Introduction:

Azuro is an infrastructure protocol for prediction markets. It offers developers tools and functional modules for building prediction markets, while also providing liquidity support. The team was established early on, with core members having experience in operating sports-related lotteries. Over time, Azuro has gained a solid foundation, and in June of this year, its token, AZUR, officially launched on the mainnet.

Introduction

A prediction market is a platform where people can trade on the outcomes of future events. The market price reflects the probability that the event will occur, as determined by market participants. For example, in a sports event, there might be two tokens, each representing a team. If the price of Token A is higher than Token B, it indicates that the market believes Team A is more likely to win, and vice versa.

The concept of prediction markets first emerged in the blockchain space in 2018 and gained attention in 2020. However, it faced regulatory challenges due to political and financial regulations, causing development to stagnate. The market did not see significant growth until this year, when the U.S. presidential election reignited interest in prediction markets.

High-quality prediction events are central to maintaining the competitiveness of prediction markets. Key factors that influence quality include the social media influence of the individuals involved, societal interest, factors related to market competition, and the randomness of event outcomes. Currently, prediction markets are mainly focused on sports and political events.

In the case of sports, the market faces competition from traditional lottery industries, which have clear advantages in compliance, convenience, and established business models. Decentralized markets have difficulty competing in the sports category. Political prediction markets, on the other hand, tend to be event-driven. The user base for such markets is often triggered by specific events, and once the event concludes, the interest in predicting declines, making it difficult to retain users in the long term.

Despite these challenges, the user base for sports-related prediction markets is gradually increasing, and this year, the global political climate has attracted more attention to political prediction markets. Although prediction markets continue to face challenges after the U.S. election cycle ends, with issues such as insufficient market demand and liquidity, they are reshaping the boundaries between politics and business, opening up new possibilities for the blockchain industry.

Azuro was founded in 2021 with a focus on creating the foundational protocol for prediction markets. It provides developers with tools and functional modules to build prediction markets. Thanks to the U.S. election, the prediction market sector has gained traction. In June of this year, the protocol launched its native token, AZUR, and the token was listed on Gate.io, attracting some market attention. The protocol’s profit data is relatively positive, and this article will provide a detailed analysis of its product logic and economic model.

Azuro (AZUR): Understanding the Infrastructure Protocol for Prediction Markets

Introduction to Azuro

Azuro serves as an infrastructure for prediction markets, offering developers tools and functional modules for building prediction market applications. It also provides liquidity and data interfaces. The protocol was established in 2021 and launched its mainnet on the Gnosis Chain in June 2022. Azuro adopts the traditional business model of sports lotteries, which tends to attract a substantial user base during specific sports events.

The project team consists of more than 20 members, with core team members possessing experience in operating sports lottery websites. Vladislav Martynov, a former key member of the Ethereum Foundation, serves as an advisor to the team. Since its inception, the protocol has completed three rounds of funding, with the seed round raising capital in April of this year. Over the three funding rounds, Azuro has secured a total of $11 million in support from investors, including Gnosis, Merit Circle, and Delphi Ventures. In June of this year, the native token AZUR was launched on the mainnet, accompanied by a related incentive program. According to the team’s published roadmap, future efforts will focus on four key areas: product development, decentralization, tokenization, and scalability. These initiatives aim to create additional types of prediction markets, such as those for politics, gaming, and more.

Core Components

Azuro provides developers with various tools to build decentralized applications (DApps) for prediction markets and offers liquidity for trading pairs, among other services. The protocol consists of three main components:

1. Azuro Protocol: This is an upgradable smart contract designed to enable developers to create prediction market DApps on EVM-compatible blockchains using ERC-20 tokens, without requiring permission.
2. Azuro SDK: The Azuro Software Development Kit (SDK) contains various functional modules that assist developers in building the DApps they need.
3. Azuro DAO: This is the governance system for the protocol. The AZUR token, launched in June, allows token holders to participate in the governance of the platform.

From a product architecture perspective, a prediction market includes blockchain-based independent front-end operators, data providers, and liquidity providers. Currently, Azuro acts as the liquidity provider in this ecosystem and also offers liquidity mining features to token holders.

Source: Azuro Architecture

The product architecture diagram clearly shows that the LP Contract is the core component of the protocol’s operation. It is responsible for creating and canceling prediction market trading pairs, allocating funds within liquidity pools, and managing related actions such as user bets and payments. Users can participate in liquidity mining by depositing funds into the Azuro liquidity pool. These funds are then allocated to the corresponding prediction markets through the Azuro liquidity pool contract. A key aspect is that the LP Contract connects to the frontend: it helps frontend operators access the blockchain and can also integrate data providers, such as oracles, for settlement purposes.

