Decentralized prediction trading platform Polymarket: The preferred platform for "event trading".

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11 months ago

Introduction

Prediction and gambling have been an ancient industry that has been prevalent throughout the entire history of human society. Predicting future events and placing bets have fascinated and actively engaged everyone, leading to the emergence of the prediction and gambling industry. Since ancient times, this industry has attracted attention due to its lucrative profits and large number of participants, as evidenced by phenomena such as Las Vegas, Macau, and even sports lotteries. Although Web 3 is an emerging industry, many of its sectors overlap significantly with the Web 2 world, so the prediction and gambling industry is bound to exist within it.

As a leading project in the prediction and gambling industry in the Web 3 world, Polymarket has not only been sought after and widely participated in by industry investors, but has also successfully crossed over into the Web 2 society. Because making predictions on Polymarket requires using one's own real money for investment judgments, in the eyes of some media, Polymarket's prediction results are even more accurate than those of experts. Therefore, many media outlets will cite Polymarket's prediction results by saying, "According to the prediction results on Polymarket…". For example, the U.S. presidential election is the most recent hot topic, and even domestic media such as Sina News will quote Polymarket's support results for Trump and Biden. It can be seen that Polymarket's influence has exceeded the cryptocurrency field and also has a very strong influence in Web 2.

As a project in the prediction and gambling field, Polymarket has been very successful. It has quickly become an industry leader by increasing the liquidity of various markets through a combination of AMM and order book methods.

Project Basic Information

Project Team

Shayne Coplan: Founder & CEO. He studied computer science at New York University, dropped out midway to start a business, and was an early follower of Ethereum. In June 2016, he interned at Chronicled in the San Francisco Bay Area, and in June 2020, he founded Polymarket.

Liam Kovatch: Engineering Director of Polymarket. He was a Vice President and has served as CEO of Paradigm Labs and a software engineer at 0x Labs. He graduated from Columbia University with a degree in engineering.

David Rosenberg: Vice President of Strategic Operations. He was an intern at Silicon Valley Bank, a business development manager at Foursquare, and a strategic director at Snap Inc. He graduated from the University of Cambridge with a degree in law.

Financing Situation:

Polymarket has completed three rounds of financing, with a total financing amount of $74 million.

Seed Round

In October 2020, Polychain Capital and Naval Ravikant led the investment, with participation from 1confirmation, ParaFi, Coinbase's former CTO Balaji Srinivasan, and Aave founder Stani Kulechov, with an amount of $4 million.

Series A

In 2023, Polychain Capital and Joe Gebbia invested in this round, with an amount of $25 million.

Series B

In May 2024, Founders Fund and existing investors 1confirmation and ParaFi led the investment, with participation from Ethereum co-founder Vitalik Buterin, Dragonfly, and Eventbrite co-founder Kevin Hartz, with an amount of $45 million.

As a Dapp that only focuses on a single business, the $74 million financing reflects its strong market appeal.

Development Strength

Polymarket was established in 2020 by founder Shayne Coplan. The development journey of Polymarket has encountered regulatory obstacles, as shown in the key events of the project's development:

解析去中心化预测交易所Polymarket :“事件交易”的首选平台

From the key events in Polymarket's development, although it has encountered many obstacles in its development process, such as being sanctioned by the U.S. Commodity Futures Trading Commission and facing public backlash for betting on sensitive topics, Polymarket has not retreated but actively addressed the issues. It not only successfully dealt with the sanctions from the U.S. Commodity Futures Trading Commission but also demonstrated excellent crisis PR capabilities in the face of social public opinion crises. In addition, users did not encounter liquidity issues when placing bets on Polymarket, fully demonstrating the strong operational and technical capabilities of the Polymarket team.

Operating Model

Polymarket belongs to the prediction and gambling track, but fundamentally falls within the category of decentralized exchanges (DEX), with its trading targets being the "probability of event outcomes."

As an alternative trading target DEX, Polymarket deploys smart contracts on the second layer of the Ethereum Polygon chain to provide liquidity to the market through automated market makers (AMM) and order book systems. When users choose to provide liquidity for a particular event, they receive a 2% economic reward for each order amount, and the closer the liquidity provision price is to the final transaction price, the greater the reward.

Polymarket has chosen UMA's Optimistic Oracle (OO), which includes market contracts, CTF adapter contracts, and OO, with all external data accessed by OO to ensure the fairness of prediction results.

The main prediction category of Polymarket is binary prediction markets, where users can predict whether an event will or will not occur. Users express their predictions by purchasing shares of "yes" or "no." The outcome of the predicted event is accessed in real time by the Oracle Optimistic Oracle (OO) through external events, and the CTF adapter automatically sends requests to OO, with UMA system proposers able to respond to this request. If there is no dispute, this response will be considered correct and submitted to the CTF adapter after a two-hour challenge period. If the answer is incorrect, or if other UMA participants dispute the answer, other participants can act as challengers to debate the response to ensure the correctness of the external data obtained by the Oracle Optimistic Oracle. When the outcome of the event that users bet on is revealed, users who predicted correctly will receive profits, while those who predicted incorrectly will lose their bet amount. The price (odds) represents the probability of the current event occurring, and this mechanism incentivizes users to make accurate predictions about the outcome. The operating mechanism of the Polymarket protocol is shown in the following figure.

