Polymarket: The Premier Platform for “Event Trading”
Introduction
Prediction and gambling is an ancient industry that has been interwoven throughout the entire trajectory of human societal development. The fascination with predicting and betting on future events has captivated people and encouraged active participation. Consequently, the prediction and gambling industry emerged. Historically, this industry has garnered significant attention due to its lucrative nature and large participant base, as evidenced by phenomena in places like Las Vegas, Macau, and even state lotteries. Although Web 3 is an emerging industry, many of its sectors overlap significantly with the Web 2 world, and therefore, the prediction and gambling industry is naturally present within it as well.
As a leading project in the prediction and gambling industry within the Web 3 world, Polymarket has not only garnered enthusiasm and widespread participation from industry investors but has also successfully transcended the community to enter the Web 2 society. Since making predictions on Polymarket requires investing real money, some media outlets consider Polymarket’s predictions to be even more accurate than experts’ answers. Thus, many media sources reference Polymarket’s prediction results by saying, “According to Polymarket’s prediction results…”. For example, the U.S. The election has been a hot topic recently, and even domestic media like Sina News have cited Polymarket’s support results for Trump and Biden. This demonstrates that Polymarket’s influence has extended beyond the crypto field, having a strong impact within the Web 2 world as well.
As a project in the prediction and gambling sector, Polymarket has been highly successful. By using a combination of AMM (Automated Market Maker) and ordering book mechanisms to enhance trading liquidity across various markets, it has quickly become an industry leader.
Project Basic Information
Project Team
Shayne Coplan: Founder & CEO. Formerly a computer science student at New York University, Coplan dropped out to start his own venture. He was an early follower of Ethereum, interning at Chronicled in the San Francisco Bay Area in June 2016. Coplan founded Polymarket in June 2020.
Liam Kovatch: Engineering Lead at Polymarket. Previously, the Vice President at Vice President and CEO at Paradigm Labs, he also worked as a software engineer at 0x Labs. He holds an engineering degree from Columbia University in the United States.
David Rosenberg: Associate Director of Strategic Operations. He interned at Silicon Valley Bank, served as Business Development Manager at Foursquare, and was the Strategic Director at Snap Inc. Rosenberg graduated from the University of Cambridge in the UK with a degree in law.
Funding Information
Polymarket has raised $74 million through three rounds of funding.
Seed Round: In October 2020, Polychain Capital and Naval Ravikant led the round, with participation from 1confirmation, ParaFi, former Coinbase CTO Balaji Srinivasan, and Aave founder Stani Kulechov, raising $4 million.
Series A: In 2023, Polychain Capital and Joe Gebbia invested $25 million in this round.
Series B: In May 2024, Founders Fund and existing investors 1 confirmation and ParaFi led this round, with participation from Ethereum co-founder Vitalik Buterin, Dragonfly, and Eventbrite co-founder Kevin Hartz, raising $45 million.
For a single-business Dapp, raising $74 million reflects its strong market appeal.
Development Strength
Polymarket was established in 2020 by founder Shayne Coplan. The development journey of Polymarket has encountered regulatory hurdles. Key events in the project’s development are as follows:
From the key events in Polymarket’s development, it is evident that the platform has faced numerous challenges during its growth, such as sanctions from the U.S. Commodity Futures Trading Commission (CFTC) and public backlash for sensitive market topics. However, Polymarket did not back down; instead, it actively addressed these issues. The platform not only successfully handled the CFTC sanctions but also demonstrated excellent crisis management skills during social media controversies. Additionally, users have not encountered liquidity issues when placing bets on Polymarket, showcasing the strong operational and technical capabilities of the Polymarket team.
Operating Model
Polymarket operates in the prediction and gambling space but essentially functions as a decentralized exchange (DEX), with the traded asset being the “probability of topic outcomes.”
As a DEX for alternative trading assets, Polymarket deploys smart contracts on Ethereum’s Layer 2 solution, Polygon. It provides market liquidity through an Automated Market Maker (AMM) and order book system. When users provide liquidity for an event, they receive an economic reward of 2% of each transaction amount. The closer the liquidity provision price is to the final transaction price, the greater the reward.
Polymarket utilizes UMA’s Optimistic Oracle (OO), comprising a market contract, a CTF adapter contract, and the OO itself. All external data is accessed via the OO, ensuring the fairness of prediction results through the oracle.
Polymarket’s primary prediction category is the binary prediction market, where users predict whether an event will occur or not. Users express their predictions by purchasing “Yes” or “No” shares. The prediction event results are connected to external developments in real-time through the OO. The CTF adapter automatically sends requests to the OO, and proposers within the UMA system respond to these requests. If uncontested, the response is considered correct and submitted to the CTF adapter after a two-hour challenge period. If the answer is incorrect or contested by other UMA participants, they can debate the response to ensure the accuracy of the external data obtained by the OO.
