was really only like two options it was kind of um it was kind of Cosmos or uh a recently launched SDK called polygon Edge um we decided to go with polygon Edge just because we already on the

polygon uh you know infrastructure we were very familiar with their team uh and it was also evm compatible I think like now people are finally starting to get evm compatible Cosmos chains I think bar Chain's probably going to be the first kind of real one um but anyway so we we decided to do that and so we ended up launching SX Network which effectively is an app chain built on top of polygon Edge um and that was great that allowed us to uh you know essentially scale our user base we never had any issues with infrastructure or far less issues um so I'm actually a really big believer in app chains um particularly if you've hit like a level of I would say for two things one if if you don't need a lot of

crypto natives it's particularly good because crypto natives don't care what change they on they just want to use the app and then second um if you're not like a def platform that needs composability with others in the ecosystem then it it also makes sense um and so uh yeah so that was great uh and the the only issue is that um while we were big fans of polygon Edge uh it seems like the polygon team itself wasn't and so they actually sunsetted the polygon Edge uh SDK I think probably about six months ago eight months ago um they kind of went in a different direction um more into like the ZK evm stuff um you know polygon's a huge team so they have tons of different

I think they have like 10 different things they're focusing on right now uh and unfortunately polygon Edge which I guess for people who don't know what polygon Edge was it was kind of like subnets for it was like the polygon version of subnets if if you've heard of like Avalanche subnets um and uh anyway so we started to have issues six months ago effectively kind of saw the writing on the wall uh we're also having some issues with like um while there's big advantages to being on your own app chain like I said there is also huge disadvantages the the main disadvantage is you lose out on a lot of the distribution benefits of plugging into these other ecosystems uh which for the most part are almost always going to be larger than your specific kind of like tailored one and so um we decided on kind of like a a

hybrid approach of okay we need to move off polygon Edge we definitely want our own kind of like permanent home so we're going to we're going to launch an orbit roll up and that's going to be where our power users and our like non- Crypton native Sports bers transact but then we're also going to build like uh SX light which is like uh you know effectively like a lighter version of the app and we're going to launch that cross chain into other ecosystems and that will allow us to uh you know still Target the crypto natives like the Casual Sports betters who you know uh love defi love using crypto and and still love sports betting but then o have this like permanent home for the like professional sports betters that

kind of like power the whole power the whole platform um and so yeah so long-winded way of saying essentially we're we're just in the final stages of migrating to this arbitrum uh the SX rollup which is built on arbitrum orbit um and then we've also launched the SX app on arbitrum one which is like you know the the L2 of arbitrum uh and we're targeting more chains to launch on that uh which again I can talk about as well uh and so yeah it's really exciting for us because we kind of get the best of both worlds it's almost like you guys launched l4s like ethereum's L1 arbitrum is L2 SX is an app chain which is like it's on arbitrum orbit so it's kind of like an L3 and then you have these SX light nod

of SX that if I understand that correct the setup correctly it's like people can place orders on the SX light but then it settles onto your L3 which is the chain is that kind of like the right frame how this works yeah totally so um SX on SX rollup is a true betting exchange so it's it's fully peer-to-peer uh when you use like the SX app on these other chains um it's uh it's it almost functions more like a sports book where you're betting against the contract and what's happening on the back end is you're placing a bet against a contract on arbitrum one and then that same contract is placing like a hedging bet

on the like SX exchange on the SX rollup so the contract is perfectly hedged effectively like it has um like effectively it has a bet against you on team a but then it's it's placed your bet for you and so like at no point the and then essentially we just rebalance the pools uh over time it's almost like a relayer model for for for betting um and it's super lightweight so we can launch on other evm chains relatively easily um sports betting is very Capital efficient so that's one of the reasons why this type of model Works um because um you know it's not like cross chain lending would be a huge lift because um you know if I'm doing like a

