Polymarket: From niche finance to a new way to participate in dramatic changes in society
Original title: Polymarket, or how I learnt to love drama
Original author: LAWRENCE
Original translation: TechFlow
Birth
In 1503 AD, the papal election was underway. Citizens of the Papal States awaited the coronation of a new pope, even though the Papal States at this time were in turmoil due to the Italian Wars and the Protestant Reformation, surrounded by three hostile armies.
In Rome, many people waited with bated breath, not only because of the historical significance of the election, but also because they were betting on the outcome. Banks hired messengers ("sensali") to run around the city, delivering betting slips and changing odds in real time, as the 39 cardinal electors were quarantined until a new pope was chosen. After a tense day, Cardinal Piccolomini, the 30-100 favorite, was elected Pope Pius III, becoming the 215th Pope of the Catholic Church. Many citizens shed tears, some for the joy of winning the bet, others for the sadness of financial ruin.
However, for an avid gambler, Pope Pius III died of an infected leg ulcer after only 26 days on the throne. Another papal election was held within a month, giving the citizens of Rome another chance to make a comeback.
Over the next few decades, this story would repeat itself again and again - betting on papal elections became a norm and an accepted activity for the citizens of Rome. By the end of the 16th century, the phenomenon had become so rampant that the 229th Pope, Gregory XIV, stepped in decisively, threatening to ban it outright or face excommunication.
However, history always repeats itself, and election betting is like a hydra, often banned but never gone away. Election betting took off again in the early 20th century. In the 1916 election between Charles Evans Hughes and Woodrow Wilson, the size of the betting pool swelled to $280 million today.
Today, in the United States, the practice is highly regulated and requires approval from the Commodity Futures Trading Commission (CFTC). What’s more, regulated markets cannot offer contracts on political events, following a 2012 ruling. This leaves a huge gap in the market, providing a huge opportunity for emerging players.
Chaos Emerges
We live in a world of high drama, where aggressive attitudes are often rewarded. The rise of short-form video media has further fueled this trend, as our attention spans grow shorter in a world of information overload. In this age of instant gratification and material abundance (in developed countries), provocative content can bring attention and monetary rewards to creators. The 2024 US election is a prime example, one of the most controversial elections in the past few decades, which has also inspired the rise of prediction markets, making audiences more fanatical about their idols.
From sports to entertainment, betting has always captured human attention. Now, prediction markets are bringing that appeal to politics and more fringe events, and they may be here to stay.
No other crypto app has attracted as much attention as Polymarket, one of the largest prediction markets in the world. While Polymarket is not the first crypto prediction market, it is in the right place at the right time, backed by an extraordinary business development team and an excellent social marketing team.
Chapter 1: Genesis
The pioneer of crypto prediction markets is Augur, which allows third parties to bet on the outcome of events. Augur was founded in 2015 and conducted an ICO ($REP) in the same year, becoming one of the earliest protocols to conduct an ICO. After three years of research, Augur went live on the mainnet in 2018. Augur v2 was launched in 2020, but on-chain activity has not increased significantly. At its peak, v2's open interest barely broke $11 million, and as of today, it is only $500,000.
Note: The October 2020 spike was tied to the then-current presidential election
Chapter 2: The Road to Domination
Polymarket was born in 2020, in the shadow of Augur v2. Similar to Augur, Polymarket is a decentralized prediction market platform that allows users to trade on the outcomes of world events. After years in the works, it really came to prominence in 2023 with a controversial market that bet on whether Titan, the submersible that visited the wreck of the Titanic, would be found before running out of oxygen.
As of today (July 2024), Polymarket has grown to become one of the largest prediction markets in the world, with over $283 million in open interest on the presidential election between Biden and Trump alone. This far exceeds all other betting platforms, including centralized competitor betfair (which has an open interest of £31 million).
Polymarket works very simply - users buy shares of the market, and the price of these shares represents the current probability of an event (from 0 to 1). These prices fluctuate based on real-time market and financial demand, representing the probability of an event. Notably, users can exit the market at any time, just like most liquid assets. The protocol also supports mutually exclusive markets containing multiple binary issues, providing traders with more complex strategies.
Polymarket’s Presidential Winners Pool
At its core, Polymarket is a hybrid decentralized prediction market that bypasses KYC procedures via USDC on Polygon. Architecturally, it is partially on-chain; order matching on the order book is done off-chain, but all bets are settled on Polygon. However, market creation is permissioned and users must manually approve it through the team on Discord.
