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By: Matías Andrade Cabieses & Tanay Ved
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Prediction markets present real-time, market-driven insights into occasion possibilities, providing a extra dynamic various to conventional polling strategies.
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Polymarket has emerged as probably the most broadly adopted prediction market platforms, constructed on the Polygon Layer-2 blockchain. It has amassed over $200M in TVL and consumes 25% of all gasoline on Polygon.
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Polymarket’s 2024 U.S. presidential election markets have gained great traction, with bitcoin returns displaying average optimistic correlation to election odds, suggesting intermittent connections between crypto and political sentiment.
Polls have historically guided decision-making throughout domains like political forecasting and shopper habits. Nonetheless, typical polling strategies and mainstream media face rising skepticism as a consequence of considerations over bias and lack of transparency. Towards this backdrop, prediction markets like Polymarket have emerged as a compelling various. By leveraging digital infrastructure and public blockchains (within the case of Polymarket), these platforms allow market-driven, real-time predictions that seize collective intelligence—qualities which have fueled great curiosity in prediction markets, notably within the lead as much as the 2024 U.S. Presidential Election. Polymarket now stands at a novel crossroads the place political outcomes and market sentiment intersect with digital asset dynamics.
On this difficulty of Coin Metrics’ State of the Community, we dive into how Polymarket’s prediction markets function on Polygon and analyze information behind the 2024 Presidential Election market to grasp potential implications for digital property.
Prediction markets are platforms the place customers should buy and promote “contracts” on the outcomes of future occasions. Much like a inventory change, the place contributors purchase and promote shares of publicly traded firms, prediction markets allow customers to commerce on the possibilities of particular occasions occurring. These occasions can vary broadly from the winner of the Premier League to the Federal Reserve’s subsequent interest-rate transfer. Every share’s value, usually structured as a “sure” or “no”, displays the collective chance of an occasion, with costs adjusting in response to new info and evolving sentiment. In contrast to conventional polls that present beneficial however momentary snapshots of public opinion, the individuality of prediction markets lies of their capability to mirror info dynamically, throughout a plethora of domains.
The thought of prediction markets dates again a number of years with varied fashionable platforms from Kalshi and PredictIt to Augur and Polymarket. Whereas they share a typical purpose of harnessing collective intelligence to foretell outcomes, they differ of their underlying expertise, degree of decentralization, accessibility and regulatory standing. Just lately, nevertheless, Polymarket has emerged as probably the most broadly adopted prediction market platforms, leveraging blockchain rails for world accessibility, transparency and low-cost settlement.
At its core, Polymarket is a blockchain primarily based prediction market leveraging the Polygon Layer-2 community. It allows customers to purchase “shares” representing completely different outcomes of a future occasion. The platform features as a hybrid-onchain software, with sure elements off chain to help bigger trades at larger scale whereas settlement happens on-chain in a non-custodial method.
Polymarket makes use of a central restrict order e-book (CLOB), which facilitates trades between ERC-20 collateral property (at the moment solely USDC) and Gnosis Conditional ERC-1155 property (a multi-token customary). In observe, items of a consumer’s USDC collateral is break up into binary end result tokens (“sure” or “no”), sustaining a market value that provides as much as one unit of collateral. Customers can even purchase these tokens by means of direct buying and selling on the orderbook or by interacting with AMM liquidity swimming pools. “Operators” are actors chargeable for matching, ordering, and submitting trades to the change for settlement on chain.
Supply: Coin Metrics Labs
Polymarket additionally integrates with the UMA protocol’s oracle to find out the right end result of an occasion. If there’s a dispute concerning the end result, UMA token holders vote to find out the ultimate decision. This hybrid strategy, combining the Polygon community, Gnosis Conditional ERC-1155 tokens, a CLOB with off-chain order matching, and the UMA protocol’s oracle, permits Polymarket to operate with larger scalability and efficiency in comparison with a purely on-chain answer. Because of its current traction, Polymarket has amassed over $200M in whole worth locked and contributes to over 25% of gasoline consumption on Polygon.
Supply: Coin Metrics Labs
On the core of Polymarket are occasions, markets, and odds, which work collectively to allow the system to operate. Occasions discuss with the particular outcomes that customers try to foretell, additionally known as questions. These can vary from political occasions, such because the outcomes of an election, to real-world occurrences, just like the climate or the result of a sports activities recreation. Markets are the platforms the place customers can place bets on the potential outcomes of those occasions.
