The State of Crypto Sports Betting: is it a Reality yet?

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Kimkibu earns a living by making sports wagers. His primary trading platform is Betfair, one of the biggest online betting exchanges, where bets can be made using British pounds, US dollars, and other legal tender. He is based in South Korea. He started trading on cryptocurrency sites like Polymarket, Degens, and SX Bet last year, mostly because the commissions deducted from profits were less expensive than on Betfair.

Kimkibu declared, “If I find something similar with cheap commissions, I will move there.”

Yet only 10% of the trades made by the Istanbul resident are placed at these alternative betting sites. Kimkibu stated, “I wish I could completely switch from Betfair to these sites, but regrettably they don’t have enough traffic.”

You can find thousands of people who are similar to Kimkibu if you lurk in any of the more than six Discord or Telegram channels dedicated to sports betting.

These gamblers are eagerly awaiting the launch of the ideal blockchain-powered sports betting service, one with audited smart contracts, user-friendly policies, low commissions and fees, and considerable volume. They are frustrated with existing exchanges’ high costs and lack of innovation.

Whoever provides such a service will receive a substantial reward: Grand View Research predicts that the global sports betting market would increase from $76.75 billion in revenue last year to $182.12 billion in revenue by 2030. While Kimkibu and other customers wait, new developers are entering the market and conventional betting companies are experimenting with decentralized technologies. Regulators are keeping a close eye on them.

Stacked odds for crypto gambling

The traditional saying in casinos, “The house always wins,” describes how the odds are always stacked against the player. Numerous problems, including account restrictions, payout rejections, a general lack of confidence and sense of injustice, and exorbitant costs for deposits and withdrawals, have been experienced by online betting.

In the realm of traditional sports betting, winners are not usually lavishly compensated. Betfair charges players who win more than 250,000 British pounds a 20% commission, referred to as a premium tax. Additionally, certain centralized sports betting sites maintain the right to set a maximum wager size. Your wager and potential rewards may be limited if you are an excessively successful gambler.

Some believe that blockchain technology can provide all of those issues with decentralized, transparent platforms that let users manage their cash independently of outside meddling. A smart contract, or self-executing software program, controls each transaction. Users wouldn’t have to entrust their money to decentralized prediction markets.

Even though it may appear to be a vice, sports betting may have advantages for those who choose not to partake. Sports markets present traders with an opportunity to put their money where their mouth is, much way prediction markets for events like elections or the weather do. The potential gains may conceivably inspire those with actual competence to stake their predictions on the outcome of events if these markets grew to be significant and liquid. In turn, this would give the general public a more accurate and trustworthy representation of “expert opinion” than ranting pundits or sportscasters.

A few blockchain add-ons, especially decentralized finance (DeFi) activities like yield farming and liquidity support, may help produce enough volume and liquidity to produce high-quality data.

Crypto betting platforms

Each day, thousands of transactions include sports betting. Decentralized sports betting exchanges were harmed by high gas costs for on-chain processing.

Peer-to-peer betting market SX Bet, originally known as SportX, debuted in March 2018 and was constructed on Ethereum, the second-largest blockchain. SX has to put a stop to the addition of new betting markets because of activity during the “DeFi summer” of 2020 driving up gas prices on Ethereum. Then it switched to Polygon, an Ethereum-complementary network where the fees were reduced. The SX and Polygon teams collaborated to create a blockchain specifically for the sports exchange in May 2021 in an effort to further reduce transaction costs as Polygon fees also started to rise.

All of these initiatives are still searching for a location to call home. Distinct blockchains have different features that can appeal to different markets more. “There will just be experimenting,” said Clay Graubard, founder of the media and information startup Baserate.io and a long-time follower of prediction markets. “Like when we worked out alternative methods to produce energy or communications.”

Some decentralized sports betting protocols, such Divvy, Aver, and BetDEX, are based on the Solana blockchain, which is renowned for its low transaction costs, speed, and scalability. The creator of the decentralized betting protocol Divvy, Carlos Liang, stated that gamblers won’t return at all if there is any delay.

However, Solana has experienced numerous outages over the past 18 months.

