Decentralized Finance (DeFi) might revolutionize many areas of traditional finance. We’ve already seen some potential in areas such as trading, lending and borrowing money. There are talks that DeFi could also enter the insurance sector. But the most obvious use case for DeFi is actually sports betting.
Let’s have a look at how DeFi could change betting as we know it. Let’s also make a few predictions about how we will do our online betting five years from now.
What is DeFi?
The DeFi term basically covers all financial applications where financial intermediaries are disrupted. It is based on blockchain technology, and we use cryptocurrencies within the DeFi world. It’s peer-to-peer and allows the buyer and seller to connect to each other without a middleman. Currently, DeFi is mostly used for lending and borrowing money, but it is also used for speculation and trading.
Traditionally, everything related to finance has been very centralized. Our accounts are managed by the bank, when we want to borrow money it is done through the bank or through some kind of lending service, when we want insurance there is always a middle-man to handle the contract, and even if we want to buy stocks, it also has to be done through a bank, a broker or an investment platform. When you buy something with your credit card in a supermarket, the bank is the intermediary between you and the market. Likewise, sports betting is traditionally done with a bookmaker that supplies the odds where the bookie intends to make precise lines and profit off of the wig. In the case of betting exchanges, the software provider lets players bet against each other and takes a commission for itself.
Decentralized Finance is about breaking away from these old, centralized systems and platforms. Instead, everything gets powered by smart contracts and oracles, so in many cases, no middle man will be needed when it comes to handling money.
Sports betting powered by smart contracts
Sports betting will most definitely be changed a lot over the next few years. DeFi provides a unique opportunity for players to bet safely with each other on an open, online, international market without having to deal with any bookmaker.
We could see online platforms where bettors can bet against each other. Kind of like how Betfair works now, but it would be with cryptocurrency, and there would be a much smaller (if any) commission for the platform.
When two users agree to take up a bet against each other, which would be automatized within a system where the full market liquidity for all positions could be shown, it would be confirmed through a smart contract where the money would be held until there is an outcome.
How can all parties agree on a fair outcome? That is a common question. Obviously, you can’t trust a stranger from the internet blindly. Especially not when money is on the line. But the answer is that everything would be locked in the smart contract, and it would then be paid out to the winner after the contract has received information from various oracles. For example, the smart contract would be made with Ethereum, and the oracles would be supplied by Chainlink. Oracles are now becoming very precise and they could deliver information from official sports sites to assure that the smart contract reacts properly and that the winners get their reward when winning a bet.
Since everything is decentralized, there would also not be any geographic restrictions or any age-related restrictions. This could provide problems with the legality, but frankly, there wouldn’t be any way to shut down the system once it’s working. Every person in the world will be able to bet completely anonymously without having to share any personal information. The only necessity will be to connect a cryptocurrency wallet so that transactions can be made back and forth.
Safety of decentralized betting
As mentioned, there could be some legal issues since there wouldn’t be any KYC or any geographic restrictions. Persons that are not legally allowed to bet in their country might be able to do so anyway. In other words, people who enter this system need to show a lot of personal caution not to lose their money since there are no restrictions whatsoever. Just like how anyone can go to invest, lend and borrow money on DeFi platforms right now.
When it comes to the betting itself, the system should be safe and secure as long as the contract is proper and as long as the oracles are working. Technical mistakes can happen, but actually, this type of DeFi betting system should be a lot safer and fairer than the bookie-controlled system that we have now.
Which currencies will be used?
When DeFi inevitably takes over the betting market, we expect all kinds of currencies to be used. It would most likely be Ethereum at first, but you would also be able to use a decentralized stable coin such as DAI. Perhaps there will be specific tokens made for betting when this becomes big.
The end of bookmakers as we know them now
We expect DeFi betting to end the monopoly that bookmakers and centralized exchanges have at the moment. That is due to all the personal benefits of betting on a centralized platform.
Why would you ever use a bookmaker when you can bet decentralized and enjoy these benefits:
- No user verification
- No need to send any personal documents EVER
- Being able to bet directly with anyone on the international market, which could give huge liquidity
- Perhaps there will just be a 0.1-0.3% fee like we see on the DeFi trading exchanges
- That would be equal to a handicap line of odds 1.998 (-100.2) on each side
- That means maximum edge as a player
- Winnings paid immediately and directly to your own wallet/account whenever a wager is settled
- The market will dictate everything
- Never any personal limits, only market limits (which should be sky high)
- You can always access a perfect record of every bet ever agreed upon, and it will never disappear
In other words, imagine Betfair with a 0.1% commission, but with more liquidity and where you don’t have to share any personal information or documents ever. You wouldn’t even need a user and a password. Furthermore, you would never need to deposit or withdraw. Everything would happen through smart contracts where you connect with your wallet when you enter a bet, and where you get it paid out to you directly in case you win.
When it happens, it will be bye-bye to all the established bookmakers.
… but still a few years away
It all sounds very good, but it is not happening yet. The DeFi space is very new and still developing. And once a solid platform is created, it might take a year or so before it gains any traction. So we estimate it to be 3-5 years away. But when that happens, we should finally get a fair betting market where the bettors – and not the bookies – are in charge.
If you wish to learn more, start researching Decentralized Finance (DeFi) and see for yourself how it could be implemented into sports betting and completely change the industry.