The Delphi Podcast - Azuro’s Role in the Future of Prediction Markets

In this episode of Delphi Digital which took place on June 17, 2024, Yan Liberman hosted Rossen Yardanov to discuss Azuro’s role in the future of prediction markets and more. Read our notes below to learn more.

Background

Yan Liberman (Host) – Co-Founder at Delphi Digital, Managing Partner of Delphi Ventures

Rossen Yardanov (Guest) – Core Contributor at Azuro Protocol

Azuro Protocol – a infra & liquidity layer for predictions and games

Blockchain-based Prediction Markets and Betting Mechanisms

Rossen shares his background in online payments, particularly in high-risk industries like betting and gambling, and his early involvement in introducing crypto trading to applications in his field.
Rossen explains that early tech limitations and poor user experiences hindered the growth of prediction markets, which were originally envisioned as peer-to-peer platforms according to the Ethereum whitepaper.
Rossen says that peer-to-peer prediction markets struggle with efficiency, particularly for markets with significant volume like sports or financial markets.
Rossen mentions the difficulties with peer-to-peer prediction markets, noting their dependency on active liquidity and the necessity for market-making to ensure user engagement.
Rossen highlights that even successful platforms like Polymarket face challenges with limited liquid markets, with significant activity concentrated on major events like the US presidential election.
Rossen introduces Azuro‘s approach, which involves a peer-to-pool model that replicates traditional betting mechanisms but on the blockchain, aiming to provide passive liquidity and manage risks effectively to prevent losses from passive liquidity providers.
Yan says that flipping the model allows anyone to act like the house, providing liquidity against other bettors. He mentions that adding more markets helps diversify risks and enhances capital efficiency, which tends to increase with scale unlike in other DeFi sectors where it decreases due to stagnant liquidity.
Rossen says that this model is a novel concept in DeFi, emphasizing that size does not deteriorate returns but rather enhances user experience and supports higher volumes, increasing yield returns into the liquidity pool.

Addressing Liquidity and Dispute Resolution Challenges in Azuro’s Prediction Markets

Yan asks how Azuro handles liquidity hurdles and other issues like dispute resolution in prediction markets.
Rossen explains that Azuro includes a liquidity solution, an oracle, and tools supporting these solutions for application builders. He explains the liquidity pool design called the liquidity tree, made for markets with known resolution times, like sports.
The current Oracle solution is centralized but plans to decentralize by the year’s end are underway. Dispute resolution is managed by an optimistic oracle approach, which is generally effective, especially in clear-cut cases like sports events.
Yan discusses scenarios in ambiguous situations like elections, noting that sports markets, which Azuro initially focuses on, rarely face such issues due to their clear outcomes. He points out that these markets have been well-tested and generally don’t present major dispute challenges.
Rossen highlights that sports are the primary focus because of their vast betting volume and the necessity of a seamless end-user experience. He notes that Azuro successfully manages large volumes and maintains pool returns, contrasting with social markets which often deal with ambiguous resolutions and market curation issues.
Yan says that sports leagues have consistent seasons every year, providing a stable volume of games and betting opportunities, unlike political events that occur less frequently.
He says that focusing on sports makes more sense from a business perspective due to the constant availability of passive liquidity, which is essential when starting or focusing more on these markets.
Yan adds that it is very expensive to incentivize liquidity in markets like presidential elections because they cannot be easily hedged, presenting a challenge for market makers who prefer minimal inventory risk.

Achievements and Future Directions for Azuro Protocol

Yan asks about the achievements Rossen is most proud of regarding their protocol, mentioning its 20-month operation and significant volume and yield on stables.
Rossen explains that integrating passive liquidity with betting or prediction markets at scale is a challenging ongoing process but achievable.
He says he is proud of their middleware protocol that connects to any EVM chain, facilitating the integration of their Oracle liquidity solution and market settlement. This setup allows builders to easily create applications focusing on user acquisition and experience without needing extensive coding skills.
Rossen says that the betting and gambling industry has fragmented significantly due to the introduction of crypto as a payment method. He highlights Azuro’s role in accelerating this fragmentation by enabling anyone to launch their betting applications easily and affordably.
Rossen says he is excited about the over 20 applications running on Azuro, with some generating significant revenue, emphasizing the transformation in accessibility and the potential of betting and prediction markets enabled by their technology.
Yan asks if there are plans to change their minimal outreach efforts, distinguishing between application-level and liquidity and volume aspects, and the potential role of a future token.
Rossen says that initially, it was crucial to establish passive liquidity and a user experience close to centralized platforms in sports markets, which they are nearing. He says they are at a stage where the protocol can be marketed to a wider audience beyond the crypto sphere because it significantly improves the business creation experience within that sector.
Yan recognizes the benefits of immediate settlement and no asset custody issues, highlighting user frustrations with centralized platforms. He asks if incentive programs are a focus for user retention.
Rossen says that Azuro focuses on the technological aspect and the liquidity pool is already decentralized with about 5,000 LPs. He says that while the application level may offer traditional experiences like bonuses, the use of Azuro’s smart contracts ensures a non-custodial experience.
He suggests there might be a blend of approaches in application developments but doesn’t foresee a perfect merging of both worlds soon.
Yan agrees, noting the focus on liquidity helps streamline their business model and lets frontend developers handle incentives, which aligns with Azuro’s modular protocol approach.

Azuro’s Vision for Expansion, Decentralization, and Token Launch

Rossen shares that Azuro aims to expand beyond sports to other real-world markets using their peer-to-peer model, add games of chance on-chain, and allow game developers to distribute through their protocol.
He mentions future financialization of liquidity positions through loans, integration with more chains for seamless cross-chain liquidity, further decentralization in governance with a DAO and token launch, and participation in decentralized oracle and dispute resolution mechanisms.
Yan asks about the upcoming token distribution, mentioning the Azuro score as a potential factor.
Rossen says that the Azuro score will convert points to tokens in an airdrop-like manner, with the token generation event planned for the second half of June.
Yan says that the current time is promising for launching quality projects, particularly in a market dominated by memes, highlighting the importance of projects with scalable business models and viable economics.
Rossen expresses hope that their technology can change industries for the better, rooted in crypto’s core values of ownership certainty and improving business and life quality. He highlights the ongoing effort to make significant changes in industry accessibility and user experience.
Yan recognizes the role of marketing in promoting their booming business and appreciates the progress they’ve made through various market conditions.
Rossen acknowledges the challenges they face, requiring resilience and stamina, and expresses gratitude for the support and belief in their vision.

Check out these important links

Show Information

Medium: Twitter (Audio)
Show: The Delphi Podcast
Show Title: Rossen Yordanov: Azuro’s Role in the Future of Prediction Markets
Show Date: June 17, 2024