Understanding Azuro: A Comprehensive Overview

• Azuro is a decentralized prediction markets protocol that provides onchain betting infrastructure and liquidity across multiple EVM-compatible blockchains.
• The protocol’s infrastructure supports sports and politics, with plans to support additional prediction markets in the future.
• The protocol has processed over $250 million in betting volume since its launch in March 2022, generating over $5 million in revenue.
• Azuro’s ecosystem includes over 30 apps built on its infrastructure and operates on Polygon, Gnosis, and Chiliz, with plans for additional chain deployments.
• In June 2024, Azuro launched its token, AZUR, enabling governance participation and additional utilities within the ecosystem.

Since the start of COVID-19, the online betting industry has seen rapid growth, reaching an estimated value of ~$71 billion in 2023. A big driver of this growth has been financial nihilism, which is the belief that the cost of living is too high and upward mobility is unachievable. Thus, more people view high-risk investments and gambling as an option to escape their current living conditions. Metrics such as the Housing Affordability Index, which measures whether a typical family earns enough money to qualify for a mortgage loan, indicate that there are no signs of this trend reversing. In 2023, the Housing Affordability Index hit a record low, meaning that typical American families earn less than the income needed to purchase a median-priced home.

Over the next five years, revenue for the online betting industry is expected to grow at a rate of nearly 10%; however, presently, this industry is predominantly composed of Web2 companies, such as Bovada and DraftKings. Although these incumbents are popular betting platforms, they face regulatory restrictions that limit users' access, lack transparency, and make capital onboarding difficult. This leaves room for a crypto-native protocol to disrupt this industry due to the permissionless nature of blockchain technology.

Enter Azuro, a decentralized prediction markets protocol that provides modular smart contract infrastructure and a liquidity layer for onchain betting and prediction markets. This design eliminates the need for intermediaries that traditional gambling platforms rely on since transactions are executed permissionlessly onchain via smart contracts. By providing a liquidity layer for betting markets, external actors can build on top of the Azuro infrastructure to create a wide range of prediction market apps.

Azuro’s ecosystem aims to attract two distinct user groups—the profit-driven bettors who transact on the apps, and the viewers seeking reliable insights from the data. As viewers’ attention increases, it attracts more bettors to exploit perceived mispriced odds, refining the market’s accuracy. Prediction and betting markets enhance each other in a synergistic loop: betting volumes provide essential liquidity for prediction markets, which in turn boosts their credibility and accuracy. This cycle creates a feedback loop: increased liquidity attracts attention, attention draws in more betting, and the resulting higher volumes establish the market as a credible information source. Over time, this self-reinforcing interaction sustains growth and solidifies the prediction market’s position as a trusted platform for event-based insights.

With the landscape of crypto-native betting protocols expanding at a rapid pace, Azuro aims to differentiate itself by introducing new features and infrastructure that improve the user’s experience. In contrast to centralized crypto betting platforms that require users to deposit assets on the platform to use it, Azuro’s infrastructure allows the apps/protocols that build on top of it to enable self-custody of the user’s assets. Additionally, Azuro implements a singleton liquidity pool model that uses a single liquidity pool to facilitate all bets. This helps reduce fragmented liquidity, which is an issue that betting protocols using a central limit order book (CLOB) model may encounter since each market requires its own CLOB.

The team behind Azuro saw this opportunity in the online betting industry and introduced the protocol in June 2021 as a base infrastructure layer for betting apps. In January 2022, the project announced a $3.5 million Seed Round, which was led by Gnosis, Flow Ventures, and Polymorphic Capital. This was followed by a $4 million Strategic Investment Round in June 2022 that received funding from AllianceDAO, Arrington Capital, Ethereal Ventures, and Delphi Digital, among others. Then in April 2024, Azuro announced its most recent funding round, where it raised $3.5 million via its Pre-Launch Round, with participation from SevenX Ventures, Fenbushi Capital, and Arrington Capital.

The Azuro protocol first went live on the Gnosis Chain in June 2022 due to the network’s low transaction fees and high speed. Since then, it has been deployed on Polygon and Chiliz, with additional deployments on other chains planned in the future. Previously the protocol was deployed on Arbitrum and Linea, but these deployments have been sunset. The protocol also launched its token, AZUR, in June 2024, which allows users to participate in governance and can be used throughout the Azuro ecosystem.

