Reading Bigeng｜What is on-chain betting Polymarket?
This article is transcribed from thepopular blockchain science website "Chainee" Everything can be gambled! What is the decentralized prediction market Polymarket? One article.
Decentralized Prediction Markets have boomed in recent years, and Polymarket has quickly emerged as one of the leaders.
As the 2024 U.S. presidential election approaches, Polymarket has successfully entered mainstream media attention. Media outlets such as The Wall Street Journal and Newsweek have reported its odds and compared them with traditional polls.
So, what exactly is Polymarket? How do decentralized prediction markets differ from traditional prediction markets? This article takes you to find out.
▍What is prediction market?
Prediction markets have been around in some form since the 16th century.
Such markets allow users to predict and bet on the outcome of future events - as long as someone sets up the corresponding market. Participants can place bets on sporting events, elections, legal proceedings and any event with a clear or verifiable outcome.
The core concept is very simple: if your prediction is correct, you win money; if your prediction is wrong, you lose the amount you staked.
▍How the prediction market works
Borrowing the concept of the stock market, the price of each "share" in the prediction market is between US$0 and US$1. This price reflects the probability or odds of an event occurring.
For example, in the 2024 US presidential election prediction activity launched by Pioneer Exchange , if a candidate's "stock price" in the election is 58.3 cents, this means that the market believes that the candidate has a 58.3% chance of winning. The lower the probability, the cheaper the betting cost; conversely, the higher the probability, the betting cost will also increase.
If you want to bet on the outcome of an election, you can buy shares (tokens) of the candidate you think will win.
When the election is over, the market will settle and the winning candidate's stock price will rise to $1 per share. The difference between your original purchase price and $1 is your profit.
▍Prediction markets make up for the shortcomings of traditional polls
The "stocks" in the prediction market allow people to spend real money and buy and sell them in real time on the market. They have the following characteristics:
Stock prices continuously reflect the latest information.
Participants often consider this latest information, including poll results, before placing bets.
Once money is involved, financial incentives prompt participants to take the predictions more seriously and strive to make more accurate predictions.
Therefore, prediction markets can make up for some of the shortcomings of traditional polls and become an important indicator worthy of reference. No wonder it received widespread attention and coverage from mainstream media.
▍What is the decentralized prediction market Polymarket?
Introduction to Polymarket
Polymarket is a decentralized prediction market built on the Ethereum and Polygon blockchain networks.
Polymarket is “not” the first decentralized prediction market to use cryptocurrency for betting (the pioneer was Augur, launched on Ethereum in July 2018), but it is the most popular.
Polymarket was born during the COVID-19 pandemic – when misinformation was spreading massively. Its founder Shayne Coplan once told the media:
When COVID-19 broke out, there was so much uncertainty and so many different opinions that if there was a free market on these topics, people would be able to tie their money to their opinions.
Polymarket began preparations in May 2020 and was officially launched in mid-June of the same year, just in time for major events such as the 2020 and 2024 US presidential elections. The intertwined influence of these events has gradually brought this cryptocurrency-based prediction market platform into the public eye and become the focus of market discussion.
On May 14, 2024, Polymarket announced that it had successfully raised US$70 million through two rounds of financing. The latest round was led by Founders Fund, a venture capital firm founded by Peter Thiel, the "Godfather of Silicon Valley Venture Capital" and the co-founder of Ethereum. Vitalik Buterin also participated and became one of the investors.
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Polymarket uses AMM and UMA mechanisms
Polymarket uses an Automated Market Maker (AMM) mechanism to provide liquidity to the market.
This means that you do not need to find a counterparty willing to bet against you, nor do you need to rely on a third party to assist in transactions, the market can operate automatically.
On Polymarket, anyone can create a bet; at the end of the bet, anyone can submit proof of the result, and anyone can challenge the result. What supports this set of rules is a decentralized oracle called UMA (Universal Market Access) , quoted from the explanation of Xu Mingen in "Block Trend":
⋯⋯The answer is not that I have the final say, but that there will be a "challenge period". If anyone disagrees with my answer, they can put up a deposit to challenge. If more than two people initiate a challenge, the results I announce will be sent to the "Dispute Resolution Committee" and voted on by a group of $UMA token holders.
The committee follows majority rule. The one with more votes wins, the one with less votes loses. Or to put it bluntly, the one with more money wins, and the one with less money loses. If you vote in the same direction as the majority, it means you voted in the right direction and will receive a reward. On the contrary, if you go against the majority, you will be punished.
This set of rules is called the Optimistic Oracle, and it assumes that most people are well-intentioned and honest.
However, optimistic oracles also have risks. In extreme cases, if a wealthy whale buys most of the $UMA tokens, he may confuse right and wrong and manipulate the results.
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The operating experience of Polymarket is good, as if blockchain technology does not exist
Although Polymarket usesblockchain technology , it has a good operating experience, friendly UI/UX design and smooth deposit and withdrawal processes. If you use the traditional "email registration/login" method, you will hardly feel the existence of blockchain technology. .
In addition to directly (wallet address) stored cryptocurrency, in July 2024, Polymarket added fiat currency deposit channels such as credit cards, debit cards, Apple Pay and Google Pay. These payment methods are provided by MoonPay.
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Challenges facing Polymarket
Despite their decentralized nature, cryptocurrency prediction markets cannot escape regulatory scrutiny.
A spokesperson for the U.S. Commodity Futures Trading Commission (CFTC) said in response to Augur’s question:
Publishing code on the blockchain to provide or facilitate a product or activity does not relieve any entity or individual of their responsibility to comply with relevant laws or CFTC regulations.
In 2022, Polymarket was fined $1.4 million by the CFTC for allowing users to place bets without registering.
▍ Polymarket is prohibited for use in Taiwan
During the 2024 Taiwan presidential election, someone opened an on-chain betting market on the Taiwan election results on Polymarket, attracting more than 3.78 million U.S. dollars in bets, which aroused prosecutorial concerns. Within 2 months, 17 gamblers across Taiwan were arrested and their money was deducted. USDC 5501.98 , equivalent to a total gambling capital of approximately NT$171,661.
This incident has also caused the Polymarket website to be blocked in Taiwan to this day. If you want to visit it, you can only use a VPN (Virtual Private Network).
If you plan to use Polymarket or other decentralized prediction markets, please remember that this is high-risk behavior and is essentially the same as gambling (don’t go All In). Be sure to proceed with caution and comply with the relevant laws and regulations of your jurisdiction!
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▍Reference materials
What Is Polymarket Decentralized Prediction Market, and How Does It Work?
What is Polymarket? Decentralized Prediction Markets Explained
The on-chain prediction market explodes in popularity! Polymarket bets on the future amid chaos
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