Original title: “Polymarket: Positioning, Expansion and Shadows of Crypto Prediction Markets”
Original author: Lydia Wu, Mint Ventures
The data in this article are as of October 8, 2024
TL; DR
· Prediction markets in a narrow sense usually do not include traditional betting and sports betting, but place more emphasis on information discovery and public decision-making reference functions.
· Prediction markets cannot remain “correct”. The failure cases are precisely because people regard the probabilities given by the prediction market as a fact.
· Cryptocurrency brings freer transaction amounts and a less frictional payment experience to prediction markets
· Polymarket’s user profile is quite different from native crypto users such as NFT traders and meme players. They are usually older, do not pursue the ultimate profit-loss ratio, and have strong motivations for information acquisition and analysis.
· The competitive elements of prediction market products are reflected in how to arrange better events and gather sensible bettors (creators). Polymarket’s competitive advantage lies in the attention (liquidity) base brought by being out of the circle
· Polymarket is very cautious about volume incentives and more complex trading features. New projects that approach the prediction market from the perspective of derivatives trading may face acclimatization caused by functional mismatch.
· After the election on November 5, Polymarket is expected to face a massive withdrawal of liquidity. At that time, the public’s evaluation of its election report card and Polymarket’s next strategic plan are likely to have a profound impact on the future prediction market.
Rise: “That Prediction Market”
Polymarket is currently the largest “2024 US election prediction market”. Users have bet nearly $1.5 billion on who will be elected, Harris or Trump. This number surpasses its Web2 competitor PredictIt, Smarkets and others are far behind, with deal sizes of $37 million and $9 million respectively on the same issue.
Polymarket 2024 US Election Interface
Concept analysis of prediction market
In a broad sense, prediction markets evolved from gambling and betting markets, which refers to people investing money in anticipation of the outcome of a certain event and hoping to get a return.
Prediction markets in the narrow sense usually do not include traditional betting and sports betting;Points to a wider range of political, economic, and cultural events, emphasizing the function of information discovery, which may provide reference for policy formulation or public decision-making.. Prediction markets of this nature date back to at least the papal elections in the early 16th century, and the Iowa Electronic Markets, launched during the 1988 U.S. presidential election, was one of the first modern electronic prediction markets.
Crypto Prediction Markets = Truth Machines?
Vitalik Buterin is probably the most influential prediction market advocate in the Web3 world. As early as 2014, he discussed prediction markets as a practice of Futarchy (a future form of government envisioned by Robin Hanson that governs by betting); in a 2020 article exploring the “credible neutrality” mechanism In the article, he once again used the prediction market as a case, and then proposed a prediction market design that bound bets on extremely unlikely events; in 2021, he issued an article systematically discussing the value support of the prediction market and the advantages of decentralization ; Since this cycle, he has frequently publicly expressed his optimism about the prediction market, and participated in Polymarket’s Series B financing in May this year.
Different brains understand prediction markets
To understand the idea behind prediction markets and the ambitions crypto folks have for them, we can start with three small questions:
1. What do the prediction results represent?
2. Is the prediction market accurate?
3. What does cryptocurrency bring to prediction markets?
Due to space limitations, I will provide brief answers to these three questions.
1. What do the prediction results of the prediction market represent? Is it the truth?
The truth machine claim is controversial. The prediction market measures people’s understanding of symbolic events (Events) and uses it as a basis for inferring future objective facts (Facts). This process does not produce the truth, but only the participants’ probability estimates of the outcome of the event. Even if the prediction results are consistent with the facts, it is a kind of post-facto verification.
2. Is the prediction market accurate?
Genetic analysis of the legitimacy of prediction markets can generally be traced back to Hayek, Bayes’ theorem, Futarchy, efficient market hypothesis, etc. Here we try to combine them together and explain them in one sentence:Although knowledge is dispersed in human society, if there are enough market participants who constantly update their opinions by observing emerging evidence, an efficient market can be formed in which asset prices reflect all public information, thus assisting in decision-making. .