Azuro is a decentralized infrastructure for prediction markets that facilitates peer-to-pool betting on EVM-compatible blockchains. Through a set of smart contracts, the protocol automates elements such as liquidity pool management, odds determination, and payouts, removing intermediaries from the betting process. Utilizing the novel LiquidityTree and virtual automated market maker (vAMM) model, Azuro provides decentralized infrastructure for betting apps to be built upon.

Azuro prediction markets are accessed via apps (affiliates), providing a clickable user-friendly interface between users and Azuro’s onchain contracts. Due to the protocol's permissionless nature, any third-party protocol can build an app on top of Azuro and inherit the protocol’s oddsmaking mechanism and liquidity pools.

Apps can range from simple interfaces to customized platforms offering novel experiences. The AzuroSDK simplifies this creation process by providing developers with the tools necessary to create a betting app. Once installed, the developer has access to a basic betting app that can then be modified to fulfill the developer's needs.

When users place bets through front-end platforms connected to Azuro, their interactions are routed to the protocol's smart contracts. Each frontend earns a share of the pool's profits generated from bets placed by its users. This modular approach allows for innovation and specialization among developers, who can build bespoke betting platforms on top of Azuro's decentralized infrastructure.

Each prediction market on Azuro is referred to as a Condition, which is created via a collection of smart contracts called a Betting Engine. Conditions contain information such as event information, outcomes, odds, and the potential payout for each result. These can only be created and managed by Data Providers, who set margins, odds, and event-specific Reinforcement.

Odds for a Condition determine the payout ratio for each outcome. These odds represent the likelihood of a specific result occurring, and they adjust dynamically based on bets placed. Initially set by data providers, odds are recalculated after every bet placed using the Virtual Funds system, which calculates the probability of each outcome within a Condition. These funds represent the relative likelihood of an outcome occurring and are adjusted based on the size of bets placed. The total Virtual Fund amount is calculated as the sum of betting deposits and the worst-case potential loss to the protocol, in excess of the Reinforcement amount.

Conditions rely on Dictionaries to store textual information about outcomes and events. Since blockchain transactions cannot store large volumes of data, these dictionaries link specific outcomes to their metadata, such as teams, players, and game periods. This structure ensures that bettors can access accurate and detailed information about each Condition without burdening the blockchain itself.

Currently, Azuro supports Conditions for sporting events and political events but plans to create additional markets, such as social events, in the future.

Reinforcement is the initial liquidity allocated for a Condition that is distributed among the outcomes of a condition based on the betting odds. It is the risk management mechanism that ensures the protocol has enough funds to cover the payout when the funds received from other bets on that Condition are not sufficient. Thus, the reinforcement value is equal to the maximum potential loss a Pool can incur from a Condition. When a Condition is created, the reinforcement amount is split between the outcomes based on the market’s initial odds. For example, if a Condition has two outcomes with odds of 60% and 40% and $100,000 is booked as reinforcement from the Azuro LP, then the reinforcement will be split as $60,000 and $40,000, respectively.

The Factory smart contract contains all of the functions necessary for anyone to deploy Pools and Betting Engines. Once deployed, it allows Data Providers to create Conditions that leverage that Pool’s liquidity. A Pool is a system of smart contracts that create a unified betting platform and is composed of the liquidity pool contract and the access contract. The liquidity pool contract manages the liquidity, while the access contract allows the Pool’s owner to manage the functions of the Pool’s contracts. On the other hand, Betting Engines are the smart contracts responsible for managing the bets that occur on that Pool.

The process to create a prediction market is as follows:

1. Creates a Pool request.
2. Deploy a liquidity pool contract and an access contract.
3. Plug in a Betting Engine, and deploy the Betting Engine contracts.
4. Add a Data Provider request to the access contract.

Once the Betting Engine is deployed, an AzuroBet contract is deployed to manage the betting tokens for the associated Pool. AzuroBet is an ERC-721 enumerable token contract that ensures users receive the correct amount of tokens when a bet is completed.

