Markets
Decentralized exchange D8X will bring a tool to trade leveraged Polymarket contracts
D8X, a decentralized exchange (DEX) for perpetual cryptocurrencies, said it is working to bring leverage to Polymarket’s predictive markets.
In an interview with CoinDesk, D8X co-founder Caspar Sauter explained that the system works through a mechanism that retrieves spot prices from Polymarket using oracles, similar to traditional perpetual contract approaches, which use commodity prices.
Sauter believes that leverage is important in predictive markets because it increases trading efficiency and potential gains.
Leverage helps manage risk by allowing traders to hedge their positions more effectively.
Sauter explains that leverage allows users to “temporarily hedge against uncertainty” by taking positions that offset their existing bets, matching their predictive market bets to existing crypto positions.
For example, if a trader holds a long position on a prediction market and is unsure of the outcome, he or she can open a leveraged short position to mitigate potential losses.
“You can use it for risk management purposes, which is also the main use case for these types of products in traditional finance.”
Sauter explained that with D8X, the maximum available leverage depends on the state of the market. This approach, he said, prevents destabilization by ensuring that leverage limits are in line with current market dynamics, thus maintaining stability and preventing any single trader from disproportionately influencing liquidity.
After all, derivatives markets are orders of magnitude larger than spot markets, and Sauter argues that introducing leverage could improve market efficiency rather than deplete liquidity.
But despite all this talk about market efficiency, leverage ultimately allows Polymarket’s core traders, the belief traders, to get a higher return on their belief, which is something the market has been demanding.
“You can use less capital to potentially make a bigger profit than you can on the spot side,” he said. “People who like to gamble, and who like to gamble hard.”
D8X does not yet have a specific date for the mainnet launch of leveraged prediction trading, but Sauter said August is the target.