I'm taking out a $5 million loan for multiple years like that requires a ton of tbll and it doesn't generate that much transaction volume or or fees whereas sports betting like people turn over their accounts like 50 times a year and like for the most part open interest only is there for a couple hours that's actually why you often see like prediction markets typically have very low TBL but um they'll have like very high transaction volume and and extremely high like revenue or fee capture relative to that volume it's like one of the most Capital efficient um sort of sectors of defi um but it doesn't generate a lot of tbll because like these con like you know uh an NBA game only lasts a couple hours right so and then that money

leaves and so that it leaves the tvl metric so I guess what I'm trying to say is sports betting is like this perfect use case where you can do this kind of like crazy cross chain uh transacting and and it's still like fully economic uh it makes sense yeah and I I love how like the sports betting industry and you guys specifically have been able to front run a lot of the problems and and like challenges that we're seeing on like defi in general and I I think that's like been true of of sports betting for a long long time it's like this is a market and these guys are incentivized to like innovate this market and so you guys you see a lot of innovation happen on Sports books before it happens on Wall Street you see it

happen in prediction markets before it happens in defi in general um and so one of this these things that we've been trying to solve in defi for a long time is like cross-chain composability and like cross rollup transactions so you guys are doing this with with a relayer model and So you you're able to kind of like bring together this multi-chain experience into like a single rollup settlement Network which is the SX rollup app chain but you can tap into liquidity and users and network effects from a lot of different chains like arbitrum one like polygon and so on and so forth and so two-part question first if you could please shout out just like where you

have these implementations so that people know like where they can find you but then second part is like is is a much more difficult question so like how and is it possible to turn a a a regular sports book maybe even an offchain sports book into like a a relayer like how do we get like DraftKings flow on chain and we don't need like the actual dollars right we just need to relay the orders so that you know to rebalance a certain way and like is that possible if so like how how doable is that yeah it's a good question so I guess just first of all we're uh SX is only on Two Chains right now so the SX rollup which has full functionality

which includes like live bedding parlays everything uh and then arbitrum uh arbitrum one um where it's more limited it's just pregame betting um it's we're going to launch uh cross chain live betting at some point as well as parlays uh sort of in the upcoming months and then there's some ecosystems that we're really excited about so kind of vision is that um we're probably heading towards a world where um like consumer crypto apps things like that are probably gonna have their own chain I think to a certain extent and then uh but then there's still going to be these like like maybe like 10 to 20 I could be wrong there could be like hundreds but like 10 to 20 like

Mega uh all-in-one uh generic l1s and l2s and so we're our cross chain strategy is really to kind of like predict what one is like see which ecosystems are obviously big but then more importantly we want to predict which ones we think are going to get big because we think a lot of the alpha in terms of being like a um and being like a chain dap is to actually be like really early into uh new CH new chains that are exciting um and sort of like building with the community almost being like what we call being a day one app and so um so there's some ecosystems that we're really excited about like bear chain I think is really cool um I think like a cosmos evm chain that

actually works is is is awesome bear chain is really exciting uh Cosmos evm chain proof of liquidity doesn't really uh isn't as important for us but I think is really is really cool too I think they're gonna have a really incredible defi ecosystem uh monad is really cool as well um I think like a 10,000 TPS um they built a great commity uh there's a lot of hype as well of course um so I think that's like another sort of L1 that we're sort of monitoring uh on the L2 side I think scroll is is is quite interesting it's kind of like the first one of the first like ZK chains that's really growing well um and they don't even have like their token

out H which which like to me means like you know it's it's uh there just more growth coming um I think like the mo what the mode guys are doing is actually really really interesting as well so like James from mode is doing this like really like targeted uh go to market approach it's kind of similar to like what blast is doing in some ways but um giving even more support so anyways that's kind of like a longwind way of saying those are those are different chains that we're we're sort of monitoring about potentially launching on as well as like the you know like the main ones like polygon POS and things like that um on your second question which is the sort of more complex of the two um like how do you