When a user places a bet on one of the Conditions through the liquidity pool contract, the user receives an AzuroBet token that represents their ownership of the bet. If a user wins a bet, the AzuroBet contract ensures the user has the right to claim their rewards, and if a Condition is canceled, the contract returns the original funds to the users.

Betting Engines are a set of smart contracts that handle the core logic for creating Conditions, managing bets, determining payouts, and computing rewards. The standard base contract for managing this logic is the CoreBase contract, which can be integrated into any Betting Engine.

Currently, Azuro has two primary Betting Engines:

• PrematchCore: This contract implements the logic necessary for conducting pre-match betting with multiple outcomes, such as sporting events.
• BetExpress: This contract allows for the creation of a combination bet. With this Betting Engine, users can combine an unlimited number of sub-bets on different Conditions under one single BetExpress bet.

Azuro has also deployed the HostCore contract and the ClientCore contract in the beta phase to facilitate live betting. The HostCore contract registers and maintains the life cycle of games, while the ClientCore contract accepts bets on sporting events in real-time and reserves payouts for these bets. Additionally, the Relayer contract prepares bets for execution and facilitates the payment of rewards for processing bets.

In the future, additional Betting Engines can be deployed if approved by AzuroDAO.

Early versions of onchain prediction markets used a traditional automated market maker (AMM) to facilitate betting actions; however, Azuro aims to improve on this model by using a vAMM instead. With traditional AMMs, liquidity must be bootstrapped for each pool and actively managed while the prediction market is active. Azuro’s vAMM, on the other hand, does not require bootstrapping and instead inherits liquidity from Azuro’s singleton liquidity pool. Each Condition is represented by a vAMM and maintains its own Virtual Fund.

The LiquidityTree is a mechanism designed to optimize liquidity management across prediction markets. The LiquidityTree is based on a segment tree data structure, which is used to track and manage liquidity deposits and withdrawals at multiple levels. Each liquidity deposit is represented as a "leaf" in the tree, while parent nodes aggregate the liquidity from multiple leaves. This hierarchical structure allows for real-time updates of the total liquidity available in a pool by calculating the total sum of the value of all the leaves in a tree structure.

When liquidity is added to the pool, the deposit is first recorded at the leaf level and then propagated upwards through parent nodes to update the total liquidity at the root of the tree segment. This structure ensures that liquidity can be efficiently allocated across a vast array of prediction markets while maintaining a single up-to-date liquidity figure at the root. Conversely, when liquidity is withdrawn, the LiquidityTree tracks the relevant leaves and parent nodes, ensuring that the pool maintains an accurate reflection of its available liquidity. By aggregating liquidity in this way, Azuro maximizes the utilization of available capital, allowing liquidity providers to gain exposure to numerous markets with a single deposit.

Liquidity providers are integral users of Azuro, and the permissionless nature of the protocol allows anyone to provide liquidity to liquidity pools. By depositing assets into liquidity pools, liquidity providers expose themselves to all prediction markets that are built on top of that Pool. The profitability of a liquidity provider’s position is driven by the spread embedded in the betting odds. The pool earns a profit when the difference between the amount staked on a particular outcome and the payout required to cover winning bets is positive.

The yield for liquidity providers is determined by dividing the total rewards earned by a liquidity pool in a day by the total volume of the liquidity pool at the end of the day. This yield is then annualized over a one-year period and distributed among the liquidity providers according to their share of the pool.

However, providing liquidity is not without risk. New liquidity positions are typically exposed to losses in the initial phase, as they are liable for losses from pre-existing open markets. To mitigate this, Azuro imposes a seven-day lockup period on new liquidity deposits, ensuring that new liquidity providers have a chance to benefit from markets that open after their deposit is made. Over time, the likelihood of profitability increases, with a greater than 99% probability of turning a profit after one month.

Data Providers maintain the accuracy and integrity of the prediction markets on Azuro. These entities create and resolve betting markets, set odds, and manage the payout process. By leveraging external data sources, such as those from reputable betting providers, data providers ensure that the conditions within the protocol are competitive and fair. They receive a share of the pool's profits, incentivizing them to optimize the markets for profitability over time.

Since Azuro allows anyone to become a Data Provider, they compete for the right to provide odds for events, which becomes a race to provide the best odds for users. This mechanism allows Azuro to offer comparable odds to larger betting protocols, thus making it an attractive platform for bettors looking for mispriced odds.

