Polymarket: How Does A Decentralized Prediction Market Work

Historically, the notion of prediction markets traces back to the 16th century, initially used for predicting the outcomes of papal elections. It has significantly evolved, especially since the 1950s, into a vital area within theoretical economics. Nowadays, these markets, also known as idea futures, event derivatives, or information markets, are widely recognized for compiling diverse viewpoints on possible future events.

Since its inception in 2020, Polymarket has enabled users to wager on the results of various current events — including political elections, sports, and other significant occurrences — rewarding users with cryptocurrency for correct predictions. As a platform, it emphasizes decentralization and transparency, operating without holding users' assets directly and ensuring all operations are clear and automated via the Ethereum blockchain.

Polymarket features markets that pose binary (yes or no) questions about future events, whose outcomes can be confirmed by independent sources. These markets aim to forecast everything from cryptocurrency prices on specific dates, sports event results, election outcomes, to global socioeconomic indicators.

Users who believe in a particular outcome have the opportunity to stake cryptocurrency against opposing views. This incentivizes Polymarket participants to speculate based on their genuine predictions, as they invest digital assets with the potential for financial reward upon accurately forecasting future events — or facing losses if their predictions prove inaccurate.

What Is Polymarket?

Polymarket stands as a prominent decentralized forecasting platform, utilizing the Ethereum blockchain enhanced by a Layer-2 scaling solution known as Polygon.

Launched in 2020 by American entrepreneur and cryptocurrency enthusiast Shayne Coplan, Polymarket successfully secured $4 million in seed funding during its inaugural year, with contributions from notable investors such as Polychain and ParaFi Capital.

Although there is a dedicated team behind its operations, Polymarket's defining characteristic is its decentralized nature, functioning as a Web3 application. This allows users to engage with the platform while maintaining control over their assets, by simply linking their own cryptocurrency wallets for transactions without the need for depositing funds directly on Polymarket or completing KYC (Know Your Customer) procedures.

How Polymarket Works

Polymarket offers a decentralized platform for users keen on speculating on a multitude of events, accessible via a web browser and an Ethereum-compatible wallet, specifically one that supports the USDC stablecoin.

Getting Started on Polymarket

To begin your journey on Polymarket, follow these steps:

Registration: Start by registering with your email address. Polymarket then generates an Ethereum-based wallet for you, granting you sole ownership of the private keys and, consequently, full autonomy over your assets.
Funding Your Wallet: Next, you need to deposit USDC into your newly created Polymarket wallet. USDC is a stablecoin tethered to the US dollar, ensuring its value is consistently $1. This feature allows the platform to standardize event valuations and payouts in USD. Acquiring USDC is straightforward, with options to purchase on both centralized (e.g., Kraken, Binance) and decentralized exchanges.
Choosing a Market: Polymarket offers a variety of markets for speculation. These can be binary (yes/no outcomes), categorical (with multiple potential outcomes), or scalar (resolving within a specified range). Utilize the platform's filters to find markets that align with your interests.
Buying Outcome Shares: If a market catches your eye, you can speculate on its outcome by purchasing 'outcome shares' with USDC. These shares are valued from $0.01 to $1.00, representing the collective probability of potential outcomes. The price of these shares indicates the perceived likelihood of each outcome.
Trading Shares: You have the flexibility to sell your shares anytime before the market's resolution without incurring fees from Polymarket. Once the market resolves, the shares will be valued at either $1 or $0, based on the actual outcome.
Market Resolution: The market concludes once the outcome is definitively established. Correct predictions allow you to redeem your shares at $1.00 each. In cases of uncertain outcomes, the resolution falls to Polymarket’s Market Integrity Committee (MIC), ensuring fair and transparent resolution.

Key Points for Polymarket Users

To participate in Polymarket, possessing an Ethereum wallet and a browser is essential. Upon signing up, the platform assigns you an Ethereum-based wallet, with the keys—and thus, control over your funds—remaining with you. Before engaging in speculation, depositing USDC into your wallet is required. This process involves selecting from the diverse markets Polymarket has to offer, speculating on outcomes, and managing your outcome shares accordingly. Polymarket operates without charging fees for transactions, emphasizing user empowerment and transparency in its operations. Ultimately, the platform’s Markets Integrity Committee oversees the resolution of ambiguous outcomes, maintaining the platform's credibility and functionality.

Polymarket Real-Time Betting

Polymarket offers a platform where individuals can engage in predicting the results of various current and upcoming events, encompassing areas such as politics, entertainment, sports, among others, using digital currencies. Users acquire shares of potential outcomes at a price less than $1, which they can sell at any point. If their prediction turns out to be accurate, each share's value escalates to $1; if not, the shares lose all value.

Questions like whether Donald Trump will secure victory in the forthcoming Presidential race, if Elon Musk and Mark Zuckerberg will enter into a conflict, or if the US government will acknowledge extraterrestrial life are examples of the diverse scenarios available for wagering.