bring DraftKings flow on chain um it's very tough because DraftKings and all these different sports books um they are not open so so what I mean by that is um virtually none of them have apis uh they don't want you to actually have access to their data um let alone like their flow data that's completely that's pretty much impossible to get um two is it's not liquidity in the sense that me and you think about liquidity like it's not like permissionless liquidity like Unis swap right like this is very um siloed liquidity so what I mean

by that is like me and you could see different liquidity when we go to DraftKings based on who they they essentially profile every user and you effectively have a score and as you win um or if you even lose but like you're taking what are seen as good bets um your score essentially gets reduced and so they lower your betting limits and vice versa so the obset so if you're if you're like blowing through tons and tons of money and losing your your limits actually increase uh which is like a very predatory system um so yeah so I guess like overall it's not it's not really it's like a kind of impossible flow to actually get access to uh and this is

part of the reason why sports betting is so inefficient I think uh um and so I think like I guess to answer your question I don't know I don't know if that's actually kind of the goal of what we're trying to do is to access like their liquidity or their flow um we're in some ways we're kind of doing this the defi approach of like building this like new system of like compl completely permissionless liquidity and and far more transparency far far more security and just making the bet that that's going to grow and grow over time because it's just simply a better system um and then eventually if if it grows enough like you know offchain traditional Sports books will need to hook into that liquidity um if if they want to sort of compete so I would say

in a lot of ways it kind of mirrors defi in terms of building like a parallel universe that doesn't really touch that much between them um yeah I mean if you look at defi like we still don't have tokenized stocks you know what I mean like um defi is where you go to trade popcat it's not where you go to trade Apple um and maybe popcat or whatever mcoin doesn't grow to be as big as Apple but like in agregate um you know that ecosystem like might be begin to rival uh like the traditional markets and then maybe at some point there'll be a crossover but so yeah I I guess what want try to say it's very similar to defi in that regard yeah I'm curious uh uh kind of last thing from my end with

regards to your like the the SX rollup why did you guys end up going with arbitrum orbit and not a different rups yeah it's a really good question um so arbitrum to us so first of all we wanted um one of our big requirements um was we wanted like a battle tested system like we we have migrated too many times so this was kind of like our last migration we were ever going to do uh you know we went from ethereum to polygon POs to SX Network built on polygon Edge and then we're going to a roll up like I can't do any more migrations this is the last one so we wanted something that had been battle tested um you know that was like kind of consensus um that was kind of

like people had already built uh l2s and rollups using it and like uh it functions really well and so we did a lot of research and talked to a lot of teams and definitely um definitely check those blockes uh second is we wanted we needed extremely fast uh like block times so it's going to have like a 250 millisecond block time that allows us to do cross chain live betting as well as some other uh some other really things uh it actually allows us to potentially do an onchain order book as well um which is which is kind of like part of our road map is we want to figure out how to fully decentralize our order book right now our order book is kind of similar to like dydx where it's like an offchain uh offchain matching system and then onchain settlement or I guess dydx

from before um so so I think that like the just like performance was was incredible um and then finally like the arbitrum team and and I should say community has been incredibly supportive so we were lucky enough to get like one of the L tip grants for the launch of SX on arbitrum one um we're now I think the largest uh Gamble fi project on arbitrum one which is pretty cool and a big part of that was just like the support of the arbitrum community as well as like the grant as well as just like you know co-marketing and all that type of stuff so I just think the arbitrum teams really it's been really great to work with and the community's been very supportive um and so yeah so we use arbitrum for for

da um and as well um but uh yeah I think it's been been pretty seamless um so yeah it's been good awesome man I don't have much else for my end uh I think that was pretty pretty comprehensive from uh prediction markets uh we you know covered the entire stack from app all the way down to infra so uh Andrew thanks for coming on again man um and I know this is the second time couple years in between but I know you're still getting started we're still getting started so we'll uh hopefully we'll see you again you know on on camera in public and uh on podcast within another couple years sounds good guys yeah and I love the podcast and uh great to see you guys

grinding away and way bigger audience this time around than I think it was three years ago so congrats on uh congrats on all the success and uh yeah see see you again soon it's been a pleasure