When the predicted event outcome is revealed, users who made correct predictions will earn profits, while those who predicted incorrectly will lose their stake. The price (odds) represents the current probability of the event occurring, incentivizing users to make accurate predictions. The operating mechanism of the Polymarket protocol is illustrated below.
In summary, Polymarket participates in the market through an Automated Market Maker (AMM) or order book system, providing liquidity for participating traders.
Advantages Compared to Competitors
As a leading project in the decentralized prediction market, Polymarket’s main competitors include Augur, Gnosis, and Azuro. Compared to these competitors, Polymarket has distinct advantages in the following areas:
- Wider Range of Topics: Polymarket covers a broader array of event predictions across various fields such as politics, economics, current events, sports, and entertainment. It can also add more flexible prediction topics based on market demand, such as whether the price of ETH will reach $3600 the next day. This flexibility enhances investor engagement and enthusiasm, driving the growth of prediction trading volume.
- Higher Acceptance: Polymarket is not only a star project within the crypto community but is also widely accepted in the traditional Web 2 world. Its prediction results are often cited by major media outlets. Since predictions on Polymarket require investors to stake real money, the predictions are considered more professional and reliable compared to the subjective forecasts of some experts and KOLs. Even some domestic media in countries like China cite its prediction results. This indicates that Polymarket has secured a place in the Web 2 world, and its reputation and acceptance form a significant moat that is hard for other projects to replicate.
In conclusion, Polymarket stands out from its competitors with its wider range of investment topics and higher market acceptance. It is not only popular within the crypto community but also holds a strong position in the Web 2 world, making it well-positioned to attract new users.
Project Model
Dynamic Trading Fee Model
Polymarket’s trading fees may be adjusted based on market conditions and platform policies. These adjustments can be influenced by the following factors:
- Market Demand and Trading Volume: As market demand and trading volume increase, the platform may adjust trading fees to optimize revenue and liquidity.
- Incentives for Liquidity Providers: To encourage liquidity providers (LPs) to offer more liquidity, the platform might modify the fee structure.
- Platform Operating Costs: Polymarket needs to cover its operating expenses, including technology development, maintenance, and security. Consequently, the platform may adjust trading fees in response to changes in operating costs.
To maintain transparency, Polymarket typically announces fee adjustments through platform notices or help documentation, explaining the reasons for any changes. Users can stay informed about the latest trading fees through these channels.
Protocol Revenue
Polymarket’s protocol revenue is calculated as follows:
Protocol Revenue = Trading Fee Income — Liquidity Reward Costs — Other Operating Expenses
At the current stage, Polymarket has not disclosed its core financial data publicly.
Operational Data
Monthly Trading Volume
As illustrated in the chart, with the U.S. election gaining momentum, Polymarket has experienced rapid growth in trading volume throughout 2024. The platform is in a phase of accelerated development, driven by ongoing market hot topics and events.
Monthly New Accounts
Polymarket’s monthly new accounts have shown explosive growth since 2024 and have continued to maintain a high-speed growth trend.
Daily Active Wallets
The number of daily active wallets on Polymarket is also increasing rapidly, indicating that the data growth on Polymarket is both real and reliable.
Project Risks
- Liquidity Issues: Liquidity is a major concern for any trading market. Although Polymarket provides liquidity support through AMM and order book systems, emerging markets or less popular events may still face liquidity shortages. This could lead to difficulties for users during transactions, affecting the trading experience and potential returns.
- Regulatory Risks: Decentralized prediction markets face regulatory uncertainties. Despite Polymarket’s efforts to comply with relevant regulations and its settlement with the U.S. Commodity Futures Trading Commission (CFTC), there may still be future legal challenges and regulatory changes. As the market evolves and innovates, regulatory policies could shift, introducing uncertainty for the project.
Summary
Polymarket is a binary prediction market project that integrates UMA’s Optimistic Oracle (OO) to provide real-time updates on external event dynamics. The platform offers liquidity through Automated Market Maker (AMM) and order book systems, ensuring liquidity for all prediction markets. Compared to other similar projects, Polymarket features a broader range of investment subjects and markets, enjoying popularity within the Crypto community and establishing a presence in the Web 2 world.
Despite providing liquidity support through AMM and order book systems, Polymarket may still encounter liquidity issues for emerging or less popular events, potentially causing difficulties for users during transactions. Additionally, the decentralized prediction market faces regulatory uncertainties based on the current legal and regulatory environment.
Overall, Polymarket offers an attractive option for users seeking to make market predictions in an open and transparent environment. Users can engage in predictions about global events while experiencing the innovations brought by blockchain technology and potentially earning profits. With ongoing technological improvements and an expanding user base, Polymarket’s future holds limitless possibilities, establishing itself as a premier platform for “event trading.”