解析去中心化预测交易所Polymarket :“事件交易”的首选平台

In summary, Polymarket participates in the market by providing liquidity to traders through automated market makers (AMM) or order book systems.

Advantages Compared to Competing Projects in the Same Track

As a leading decentralized prediction market, Polymarket's main competitors include Augur, Gnosis, and Azuro. In comparison, Polymarket has clear advantages in the following aspects:

  1. Broader Range of Assets: Polymarket covers event predictions in multiple areas such as politics, economics, current affairs, sports, and entertainment. It can add more flexible prediction assets based on market demand, such as whether the price of ETH will reach $3600 the next day. This flexibility increases investor participation and enthusiasm, promoting the growth of prediction trading volume.

  2. Higher Acceptance: Polymarket is not only a star project in the crypto community but is also widely accepted in the traditional Web 2 world, with its prediction results often quoted by major media outlets. Because making predictions on Polymarket requires investors to invest real money, its predictions are considered more professional and reliable compared to subjective predictions by some experts and KOLs. Even some domestic media outlets quote its prediction results. This indicates that Polymarket has established a presence in the Web 2 world, and its reputation and acceptance serve as important moats that are difficult for other projects to replicate.

In summary, Polymarket's broader range of investment assets and higher market acceptance significantly surpasses other projects in the same track. It is not only popular in the crypto community but also has a presence in the Web 2 world, giving it an advantage in attracting new users.

Project Model

Dynamic Trading Fee Model

Polymarket's trading fee rates may be adjusted based on market conditions and platform policies. This adjustment can be based on several factors:

  • Market demand and trading volume: When market demand and trading volume increase, the platform may adjust trading fee rates to optimize revenue and liquidity.
  • Incentives for liquidity providers: To incentivize liquidity providers (LP) to provide more liquidity, the platform may adjust the fee structure.
  • Platform operating costs: Polymarket needs to cover its operating costs, including expenses related to technology development, maintenance, security, etc. Therefore, the platform may adjust trading fee rates based on changes in operating costs.

To maintain transparency, Polymarket typically announces fee rate adjustments on the platform or in help documentation and explains the reasons for the adjustments. Users can stay informed about the latest trading fee information through these channels.

Protocol Revenue

Polymarket's protocol revenue = Trading fee revenue - Liquidity reward costs - Other operating expenses. At the current stage, Polymarket has not publicly disclosed its core financial data.

Operating Data

Monthly Trading Volume:

解析去中心化预测交易所Polymarket :“事件交易”的首选平台

Polymarket's monthly trading volume (Data source: https://dune.com/rchen8/polymarket)

As shown in the above chart, with the gradual intensification of the U.S. presidential election, Polymarket's trading volume maintained a high-speed growth trend in 2024, entering a phase of rapid development along with continuous market hot events.

Monthly New Accounts:

解析去中心化预测交易所Polymarket :“事件交易”的首选平台

Polymarket's monthly new accounts (Data source: https://dune.com/rchen8/polymarket)

Polymarket's monthly new accounts experienced explosive growth after 2024 and have consistently maintained a high-speed growth trend.

Daily Active Wallet Count:

解析去中心化预测交易所Polymarket :“事件交易”的首选平台

Polymarket's daily active wallet count (Data source: https://dune.com/lifewillbeokay/polymarket-clob-stats)

The daily active wallet count for Polymarket is also rapidly increasing, proving that Polymarket's current data growth is reliable and real.

Project Risks

  1. Insufficient Liquidity: Liquidity issues are a key concern for any trading market. Although Polymarket provides some liquidity support through AMM and order book systems, it may still face liquidity issues for emerging markets or unpopular events. This could lead to user difficulties during trading and impact the trading experience and potential returns.

  2. Regulatory Risks: Decentralized prediction markets face regulatory uncertainty. Although Polymarket has been striving to comply with relevant regulations and reached a settlement with the U.S. Commodity Futures Trading Commission, it may still face legal challenges and regulatory changes in the future. As the market develops and innovates, regulatory policies may adjust, bringing uncertainty to the project.

Conclusion

Polymarket is a project based on binary prediction markets, integrating UMA's Optimistic Oracle for real-time access to external event dynamics. The platform provides liquidity to the market through automated market makers (AMM) or order book systems, ensuring liquidity for all prediction projects. Compared to other similar projects, Polymarket has a broader range of investment assets and market acceptance, being popular not only in the crypto community but also in the Web 2 world.

Although Polymarket provides some liquidity support through AMM and order book systems, it may still face liquidity issues for emerging markets or unpopular events, potentially leading to user difficulties during trading. Additionally, given the current legal and regulatory environment, decentralized prediction markets face regulatory uncertainty.

In summary, Polymarket provides an attractive choice for users seeking to make market predictions in an open and transparent environment. They can not only participate in global event predictions but also experience blockchain innovation and potentially profit. With ongoing technological optimization and an expanding user base, Polymarket's future is full of possibilities, making it the preferred platform for "event trading".

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