Azuro's token, AZUR, launched on June 19, 2024, with a total supply of 1 billion. The protocol allocated 37.5% of the total supply to the development of the Azuro ecosystem and community incentives. Of this allocation, 3% of the total supply was airdropped to early protocol users as part of the Azuro Score program.

In total, 15.2% of the total supply was circulating at launch, with 60.5% of this allocation coming from the Ecosystem and Community Incentives allocation. The remaining tokens are set to be distributed over the 42 months following the Token Generation Event (TGE) based on various linear vesting schedules, with a 6-month lockup period for certain allocations. The full breakdown of the token distribution is as follows:

• 37.5% to Ecosystem & Community Incentives (375 million AZUR)
• 22.0% to Investors (220 million AZUR)
• 27.0% to Core Contributors (270 million AZUR)
• 13.5% to DAO Treasury (135 million AZUR)

AZUR tokenholders can stake AZUR to earn a share of the AZUR staking incentive. Once staked, users receive stAZUR, the liquid staking token of AZUR, which can be used on other partner DeFi protocols.

In addition to being able to stake AZUR, in the future, tokenholders will be able to participate in protocol governance, including decisions on risk management, product prioritization, and reward distribution.

Currently, 36 apps (frontends) leverage Azuro to facilitate prediction markets across three chains: Polygon, Gnosis, and Chiliz. However, Azuro can be connected to any EVM-compatible chain by deploying the necessary contracts and connecting to the data provided.

Azuro’s composable architecture allows the protocol to support a wide variety of different betting apps. The types of apps built on Azuro include:

• Bookmaker offer users a wide range of options, including sports, politics, live, and casino-style betting. It has facilitated the most betting volume among the Azuro apps, accounting for $64.1 million of total betting volume.
• BookieBot allows users to bet on prediction markets via a Telegram bot and is responsible for generating $4.1 million in betting volume.
• Merit Circle will integrate Azuro into its gaming platform to allow in-game betting for events such as PVP games.

As Azuro is integrated across other networks, more projects will be able to build apps on top of it and create deeper liquidity. An increase in the number of apps built with Azuro will potentially lead to an increase in betting volume for liquidity pools, making liquidity provision more attractive to users looking to earn yield.

Since its initial deployment in March 2022, Azuro has facilitated over $250 million of volume across all of the chains it has been deployed on. This has generated $6.3 million of revenue for the protocol, which is split between liquidity and data providers, frontends, and the AzuroDAO. Across these bets, the average take rate is 2.27%, meaning the protocol generates $0.0227 for every $1 of bets placed. The revenue from this take rate is split as follows:

• Liquidity providers: 20%
• Data providers: 10%
• Frontends: 70% of the total monthly Pool revenue generated by that front end
  • Note: This amount can not exceed the Spread Cap Reward
• AzuroDAO: All remaining rewards in the monthly Pool revenue go to the AzuroDAO after deducting the liquidity provider, data provider, and frontend revenue

Over Azuro’s lifetime, it has had ~31,000 unique users, of which 2,352 have provided liquidity. These users have placed an average of 27.76 bets per user, totaling ~757,000 bets on Azuro’s prediction markets. The average bet volume per user is $4,123 across live, single, and combo bets.

Azuro has amassed a TVL of $9.8 million across Polygon, Gnosis, and Chiliz, with Polygon accounting for $9 million (over 90%) of this. Azuro’s TVL has been on a gradual uptrend, with a brief decline in May 2023 due to a migration from using USDC to USDT in the liquidity pools. Since the beginning of 2024, TVL has ranged between $7 million and $10 million, reaching a new all time high of $9.8 million in October 2024. These tokens are deposited in the protocol’s liquidity pools to facilitate betting activity on frontends. USDT is the primary token deposited, accounting for ~$9 million of TVL. The remainder of the TVL is composed of XDAI and CHZ, accounting for ~$615,000 and ~$127,000 of TVL, respectively.