In addition to the LP Contract, the protocol has designed an Ethereum-standard Factory Contract for EVM-compatible blockchains. This contract is deployed on each blockchain running the Azuro liquidity pool contract. It customizes parameters such as liquidity and transaction fees to meet the unique requirements of different chains for prediction markets.

Liquidity Management Mechanism: The Liquidity Tree

Azuro uses its vAMM (Virtual Automated Market Maker) model to allocate funds within liquidity pools and manage new funds added by users joining prediction markets. Initially, the protocol sets certain starting odds based on oracle data and allocates some funds. When users add or withdraw liquidity, a separate process is created to pool the funds into the liquidity pool. After the prediction market results are determined, another independent process handles the settlement.

This entire process can be visualized as a liquidity tree, where the liquidity pool of a prediction market serves as the tree’s root. As betting actions occur, it can be likened to new leaves growing on the tree, symbolizing how liquidity is dynamically managed. This design allows Azuro’s prediction markets to maintain sufficient liquidity without overly relying on liquidity providers (LPs).

Source: gem.azuro.org

Economic Model

AZUR is the native token of Azuro, officially launched on the mainnet in June this year, with a total supply of 1 billion tokens. According to the official tokenomics, the distribution of tokens is as follows:

• 27% is allocated to core contributors, with a one-year lock-up period, followed by linear release over the next 30 months.
• 22% is allocated to investors, with a lock-up period of 6 to 9 months, followed by linear release over 24 to 30 months.
• 13.5% is allocated to the DAO treasury. Of this, 60 million AZUR tokens (6% of the total supply) are unlocked during the initial token issuance, and the remaining 75 million AZUR (7.5% of the total supply) has a 6-month lock-up period, followed by linear release over 30 months. These tokens will be used to promote the development of the prediction market ecosystem and provide additional funding for future projects.
• The remaining 37.5% is allocated to community and ecosystem development. 92 million AZUR tokens (9.2% of the total supply) are unlocked at the time of the initial issuance, with 30 million tokens distributed to the community via Azuro Score airdrops. These airdropped tokens will be released linearly over 6 months. The remaining 253 million AZUR tokens (25.3% of the total supply) are subject to a 6-month lock-up period, followed by linear release over the next 42 months. These tokens will fund future initiatives like the Azuro Waves incentive program, DEX liquidity incentives, ecosystem funds, and infrastructure projects.

Source: gem.azuro.org

The token unlock schedule is shown in the image below. After December 2024, there will be considerable unlocking pressure.

Source: gem.azuro.org

Currently, the primary uses of the AZUR token are governance and staking. Token holders can participate in the Azuro DAO to manage the protocol’s development, which includes decision-making on risk management frameworks, product priorities, ecosystem and community grants, and the distribution of rewards to participants. Additionally, holders who stake their tokens receive stAZUR as a liquidity receipt and can earn additional staking rewards.

At present, the tokenomics are not deeply integrated with the product, which limits the ability of the protocol’s growth to enhance the value of AZUR. Consequently, it is challenging for the AZUR token to derive value from the products themselves. In the future, additional economic mechanisms need to be introduced to give the token more utility and value.

To date, the Azuro protocol has achieved a certain level of trading volume. The total locked value stands at $10 million, while the trading volume of the prediction markets has reached $270 million, with more than 30,000 users.

Source: azuro.org

Source: dune

According to the team’s roadmap, future development will focus on four key areas: product, decentralization, tokenomics, and scalability. The product development aspect includes refining developer tools and improving oracle functionality. In terms of decentralization, governance improvements will be made, along with the introduction of secure oracles and a dispute-resolution mechanism. The token-related updates include adding liquidity pools for AZUR and launching staking features. For scalability, Azuro plans to partner with more infrastructure providers and integrate them into the platform. In the future, the team also aims to introduce more categories for prediction markets, including those for politics, gaming, and more.

Conclusion

Azuro is committed to building infrastructure for prediction markets by offering development tools, functional modules, liquidity, and data interfaces. It has achieved certain business milestones, with the AZUR token officially launching on the mainnet in June. However, the current product development has not been deeply tied to the token’s value, and more mechanisms need to be introduced to unlock its full potential. Despite being in development for over three years and having a solid foundation, Azuro still faces challenges, particularly in improving user retention and further aligning its tokenomics with the platform’s growth.