To aid users, Polymarket has developed an intuitive interface that displays all available betting markets, allowing users to sort and filter through them based on various criteria such as category, liquidity, and market status, enhancing the overall user experience.

Polymarket on Polygon: A Layer-2 Solution

Polymarket operates on the Polygon protocol, which is a Layer-2 scaling solution for Ethereum. These Layer-2 solutions aim to diminish transaction fees and enhance the volume of transactions the base blockchain can handle by conducting transactions on a separate chain linked to the main blockchain. This is precisely what happens with Polygon, enabling Polymarket to handle a large number of transactions without overloading the Ethereum network.

The utility of prediction markets extends well beyond mere speculation and gathering public sentiment. They are praised for their potential in combating misinformation by rewarding accuracy and honesty through financial incentives, offering pseudonymity, and serving as a more unfiltered source of information. Furthermore, they are utilized for determining the potential market value of new cryptocurrency assets.

Although online prediction markets have been around for a while, decentralized platforms like Polymarket, built on Ethereum, bring added advantages, including reduced transaction costs, the flexibility to trade shares before a market settles, and enhanced privacy compared to traditional, centralized platforms. As the sector evolves, decentralized prediction markets are poised to play a pivotal role in the landscape of the information economy.

Polymarket vs. Augur

Polymarket and Augur represent two pivotal platforms within the blockchain-based prediction market space, each with unique features tailored to their user base. Polymarket, leveraging the Polygon protocol for Ethereum scaling, offers a user-friendly platform where participants can speculate on a myriad of events without needing to hold or earn a native platform token. This contrasts with Augur, one of the pioneering platforms in the blockchain prediction market, established in 2014 and fully operational since 2018. Augur permits its users not only to bet on outcomes but also to craft their markets, introducing a layer of engagement and customization.

Augur operates with its native token, REP, which is integral to the ecosystem for rewards, market creation, and outcome disputes, encapsulating a more community-driven approach to prediction markets. Furthermore, Augur expands its offerings to include a 'sportsbook' platform, catering specifically to sports betting enthusiasts and maintaining support for a broad spectrum of categories including cryptocurrency markets. Like Polymarket, Augur accommodates binary, categorical, and scalar markets, providing versatility for its users.

A notable evolution in Augur's platform is the introduction of its 'Turbo' version, which utilizes the Polygon network to enhance transaction efficiency and scalability, similar to Polymarket's infrastructure. This move signifies Augur's commitment to improving user experience by addressing common blockchain constraints such as high fees and slow transaction speeds.

The juxtaposition of Polymarket and Augur highlights the diversity and innovation within decentralized prediction markets. While Polymarket emphasizes ease of use and high-volume transaction capability through its integration with Polygon, Augur focuses on a community-driven model with the flexibility of market creation and the strategic use of its REP token. Each platform's approach caters to different user preferences, showcasing the dynamic and evolving nature of blockchain-based prediction markets. As the sector grows, the continued development and differentiation of platforms like Polymarket and Augur will be crucial in shaping the future landscape of decentralized betting and prediction markets.

Polymarket vs. Gnosis

In the landscape of Ethereum-based prediction markets, Polymarket and Gnosis represent two distinct approaches to leveraging blockchain technology for forecasting future events. While Polymarket focuses on providing a streamlined, user-friendly platform for betting on a wide array of events using cryptocurrency, Gnosis takes a more comprehensive approach, extending its utility far beyond mere prediction markets.

Founded in 2015, Gnosis has evolved into a multifaceted ecosystem encompassing decentralized trading, wallet services, and a suite of infrastructure tools designed to enhance the user experience and functionality within the blockchain space. This broad scope of services underlines Gnosis's ambition to serve as more than just a platform for predictions, aiming to address various needs within the decentralized finance (DeFi) and Ethereum communities.

The architecture of Gnosis is notably more complex, reflecting its diverse range of applications. At the heart of its ecosystem lies the GNO token, which plays a critical role in governance and staking mechanisms, empowering users to participate directly in the platform's decision-making processes and secure its network.

In a significant move towards scalability and efficiency, Gnosis has developed its own Layer-2 solution, the Gnosis Chain. This blockchain is designed to offer smart contract functionality at a reduced cost and higher speed than the Ethereum mainnet, addressing some of the scalability challenges faced by Ethereum-based applications. The Gnosis Chain has gained traction not only within the Gnosis ecosystem but also among other projects seeking an efficient Layer-2 solution, including Azuro, a notable player in the prediction market space.

Comparing Polymarket and Gnosis highlights the diversity in the prediction market sector, with Polymarket focusing on simplicity and accessibility for betting on event outcomes, and Gnosis providing a comprehensive blockchain ecosystem that includes but is not limited to prediction markets. Gnosis's broader use cases, governance model, and proprietary Layer-2 chain illustrate a strategic vision to offer a more integrated and versatile platform for the Ethereum community. As both platforms continue to evolve, they contribute uniquely to the growth and sophistication of blockchain-based forecasting and decentralized finance.