Traditional betting platforms require users to deposit funds and rely on centralized management to resolve bets. This introduces risks of discretionary decisions. Since users are required to deposit funds via traditional payment providers, they face the risk of getting their gambling-related transactions blocked. Thus, limited the amount of capital that can be onboarded to the platform. As a result, crypto betting platforms have emerged that allow users to deposit crypto tokens directly onto the platform, eliminating the need for third party payment intermediaries.

However, these crypto platforms still maintain custody of users’ assets and have full control over the betting process. Custodial platforms bear high operational costs for security and compliance, which can lead to higher spreads and less favorable odds for users. Azuro removes these custody risk through smart contracts, ensuring users maintain control over their funds until bets are placed. Event outcomes are determined by external data providers, with AzuroDAO acting as the arbiter of last resort, promoting fairness and transparency through decentralized governance.

While some prediction markets opt to use a CLOB model, fragmenting liquidity across individual pools, Azuro utilizes a unified singleton liquidity pool, ensuring seamless access to shared liquidity across all markets. This structure ensures that all events can draw from the same source, providing deeper liquidity and greater adaptability for both fast-moving events like sports and niche markets. Additionally, Azuro’s model helps reduce the risk of impermanent loss for liquidity providers. In Azuro’s model, external data providers play a crucial role by actively repricing the sell-side odds through the vAMM in response to real-world catalysts. This two-step process involves data providers updating odds based on new event information, which buy-side bettors then bet against, ensuring market odds remain dynamic and responsive.

Unlike traditional CLOB systems, where arbitrageurs might capitalize on mispricings before liquidity providers can act, Azuro’s data providers serve as privileged backstops, swiftly adjusting odds to shield against adverse shifts before arbitrageurs could exploit them. Although there is a risk of LPs incurring losses if data providers react too slowly, Azuro mitigates this through sophisticated data providers, who possess market pausing authority, minimizing LP exposure to extreme volatility. This unique setup not only reduces impermanent loss for LPs but also fosters a stable, responsive betting environment.

Azuro also takes a decentralized approach to access, integrating with third-party apps (frontends) that cater to local jurisdictions and customs, instead of relying on a single interface that all users must go through. This model removes the risk of relying on a single point of failure that other protocols face, ensuring the protocol can scale globally.

Azuro is expanding its market coverage beyond sports by incorporating social and political events (such as elections, financial metrics, and awards) into its prediction markets. Additionally, the newly developed Live Betting feature, currently in public beta, allows users to place bets on events as they occur. Once fully developed, Azuro expects live predictions to account for a significant portion of all predictions.

Azuro also plans to release Azuroscan, an explorer that allows users to search past and live betting events on the protocol. This will provide better transparency and enable users to analyze aspects of the platform, such as historical odds and trends.

Currently, Azuro’s data providers take an optimistic approach to data, assuming that the data regarding an event outcome is accurate. However, in the future, the protocol plans to implement the SafeOracle contract, which is expected to add a dispute resolution mechanism. Under this new mechanism, the AzuroDAO still assumes that the resolution was provided in good faith, but, when a resolution is disputed, the AzuroDAO acts as the arbiter of last resort. This mechanism will be facilitated by a vsAZUR mechanism; however, additional details on this mechanism have not been disclosed as of the time of writing.

Azuro’s multichain expansion will include new partnerships and integrations with other EVM-compatible networks. Additionally, to foster ecosystem growth, Azuro will launch an Ecosystem Growth Fund and introduce an Affiliate Program for frontends. The Azuro Hub will help foster these initiatives, providing a space for developers to collaborate and find resources.

Azuro is redefining the online betting landscape by leveraging decentralized infrastructure to address key challenges such as trust, liquidity fragmentation, and operational overhead. By enabling non-custodial betting through smart contracts, Azuro ensures users retain control over their funds, while its governance framework, led by AzuroDAO, promotes fairness and transparency in market resolutions. The protocol’s unified singleton liquidity pool enhances liquidity efficiency across a diverse range of markets, minimizing risks associated with fragmented liquidity models and impermanent loss for liquidity providers.

Azuro’s modular infrastructure and third-party frontend integrations allow the protocol to scale globally, meeting the needs of different jurisdictions and user bases without relying on a single access point. With its continued expansion into live betting, social and political events, and innovative liquidity solutions, Azuro is looking to establish itself as a leader in the prediction market space, which is expected to grow at a rapid pace over the next five years.