06 Nov 2023
Project of the Week: Betting on the future of everything with Polymarket
Polymarket stands at the intersection of finance, knowledge, and technology, inviting both the savvy trader and the curious observer to participate in the unfolding narrative of real-world events through the lens of prediction markets.
Introduction
Polymarket (website) operates as the world’s largest prediction market, presenting an innovative platform where users can bet on the outcomes of future events across various domains such as sports, politics, and pop culture. It functions by assigning prices to event outcomes, which represent the market's collective opinion on the likelihood of these events occurring. For instance, if shares of a particular event outcome are trading at 72 cents, the market assesses there is a 72% chance of that outcome happening.
Users make money by purchasing shares in an event's outcome they believe is undervalued. If their prediction is correct, the shares will pay out at a higher rate, netting a profit. Unlike traditional betting, users can sell their shares at any time, allowing them to lock in profits or cut losses as the market fluctuates. This mechanism encourages informed trading, as those with expertise in a specific area can leverage their knowledge for financial gain, while also contributing to the market's overall accuracy.
The accuracy of Polymarket's odds has been found to surpass conventional opinion polls and expert predictions, as they aggregate a diverse range of information sources and incentivize traders to make informed decisions. This makes Polymarket not only a platform for financial speculation but also a valuable tool for gauging real-time public sentiment on forthcoming events, disrupting traditional news and forecasting sectors by offering a more dynamic and participatory prediction model.
The driving force behind Polymarket
The Polymarket team has successfully raised $4 million in a funding round led by Polychain Capital. This financial injection, bolstered investors like Naval Ravikant, former CEO of AngelList, and Balaji Srinivasan, former CTO of Coinbase, aims to propel Polymarket into the next phase of its development. This stage focuses on enhancing user experience by simplifying the platform's technical aspects to attract and retain mainstream users.
Founder Shayne Coplan, at the helm of Polymarket, emphasizes the platform's role in fostering accountability in online discourse. By allowing users to profit from their predictions and providing a way to verify information against market activities, Polymarket not only serves as a betting platform but also as a tool for combating misinformation. The platform converts trading activities into actionable insights, reflecting a collective knowledge base built on educated opinions.
How does Polymarket work?
Polymarket utilizes the Gnosis Conditional Tokens Framework (CTF) to facilitate its prediction markets, employing ERC1155 tokens for representing the outcome tokens of events. These tokens are tied to a specific condition, with each having a unique indexSet and linked to an underlying ERC20 collateral token, typically USDC.
The process starts by generating a unique conditionId through a combination of an oracle address, a questionId which is an IPFS hash detailing the market, and an outcomeSlotCount that defines the number of possible outcomes. For binary markets, this count is two, representing 'YES' and 'NO' positions. PositionIds are then computed for each outcome by combining the collateral token with the relevant collectionId, which stems from the conditionId and an indexSet indicating the specific outcome.
Users can engage in "splitting" where one unit of the collateral is exchanged for a set of outcome tokens, and "merging," where these tokens are combined back into the collateral unit. This system assures that in a well-structured market, the pricing of outcome tokens fluctuates between zero and one unit of the collateral, and when added together, their total value should be equal to one unit of the collateral, reflecting the market's consensus on the probability of each outcome.
When Token?
As of the latest available data, Polymarket has not issued its own native token, which sparks speculation about the possibility of a future airdrop. Airdrops are events where a blockchain project distributes free tokens to its user base, often as a strategy to bootstrap network effects and reward early adopters. The absence of a native token thus presents a potential opportunity for users who are active on the platform prior to such an event.
In terms of traction, Polymarket is showing significant activity. The platform has a total value locked (TVL) of $8.37 million according to DefiLama, which has increased by 15.13%. This metric reflects the total amount of capital within the platform, indicating the level of user trust and platform utility. Meanwhile, the trading volume, a critical indicator of engagement and liquidity, stands at an annualized figure of $104.90 million, witnessing a 63.92% increase.
Moreover, the platform's daily active users, based on a 30-day average, have reached approximately 234.47, which represents a substantial uptick of 49.6%. This growing user base underscores the platform's ability to attract and retain users, further cementing its position in the market.
The positive changes in these metrics suggest a growing interest and engagement in Polymarket's offerings, which could translate into a broader user base that might benefit from any potential token distribution events in the future.
How to get started
Getting started with Polymarket typically involves a few straightforward steps. Here's a brief rundown on how you can begin:
- Create an Account: Visit the Polymarket website and sign up for an account.
- Wallet Setup: You will need a crypto wallet that supports the Polygon network since Polymarket operates on this blockchain. MetaMask is a common choice among users.
- Deposit Funds: Transfer cryptocurrency, usually USDC, to your wallet. This will serve as your collateral for making predictions.
- Connect Your Wallet: Connect your wallet to the Polymarket platform to allow for seamless transactions.
- Browse Markets: Look through the various prediction markets available on Polymarket and select one that interests you.
- Make Predictions: Buy shares in the outcome you believe will occur. The price of these shares reflects the market's probability of that outcome.
- Trading: You can hold onto your shares until the market resolves or trade them at any time before the event occurs, depending on how the market shifts.
- Withdraw Winnings: If your predictions are correct, you can claim your winnings, which will be transferred to your connected wallet.
Final Thoughts
As a place where informed predictions meet financial speculation, Polymarket offers users the chance to monetize their knowledge across various fields, from politics to pop culture. Its use of the Gnosis Conditional Tokens Framework ensures a secure, non-custodial trading environment, while the absence of a native token leaves room for anticipation of potential rewards for early and active users.
The platform's significant traction, evidenced by a robust increase in total value locked, trading volume, and daily active users, indicates a rapidly growing community and a heightened level of engagement. Such momentum not only reflects confidence in Polymarket’s infrastructure but also underscores its potential to disrupt the traditional methods of gauging public sentiment and forecasting events.
Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.