Polymarket’s growth began to increase significantly in early 2024, with monthly trading volumes reaching an all-time high of $151 million as of July, compared to $6 million a year earlier. Monthly active users (MAUs) reached a staggering 25,000, compared to just 1,000 in July 2023. 2024 has also seen an influx of new users, with over 70,000 new members joining in the last 3 months alone.
Chapter 3: Trials
Arguably, there are two key factors to Polymarket’s success:
a. Having solid product-market fit (PMF) at the right time and place
Political polarization in the US, coupled with our shrinking attention span in a world of information overload, the influence of social media has made us pay more attention to dramatized real-life events and the radicalization of everything.
While this polarization does not directly lead to political violence, it does contribute to an environment that encourages it. This has been seen time and again, from the January 6, 2021 attack on the US Capitol, where Trump supporters stormed the building in an attempt to keep the then-President in power, to the failed assassination attempt on Trump in July 2024. While the United States may have avoided a civil war, the aggressive rhetoric on all social media suggests there is no end in sight.
Similarly, the rise of short-form video apps like TikTok has shortened users’ attention spans. Doomscrolling acts on the same fundamental principle as slot machines (“random reinforcement”), constantly giving gratification and dopamine hits.
b. Solid Go-to-Market (GTM) Strategy to Attract and Retain Users
One of many tweets that leveraged memes to attract users to the platform
Polymarket’s Twitter marketing strategy stands out from its competitors. Through colorful memes and witty one-liners, Polymarket has gained more attention and interaction. Compared to the average competitor tweet, Polymarket’s tweets are more engaging.
Polymarket’s virality also helps drive organic marketing, which not only helps retain users but also increases user mindshare. This is critical, especially given the cyclical nature of large events.
Organic Marketing to Make Tweets Go Viral Using Impact
Chapter 4: Omens
The brightest light often casts the longest shadow. Despite the attention Polymarket has received in the mainstream media, it faces several potential challenges that require careful management.
a. Unusual Interest from the US Election; Volumes Could Drop Significantly Post-Election
The post-election fallout will be significant, with limited operational mitigation. In addition to the occasional major event, sports markets provide an excellent revenue stream for Polymarket, albeit a saturated and fragmented space.
b. Niche and potentially "viral" markets can generate both attention and harmful traffic
While interesting, exotic markets like Bryan Johnson carry the risk of exposure to harmful traffic and insider trading. The person involved (or their friends and relatives) may know the outcome before settlement and use this to their financial advantage. As a result, these markets may be used primarily for marketing purposes rather than actual financial gain.
c. Subjectivity of results may highly polarize the community, causing Polymarket to favor the majority
In highly technical prediction markets, protocols may tend to cater to the majority opinion. The ETH ETF prediction pool in May of this year is an example. The key to the dispute was the definition of "approval", with different opinions on partial approval (19b-4 application) and full approval (19b-4 application and Form S-1). After the SEC approved the 19b-4 application, the pool was dissolved as "yes", which led to strong opposition from "no" buyers.
Nevertheless, I expect that such issues will become less and less over time as teams gradually deploy pools with clear "yes" and "no" scenarios.
Conclusion: Final Point
Ultimately, prediction markets, as an important source of data, may be the closest to the truth. Due to the financial incentives within the mechanism, the vast financial stakes involved often outweigh the insights of individual experts. They provide a powerful and unparalleled view of future outcomes, shaping our understanding with astonishing accuracy.
Regulators may crack down on these markets, but there is a limit to what they can do because Polymarket is primarily on-chain. And history shows that demand will always be there.
The Eternal Game
It is 2036, and people are watching live broadcasts of the year’s biggest events through VR headsets. The U.S. presidential election, which happens every four years, has become the new sports league.
On election night, billions of people around the world are glued to their headsets—not only watching the live broadcast, but also interacting in multiple VR rooms, one of which not only offers spam functionality, but also a prediction market. Politics and major events are no longer stale and boring, but have become more exciting, with trillions of dollars at stake.
In VR in the Metaverse
In this new world, prediction markets have transformed from a niche financial tool to mainstream entertainment, reflecting the deep convergence of technology and culture. As we navigate this hyper-connected world, the lines between political engagement and digital entertainment continue to blur, redefining how we experience and interact with global events. The evolution of prediction markets into such a central role highlights their profound influence on our collective consciousness and how we understand and foresee the course of history.
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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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