The unspoken problem

The obvious challenge for all types of prediction markets, including sports betting exchanges, is getting regulatory approval. Some, like Gnosis, gave it their best shot but fell short, so they changed course and now invest in projects like these.
“We tried to apply for a permit to run prediction markets in Gibraltar. And it took us a while before we gave up,” remarked Stefan George, a co-founder of Gnosis.

The Commodity Futures Dealing Commission (CFTC) fined decentralized predictions platform Polymarket $1.4 million and ordered it to stop trading with U.S. citizens earlier this year. Polymarket also provides betting on politics, coronavirus, cryptocurrency, and other topics in addition to sports. Just three weeks after the enforcement action, it continued to support traders in other regions of the world and created new information markets.

A few months later, Polymarket appointed former CFTC chairman J. Christopher Giancarlo to serve as the new chairman of its advisory board. Giancarlo is a “really beneficial addition to the team,” Harry Jones of Polymarket said. “Absolutely to return to America with a regulated offering by the CFTC” is Polymarket’s stated objective.

Decentralized sports exchanges might not accept US currency for the time being. The CFTC has authorized only Kalshi, a centralized prediction market platform, to list event contracts. (The CFTC has granted a special permission for PredictIt, a well-known website for election markets.) However, Kalshi’s selection does not include any sports markets. No surprise In anticipation that the CFTC would view it as illegal gambling, the cryptocurrency derivatives platform ErisX canceled a proposal to market future contracts linked to the results of National Football League games.

According to Brian Quintenz, a former CFTC commissioner, if the CFTC were to modify its position, such markets may be a legitimate risk-management tool for corporations involved in sports, similar to how wheat futures contracts shield farmers from unpredictable price volatility.

Quintenz, who is now a member of the Kalshi board but spoke in his personal capacity, said, “If you’re a restaurant owner whose business fluctuates wildly depending on the success of a sports team [and] there’s actually now a contract that allows them to hedge some of that risk, why is that any less legitimate?”

Going full steam ahead

Some legacy sports betting companies appear to be doubling down on their cryptocurrency aspirations while they keep an eye on the up-and-coming developers in decentralized sports betting projects.

Sports betting firm DraftKings joined the Polygon network as a validator after reaching $44 million in sales on its non-fungible tokens (NFT) marketplace. The ability to accept cryptocurrency payments from clients is referred to as a “win/win” proposition in DraftKings’ open development roadmap. DraftKings stated that it wants to accept cryptocurrency payments from customers. Stake.com is a step ahead of DraftKings and then some because it only deals in cryptocurrency. Stake.com is an online casino that holds a Curaçao license.

Simply accepting cryptocurrency is insignificant in the eyes of blockchain-based sports betting firms compared to what they are creating. However, the small efforts done by centralized businesses may entice more retail users to Web3 and cryptocurrencies, increasing the size of the pie.

Varun Sudhakar, CEO and co-founder of BetDEX Labs Inc., believes that any applications created within the ecosystem to target the much wider user base and gradually bring them on are only advantageous to everyone who’s in that.

Game on!

According to George at Gnosis, today is at least a far better moment than when his company sought to establish a decentralized sports betting network. However, there are still a number of issues that require attention. The absence of volume is the most obvious.

In July, SX Bet said it was around one week away from reaching $200 million in total wagers since launch. Only the previous six months account for more than half of that volume. However, according to Kimkibu, Betfair could handle that much activity in a single month.

Also in the works are solutions. Some initiatives plan to use DeFi technology to increase volume and draw in liquidity. A novel liquidity pool design, according to Azuro, in which Gnosis is a stakeholder, enables any liquidity providers to contribute to the pool and acquire exposure to any betting markets taking place on the protocol. The pool’s funds will be utilized to provide the initial liquidity for thousands of betting markets.

Gnosis learned a lesson that, in the end, the one who can draw in the next wave of users will win this race even though it backed off to become a supporter in the background in this region.vHowever, getting those native crypto users should be a fantastic place to start. A suitable service has been long overdue for several participants, including Kimkibu.

Kimkibu stated, “Hopefully, with all new platforms coming next year, I’m expecting to bring at least 50% of my trades to those projects.”

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