Examples often cited by proponents of prediction markets include the 2008 U.S. election and Polymarket’s performance during the coronavirus pandemic in 2020, but prediction markets’ unsatisfactory performance in the 2016 Brexit and U.S. elections undermines this argument. . Predicting market “failure” situations, based on people’s hindsight reflection,The reason is that traders regard the probabilities given by the prediction market as facts and give up timely updates of external information, resulting in excessive price stability.. This also hints at the reflexive nature of prediction markets—people’s trust is damaging the foundation of credibility.
2016 Election Betting Odds: Clinton Remains Dominant
3. What role have cryptocurrencies played in the long history of prediction markets?
From the perspective of the concept and practice of prediction markets, decentralized prediction markets usually have no limit on the amount of bets (in comparison, PredictIt’s bet limit is $850), allowing people to more freely assign opinions based on their degree of confidence. Money weighting may capture market trends more accurately.
From the perspective of predicting market operations, the use of cryptocurrency not only enables more immediate payment collection, but also greatly reduces the proportion of customers requesting refunds through credit card companies afterwards (i.e. chargeback fraud). The well-known online gambling platform Stake only accepts Cryptocurrency payments.
The rise of Polymarket
A broad question is: since the concept and practice of prediction markets have been around for a long time, and the combination with cryptocurrency is not new, why is it that Polymarket suddenly emerged to compete in the existing market and gain the largest market share on the chain? , so much so that it has almost become synonymous with “prediction market”?
First of all, it is worth mentioning that 2024 is a rare global election year. According to incomplete statistics, 76 countries/regions around the world will hold general elections in 2024, covering a population of 4.17 billion. Among them, the US election undoubtedly attracted the most attention. Biden’s withdrawal from the election and Trump’s assassination also added twists and turns to the process.
In addition, global events such as the opening of the Paris Summer Olympics, the Federal Reserve’s decision to cut interest rates, geopolitical crises, and the progress of artificial intelligence have received widespread coverage and attention. In the Web3 world, Bitcoin halving, Bitcoin and Ethereum ETFs, etc. have also created enough topics – this is undoubtedly a “golden age” for prediction markets.
Polymarket’s own success is often attributed to its smoother UXUI compared to previous generations of products, its smoother deposit and withdrawal experience, and its more transparent mechanism and non-extractive design compared to Web2 competing products. Hitting the favorable wind of the times, the company was in the limelight for a while.
The number of events created on Polymarket will increase significantly in 2024
The influx of new users quickly pushed up Polymarket’s user base
Polymarket’s trading volume will increase significantly in 2024
The changes in the current situation, the accumulation of the industry, and the product iteration of Polymarket are certainly important, but this article would like to focus on an angle that is rarely mentioned at present——Polymarket’s marketing strategy and our possible misunderstandings about Polymarket。
Misunderstanding: “Event Trading Platform”
To begin with, compared to the utopian “prediction market” or the voyeuristic “event trading platform”, a clearer and de-bubbled description of the current Polymarket may be “Encrypted Media/Creator Ecosystem/Information Platform”。
Newspaper readers in the dark
Polymarket hit a new high of 90,000 monthly active users in September, and its daily active users basically remained above 10,000. However, the number of visits to the Polymarket website reached 15 million in September, and the number of visits/monthly activity ratio exceeded 166.
In comparison, Opensea had 110,000 monthly active users and around 9,000 daily active users in September, which is close to Polymarket. Opensea had 4.5 million website visits in September, with a visit/monthly activity ratio of approximately 41.
If you add pump.fun and further compare the star products in these three respective tracks, you can find that Polymarket’s visits and the proportion from mobile terminals are significantly higher than the other two – reflecting There is a high probability that there is a “newspaper reading crowd” behind Polymarket that is different from NFT traders and meme players.。
Polymarket monthly and daily activity data
Opensea monthly and daily activity data
Website data comparison source of Polymarket, Opensea, pump.fun: similarweb
In fact, Coplan, the founder of Polymarket, has been using X including ““Alternative news source”, “Future Media”(The future of media) and other words to describe its products, and it has repeatedly cited Polymarket’s ranking under the App Store news section. Data shows that although Polymarket’s website visits are only 3% of those of the New York Times, its performance in terms of page dwell time, bounce rate and other indicators are relatively good.
In addition, Polymarket also plays a role by integrating with media and information platforms such as Substack and Bloomberg.“Reverse Oracle” role, representing the Web3 world and conveying a wider variety of opinions and emotions.
