Polymarket is a leading decentralized prediction market based on Polygon, and recently garnered attention as the US Presidential election race heats up.
Introduction
Crypto has taken the somewhat negative connotation of the “world’s biggest casino,” with traders betting on anything and everything possible, through the rising trend of meme coins or other vehicles of speculation. As such, it is no surprise that a marketplace designed to facilitate predictions on the outcomes of real-world events would find its product market fit in the crypto arena.
However, prediction markets offer something of value. As Vitalik Buterin, co-founder of Ethereum, covered this topic in a blog post, writing that prediction markets offer the possibility of allowing the “public to make bets about future events, and using the odds at which these bets are made as a credibly neutral source of predicted probabilities of these events.”
While many prediction market platforms have emerged to seize a share of this lucrative market, none have garnered the market share and mindshare that Polymarket holds today as a leading predictions market in crypto, especially as the US Presidential election races heats up.
But what is Polymarket and how does it work?
What Is Polymarket?
Founded by Shane Coplan in 2020, Polymarket is a prediction markets platform on Polyon designed to allow users to trade and bet in real-time on outcomes of some of the most relevant real-world events such as the 2020 coronavirus pandemic, the Presidential elections, sporting events and more. Through Polymarket, users are able to take up positions to express their predictions and are rewarded when these events play out in line with their predictions. As long as the outcomes of the event can be measured, a market can be created for it.
Source: Polymarket
In 2024, one of the top Polymarket markets centered around the 2024 US Presidential Elections, with markets emerging regarding the winner of the elections, whether Joe Biden will drop out of the elections, the margin of victory at the elections and Vice President picks for the respective candidates, among others. In fact, on just the Presidential Elections Winner market, more than $283.5M has been wagered, with the odds heavily favoring the Republican candidate, Donald Trump as the victor.
Source: Polymarket (link)
How Does Polymarket Work?
Every market can take two forms: either a binary outcome or an event with multiple possible options to choose from.
For a binary market, the market will resolve in one of two outcomes. For example, in the market surrounding whether “Biden drops out of the presidential race?”, the market will resolve to either Yes or No, depending on whether Biden drops out. A user who believes that Biden will drop out of the presidential race can then purchase “Yes” shares at $0.84 per share to bet on this outcome.
Source: Polymarket (link)
On the other hand, there are also markets which can have multiple possible outcomes. An example of this would be the market tracking which cat-themed memecoin would first achieve a market capitalization of $1B. In this scenario, there are multiple large market cap cat-themed memecoins which are possible outcomes including POPCAT, MEW, TOSHI and more. Similarly to the binary market, if a user believes that POPCAT will be the first cat-themed memecoin to hit a $1B market cap, they can purchase “Yes'' shares for POPCAT at $0.48 per share. On the flip side, they can purchase the “No” shares for $0.643 each if they wish to specifically bet against POPCAT.
Source: Polymarket (link)
In any market, the price of the “Yes” shares and “No” shares represents the odds of either outcome. In the earlier Biden market, the current odds of Biden dropping out of the presidential race sits at 84%, hence pricing the “Yes” shares at $0.84. Conversely, the odds of Biden not dropping out is 19%, therefore pricing the “No” shares at $0.19. The sum between the “Yes” and “No” options should come close to $1 or 100% odds as the market should resolve in either one of the outcomes. However, due to the spread and low liquidity in certain markets, prices of “Yes” and “No” shares generally sum up to slightly above $1.
As the market resolves, the winning share will reprice to $1, while the losing outcome or outcomes reprice to $0. This means that in the above example, if the user purchases “Yes” shares for POPCAT at $0.48 and POPCAT is indeed the winning outcome, each share will then be $1, representing a 108.33% return on investment. On the flip side, users who bought “Yes” shares of any of the other options or “No” shares of POPCAT will see their investment repriced to zero.
Polymarket’s Oracle
Polymarket currently uses the UMA oracle to facilitate the resolution of their markets. When a market is first created, a request is sent to the UMA Optimistic Oracle. After which, users can propose a resolution to the request to resolve it, whereby a challenge period is started to allow the resolution to be disputed. Disputes are submitted to UMA’s Data Verification Mechanism (DVM), through which UMA token holders vote on what they determine the right outcome of the request to be.
On the market surrounding the first cat-themed memecoin to achieve a $1B market cap, the Solana-based memecoin DORAE actually momentarily achieved a market capitalization of $2.4B on June 26th and was submitted as a resolution to this market under the “Others/None in 2024” option. However, this was later disputed due to the highly manipulated nature of the DORAE coin, which allowed insiders to hold the market cap of the coin above $1B for around an hour, before it fell 99% in the subsequent hour. As a result, the originally submitted resolution was successfully disputed, keeping the market open.
Source: Polymarket (link)
Conclusion
Polymarket has emerged this year as one of the biggest consumer applications in the crypto space, especially with the world’s attention centered around the 2024 US Presidential Elections.
Source: DeFiLlama
With all eyes on Polymarket, the platform has seen its total value locked (TVL) surge more than 450% since the beginning of the year to $54M, with many expecting the trend to continue as the Presidential race heats up over the next few months, possibly onboarding even more users on to crypto.
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