What is Polymarket? The Largest Crypto-based Betting Platform

Introduction

Polymarket is a decentralized prediction market platform that allows users to trade on the outcomes of real-world events using cryptocurrencies. Launched in 2020, Polymarket has quickly gained traction in the crypto community, offering a unique approach to speculative trading on topics ranging from politics and economics to entertainment and sports.

As of July 2024, Polymarket's total monthly trading volume exceeded $380 million, with nearly 33,000 active users participating on the platform.

Polymarket operates on the Ethereum blockchain, utilizing the Polygon Layer-2 solution to enhance scalability and reduce transaction costs.

Core Features

At its core, Polymarket allows users to engage in speculation on the outcomes of real-world events by buying and selling shares that represent different possible results. These events span a wide range of topics, including politics, economics, sports, and entertainment, effectively harnessing the collective intelligence of its users to generate real-time probabilities for event outcomes. The platform's use of USDC, a stablecoin pegged to the US dollar, ensures transaction stability.

Users can browse a variety of markets based on different events. For example, you might find markets predicting the outcome of political elections, sports events, or entertainment awards. When you decide to bet on an event, you buy shares that represent the probability of a specific outcome occurring. For instance, if you believe a certain candidate will win an election, you can purchase "Yes" shares at a price reflecting the current market odds.

The price of shares indicates the perceived probability of an event occurring. For example, if "Yes" shares for a candidate are priced at $0.54, this suggests a 54% chance of that candidate winning. You can sell your shares at any time before the event resolves, allowing you to capitalize on changes in market sentiment. If the event you bet on occurs, your shares are worth $1 each; if not, they become worthless.

Order Types

Polymarket offers two primary types of orders for users to engage in trading: market orders and limit orders. Here's an introduction to each:

Market Orders: A market order is a type of order where a trader buys or sells shares at the current market price. When you place a market order, it is executed immediately at the best available price. This is useful for users who want to enter or exit a position quickly without waiting for a specific price.

Limit Orders: A limit order allows traders to specify the exact price at which they are willing to buy or sell shares. When placing a limit order, the order will remain in the order book until it can be matched with another trader's order at the specified price. For example, if you believe the price of a share is too high, you can set a limit order to buy at a lower price. Conversely, if you want to sell shares at a higher price than the current market rate, you can set a limit order to sell.

Polymarket Order Book Structure

Polymarket uses an order book model to facilitate trading in its prediction markets. The order book is a list of all open buy (bid) and sell (ask) orders for a particular market. Each order specifies the price and quantity of shares the trader is willing to buy or sell. The buy orders are sorted in descending price order, while the sell orders are sorted in ascending price order.

Traders can provide liquidity to the order book by placing limit orders. When their orders are matched, they become the "maker". Takers are users who place market orders that match existing limit orders from makers. When a taker places an order, they accept the current market price.

While Polymarket currently does not charge direct trading fees, it operates with a fee structure that can evolve. The platform has hinted at potential future changes in fees as it adapts to market conditions and user needs. Currently, the focus is on incentivizing liquidity provision while keeping the trading experience accessible for users.

Various Market Types

The platform offers a variety of market types, including binary markets with yes/no outcomes, categorical options, and scalar markets where outcomes fall within a range. This diversity caters to different prediction needs and preferences, enhancing the user experience.

Binary Markets

Binary markets are the simplest type, offering two possible outcomes that resolve to either $1 or $0. These markets are structured as yes/no questions, where users can buy shares representing their prediction of the outcome. If the predicted outcome occurs, the shares become worth $1; otherwise, they become worthless.

For example, a market might ask, "Will Tetranode have over 100k Twitter followers by 12/31/2025?" The possible answers are "Yes" or "No."

Categorical Markets

Categorical markets involve multiple options, allowing users to bet on which specific outcome will occur. These markets are structured as multiple-choice questions, where participants can buy shares representing their chosen outcome. The final payout depends on the outcome that ultimately occurs.

An example could be, "What ice cream flavor will have the most sales in 2025?" The options might include Chocolate, Vanilla, Strawberry, and Other.

Scalar Markets

Scalar markets resolve to a value within a specified range, determined by the final outcome. These markets are structured as questions with a numerical answer, and participants can buy shares based on their prediction of the final value. The payout is proportional to the difference between the final value and the share price.

For instance, a market might ask, "What will the population of Spain be in the upcoming census?" with a resolution range of 47 million to 55 million. The final value will determine the payouts based on the shares held.

Will Polymarket Launch a Token?

Currently, Polymarket does not have any confirmed plans to launch a token. While there have been discussions and speculation within the community about the potential for a token in the future, no official announcements have been made regarding a token launch.

Polymarket's potential decision to launch a token is influenced by regulatory concerns, particularly given its history and the legal landscape surrounding prediction markets. Polymarket has faced substantial regulatory scrutiny, especially after the CFTC charged the platform for operating an illegal unregistered trading facility for event-based binary options. In January 2022, Polymarket was ordered to pay a $1.4 million penalty and to wind down non-compliant markets. The CFTC classified Polymarket's event-based contracts as "swaps" under the Commodity Exchange Act (CEA), which requires registration as a designated contract market or swap execution facility.