Coplan thinks Polymarket is the news
Polymarket and New York Times website data comparison source: similarweb
special trader
Polymarket does not need a large editorial team. The core content production is completed by traders who make real money bets. This group of people is Polymarket’s intellectual assets.The origin of the concept of prediction markets and past failures all emphasize the importance of market participants. Their rational analysis and constant re-evaluation of new information are the cornerstone of the “accuracy” of prediction markets.
A study published in 2022 on the online horse racing betting behavior of more than 40,000 Finnish residents showed that people with higher numerical IQ (i.e., better performance in arithmetic reasoning, mathematical problem solving, and quantitative analysis measures) were more likely to respond to skill-based Gambling (as opposed to gambling based on luck) showed significantly higher willingness to participate. The study also showed that about 9% of the total bettors made more money than they lost. In Polymarket, the ratio is 11.5%.
(a): There is an overall positive correlation between comprehensive IQ and willingness to participate in horse racing betting
(b): There is a significant positive correlation between numerical IQ and willingness to participate in horse racing betting
(c): There is a clear negative correlation between spatial logic IQ and willingness to participate in horse racing betting.
(d): Verbal IQ is not related to willingness to participate in horse racing betting
Polymarket player P&L situation
Polymarket’s advertising link sources also reveal some strategies for “attracting and converting what kind of people.”
· The number one electionbettingodds.com is a well-known election prediction market aggregator that aggregates data from 5 prediction markets including Polymarket
· citizenfreepress.com is a conservative-leaning US political news aggregation website, half of its users are American men over 55 years old
· natesilver.net is the Substack of statistician, author, and poker player Nate Silver. The election prediction system developed by Nate successfully predicted the results of 49 of the 50 states in the 2008 US presidential election. He joined Polymarket as a consultant in June this year.
· In the top 10, only coindesk and dappradar are applications mainly targeted at crypto-native users.
· Compared with Opensea and pump.fun, Polymarket’s user age distribution is more balanced, and the proportion of people over 35 years old is significantly higher than the other two.
Polymarket advertising link source top 10 websites
Gender and age distribution of citizenfreepress.com users
User age composition of Polymarket, Opensea, pump.fun Source: similarweb
We almost never hear the stories of the “legendary traders” on Polymarket. This is determined by the characteristics of the prediction market – controlling the odds within a reasonable range to avoid the results significantly deviating from the actual possibility of the event.
Polymarket’s ranking data backs this up. Currently, there are only 3 users with a total profit of more than 1 million US dollars, while there are 197 addresses on pump.fun with a total profit of more than 1 million US dollars. Considering that Polymarket’s monthly monthly activity in September was 14% of pump.fun and that it was founded in 2020, the probability of getting rich from Polymarket seems even smaller.
Polymarket Ranking
Correspondingly, Polymarket’s trading functions are also more restrained. In addition to deposits and withdrawals, there are only the most basic market price and limit order functions. Although Polylend, a lending protocol that can lend USDC as collateral, was open sourced in June this year, Polymarket made it clear that this feature will not be used in production, but is only to facilitate community construction. also,Polymarket also did not conduct large-scale liquidity incentives. Polymarket seems to believe that overly complex trading features will obscure users’ attention, while market-making and liquidity incentives will distort the effectiveness of the market.。
Although the actual conversion from “reading newspapers” to “trading” is difficult to estimate, we can still roughly draw a portrait of the crowd gathered on Polymarket under ideal circumstances——This is a relatively rational and mature group. They may not know much about cryptocurrency. They are usually more economically stable, do not pursue the ultimate profit-loss ratio, and enjoy the fun of proving themselves correct through analysis and judgment.. Such an image is far from the general sense of crypto gamblers, and it is also difficult to reach with current Web3 products.
Stall: A crucial November
In aviation terminology, “stall” refers to an aircraft wing’s angle relative to the airflow being too large to generate sufficient lift, resulting in a rapid loss of altitude. Facing a stalled aircraft, the pilot needs to press the nose down and increase thrust to restore lift to the aircraft.