Polymarket presents two varieties of markets:
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Single multi-outcome markets: These markets enable customers to wager on a number of attainable outcomes of a single occasion. For instance, what would be the “Highest grossing film in 2024?”. Outcomes embody names of a number of movies comparable to “Inside Out 2” or “Deadpool 3”, with the chance of all outcomes summing to 100%.
Supply: Polymarket
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Mutually unique binary markets: These markets are structured as easy “sure” or “no” propositions, the place customers can solely wager on one of many two attainable outcomes. For instance, “Bitcoin above $68,000 on November 1?”.
Supply: Polymarket
Customers deposit USDC as collateral on the Polygon community to take part in these markets, which is break up into binary end result tokens representing sure or no positions for an occasion. Customers can commerce these tokens by way of a centralized restrict order e-book or on-chain AMM contracts, with token costs (or “odds”) reflecting the market’s collective evaluation of every end result’s chance. As market circumstances shift, token costs fluctuate, permitting customers to regulate their positions.
As soon as an occasion is resolved, anybody can suggest a decision utilizing UMA by posting a USDC bond and incomes a reward if the result is undisputed. UMA token holders vote on the result of the occasion when disputed over the problem interval. Poorly worded markets can result in such disputes, like a current occasion on whether or not Israeli troops will invade Lebanon. After an occasion is resolved, homeowners of shares of the successful end result can commerce them one to at least one for USDC collateral, whereas the shedding shares grow to be nugatory.
The politics class, and particularly the “Presidential Election Winner 2024” has been the most important and most actively traded market on Polymarket. As of October 28th , this market has attracted $2.5B in cumulative buying and selling quantity since its inception. Share costs (or odds) for every candidate have fluctuated considerably all year long, capturing shifts in public notion and market sentiment as real-world occasions have unfolded.
Trump’s election odds fluctuated round 50% early within the yr earlier than rising to over 65% in current months, whereas Harris noticed elevated odds following Biden’s withdrawal in July. Given Trump’s perceived pro-crypto stance, analyzing the connection between candidate odds and bitcoin costs presents insights into potential correlations between political and crypto market sentiment.
Supply: Coin Metrics Reference Charges & Polymarket
With bitcoin’s value largely range-bound over the yr, its relationship with Donald Trump’s odds of successful the election on Polymarket isn’t instantly clear. Nonetheless, they present durations of alignment, particularly throughout vital pattern reversals—comparable to Trump’s rise over 50% in Could, drop under 70% in July and up to date climb in direction of 65% in October.
As seen under, the rolling 30-day correlation between BTC returns and modifications in odds gives a clearer image. Trump’s odds confirmed a average optimistic correlation with bitcoin returns (peaking at 0.4) between Could and August, whereas Harris’ odds displayed weaker, usually inverse correlations, reflecting perceptions of her stance on digital property. The current convergence of each correlations towards zero means that whereas short-term relationships exist, BTC’s long-term outlook will not be at the moment tied to both candidate’s success. As a substitute, the market could also be awaiting election outcomes earlier than decisive strikes, with world elements like cash provide driving BTC’s broader trajectory.
Supply: Coin Metrics Reference Charges & Polymarket
Polymarket has garnered plain traction as a broadly utilized blockchain-based prediction market and for its position main as much as the elections. Nonetheless, it additionally faces sure challenges within the type of dispute decision and regulatory scrutiny. The platform was lately topic to allegations of market manipulations from “whales” in opposition to the backdrop of rising odds of a Trump victory. It seems that a single consumer, controlling 4 accounts with a mixed $46M in election bets was chargeable for this divergence. Notably, different prediction markets and polls have trended in an identical path. Whereas this doesn’t counsel the presence of market manipulation, Polymarket could proceed to be topic to regulatory hurdles as an offshore platform, nevertheless, current courtroom rulings in favor of Kalshi—a U.S primarily based prediction market could supply a precedent.
As we strategy the ultimate stretch of the 2024 U.S. elections, it stays to be seen if Polymarket and comparable platforms will maintain their prominence in decision-making. Nonetheless, they bring about clear and distinctive benefits, providing dynamic, clear, free market pushed “supply of fact” that complement conventional fashions and proprietary information. The election end result could present additional validation of Polymarket’s forecasting capabilities and worth in shaping knowledgeable decision-making.
Supply: Coin Metrics Community Information Professional
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