The speed of Polymarket’s rise and its election “big single product” strategy have caused the market to worry about its follow-up push-where will Polymarket go after the US election is finalized on November 5? After all, Polymarket has never lacked eyeing competitors, ambitious new entrants, and skeptics who continue to speak out.
Election-related transaction volume on Polymarket reached 70%, and user volume reached 60%
Polymarket’s success
For Polymarket, the results of this election are crucial;The result is related to the credibility of the prediction market itself, and whether Polymarket can isolate the political leanings of the team and investors and truly “represent public opinion.”。
Unlike Trump’s latest comeback on Polymarket, another prediction market, Kalshi, consistently shows Harris leading
Peter Thiel, founder of Funders Fund who led Polymarket’s investment, “very strongly supports Trump”
After the election, in the face of declining transaction volume and lost users, Polymarket’s currently discussed response strategies (which are also the directions coveted by new players) can be roughly divided into three categories:
1.Develop sports betting
Sports is currently the second largest event category on Polymarket after elections, but there is still an order of magnitude difference in transaction volume, which may mainly benefit from the traffic overflow from election topics. It is doubtful whether this part of the traffic can be retained for a long time after the election.
Sports-themed Super Bowl and Premier League among Polymarket’s top 8 trading volume
Not to mention that sports betting is an extremely fragmented and saturated market. Sports betting is not the core area of prediction markets. Fans’ betting factors are often driven by emotion. They enjoy immediate excitement and enhance the viewing experience, and do not pursue long-term profits. There is a contradiction with the screening logic of the prediction market.
2. Increase derivatives trading
It is also a saturated market, and for Polymarket it is undoubtedly a matter of exploiting weaknesses and avoiding strengths.
3. Create “event pump.fun”
This is a popular idea, describing an open market where everyone can issue events and make predictions. It seems to be aimed at the characteristics of Polymarket that users cannot create markets independently and require a team to focus on “doing things”. But if we examine the characteristics of the most popular election events, we find that the elections themselves:
· The impact is very wide → sufficient liquidity
· The cycle is long and interspersed with multiple process events → information is circulated as fully as possible
· Determined time, binary outcome → clear settlement
Similarly, the “listing” considerations announced by Polymarket include:
· Whether there is sufficient trading demand to generate accurate probabilities
· Whether the probability outcome of the event has social value or news value
· Whether the event can achieve clear results within a certain time frame
For most people, coming up with a clearly defined binary problem, expressing it in language that is accurate and unambiguous and not too technical, and then setting a clear settlement point and standard will result in a certain social impact. Meaning…it’s much more difficult to do this than uploading a picture to post a meme.
Even Polymarket has caused controversy due to unclear standards for “ETF approval” and “Trump’s son’s participation”. If there is a completely open market, the risk of evildoing (such as Trump posting whether he will say a certain word in his next speech), as well as dispute adjudication (such as how to define whether Trump participated) will be given to the platform. brings a huge burden.
So far we have discovered that these three transformation directions that seem to be related to Polymarket are by no means easy.The core lies in the fact that it is difficult and should not strengthen the attributes of trading and speculation in Polymarket.. Even if the intention to issue the currency is communicated, Polymarket should be careful in its use of incentives, such as incentivizing more high-quality questions and correct results rather than transaction volume.
There are differences in event characteristics and time periods between the “transformation ideas” of election forecasting and existing business
Supervision in the room
Until the regulatory situation becomes clearer, Polymarket’s token may not be available so quickly.
Markets related to gambling have always been subject to very strict supervision. Polymarket was ordered by the CFTC in 2022 to pay a fine of US$1.4 million and cease operations in the United States. In May of this year, the CFTC (U.S. Commodity Futures Trading Commission) issued a proposed rule aimed at banning all U.S. election-relatedDerivatives trading. Also in a $70 million round announced in May, Polymarket said its mission is to serve aspublic goodsProvide the public with more accurate, real-time event predictions.
The good news comes in the final weeks before the election. A federal appeals court also rejected the CFTC’s request to block election betting after a district court in Colombia last month ruled in favor of election prediction markets. The CFTC previously warned that “such contracts may be used in a manner that could adversely affect the integrity of an election or the perception of election integrity.”
The market’s attention has once again returned to the results that Polymarket will hand over.
This article is from a submission and does not represent the views of BlockBeats.