birth
In AD 1503, the papal election was underway. The citizens of the Papal States awaited the coronation of the new pope, although at this time the Papal States was in turmoil due to the Italian War and the Protestant Reformation, and was surrounded by three hostile armies.
In Rome, many people are waiting with baited breath, not only because of the historic significance of the election, but also because they are betting on the outcome. Banks hired couriers ("sensali") to travel throughout the city delivering betting slips and changing odds instantly as the 39 cardinal electors were quarantined until a new pope was chosen. After a tense day, Cardinal Piccolomini, the 30-100 favorite, was elected as Pope Pius III, becoming the 215th pontiff of the Catholic Church. Many citizens shed tears, some from the joy of winning bets, others from the sadness of financial ruin.
Image source: TechFlow
However, for the avid gambler, Pope Pius III died of an infected leg ulcer after only 26 days on the throne. Within a month another papal election was held, giving the citizens of Rome another opportunity to repeat the situation.
Over the next few decades, the story repeated itself again and again - betting on papal elections became the norm and an accepted activity among the citizens of Rome. By the end of the 16th century, the phenomenon had become so rampant that the 229th Pope, Gregory XIV, stepped in decisively, threatening to ban it outright or face excommunication.
However, history repeats itself, and electoral betting is like a hydra, often banned but never gone. Election betting took off again in the early 20th century. In the 1916 election between Charles Evans Hughes and Woodrow Wilson, the size of the betting pool swelled to $280 million today.
Today, in the United States, the practice is highly regulated and requires approval from the Commodity Futures Trading Commission (CFTC). What’s more, under the 2012 ruling, regulated markets cannot offer contracts on political events. This leaves a huge market gap and provides huge opportunities for emerging companies.
Chaos arises
We live in a highly dramatic world where a combative attitude is often rewarded. The rise of short-form media has further fueled this trend, as our attention spans become increasingly shorter in a world overloaded with information. In this age of instant gratification and material abundance (in developed countries), provocative content brings attention and financial rewards to its creators. The 2024 U.S. election is a case in point. It is the most contentious election in the past few decades, which has also inspired the rise of prediction markets and made audiences follow their idols even more fervently.
From sports to entertainment, betting has always captured human attention. Prediction markets now bring this appeal to politics and more fringe events, and may be here to stay.
No other crypto application has attracted as much attention as Polymarket, one of the largest prediction markets in the world. While Polymarket is not the first crypto prediction market, it was in the right place at the right time, backed by an extraordinary business development team and a fantastic social marketing team.
Source: Polymarket
Chapter 1: Creation
A pioneer in crypto prediction markets is Augur, which allows third parties to place bets on event outcomes. Augur was founded in 2015 and conducted an ICO ($REP) in the same year, becoming one of the first protocols to conduct an ICO. After three years of research, Augur was launched on mainnet in 2018. Augur v2 was launched in 2020, but on-chain activity has not increased significantly. At its peak, v2's open interest barely topped $11 million, and as of today, it's just $500,000.
Image source: @CBB Note: The October 2020 peak was related to the presidential election at that time
Chapter 2: The Road to Domination
Polymarket was born in 2020, in the shadow of Augur v2. Similar to Augur, Polymarket is a decentralized prediction market platform that allows users to trade the outcomes of world events. After years of work, it really came to prominence in 2023 with a controversial market betting on whether Titan, the submersible that visited the wreckage of the Titanic, would be found before it ran out of oxygen.
As of today (July 2024), Polymarket has grown to become one of the largest prediction markets in the world, with over $283 million in open interest on the presidential election between Biden and Trump alone. This is far more than all other betting platforms, including centralized rival betfair (open interest is £31m).
Polymarket works very simply - users buy shares of a market, and the price of these shares represents the current probability of an event (from 0 to 1). These prices fluctuate based on immediate market and financial demand and represent the probability of an event. It is worth noting that users can exit the market at any time, just like most liquid assets. The protocol also supports mutually exclusive markets containing multiple binary issues, providing traders with more complex strategies.
Image Source: PolymarketPolymarket’s Presidential Winner Pool
At its core, Polymarket is a hybrid decentralized prediction market that bypasses KYC procedures through $USDC on Polygon. Architecturally, it is partially on-chain; order matching on the order book is done off-chain, but all bets are settled on Polygon. However, marketplaces are created with permissions and users must manually approve them through the team on Discord.
Image source: @rchen8
Polymarket's growth began to increase significantly in early 2024, with monthly trading volume reaching an all-time high of $151 million as of July, compared to $6 million in the same period last year. Monthly active users (MAU) reached a staggering 25,000, up from just 1,000 in July 2023. 2024 has also seen an influx of new users, with over 70,000 new members joining in the past 3 months alone.
Chapter 3: Trial
It can be said that there are two key factors for Polymarket’s success:
a. Have solid product market fit (PMF) at the right time and place
The polarization of American politics, combined with our shortened attention spans in a world overloaded with information, and the influence of social media have made us more focused on dramatizing real-life events and radicalizing everything.
While this polarization does not directly lead to political violence, it does contribute to an environment that encourages violence. This has been the case again and again, from the attack on the U.S. Capitol on January 6, 2021, when Trump supporters stormed the building in an attempt to keep the then-President in power, to the attempted assassination of Trump in July 2024. While the United States may have avoided a civil war, radical rhetoric across all social media suggests there is no end in sight.
Likewise, the rise of short-form video apps like TikTok has shortened users’ attention spans. Doomscrolling behaves on the same basic principle as a slot machine ("random reinforcement"), providing a constant stream of satisfaction and dopamine hits.
b. Solid marketing strategy (GTM) to attract and retain users
Source: One of many posts by Polymarket using memes to attract users to the platform
Polymarket’s Twitter marketing strategy stands out from its competitors. Through colorful memes and witty quips, Polymarket gets more attention and engagement. Polymarket’s posts are more engaging than regular competitor posts.
Source: betfair
Polymarket's virality also helps drive organic marketing, which not only helps retain users but also increases their mindshare. This is critical, especially given the cyclical nature of large events.
Image source: X’s organic marketing that uses impact to make posts go viral
Chapter 4: Signs
The brightest light often casts the longest shadow. Despite Polymarket's high profile among major streamers, it still faces some potential challenges that need to be addressed carefully by administrators.
a. Unusual interest brought about by the US election; trading volume may drop significantly after the election
The post-election impact will be significant and operational mitigation measures will be limited. In addition to the occasional major event, the sports market also provides Polymarket with an excellent revenue stream, despite the industry being saturated and fragmented.
b. Niche and potentially “viral” markets can bring both attention and harmful traffic
Exotic markets like Bryan Johnson's, while interesting, carry the risk of exposure to harmful traffic and insider trading. The person involved (or their relatives or friends) may know the outcome before settlement and use this to their financial advantage. Therefore, these markets may be used primarily for marketing purposes rather than actual financial gain.
c. The subjectivity of the results may highly polarize the community, causing Polymarket to favor the majority
In highly technical prediction markets, protocols may tend to cater to the majority opinion. An example of this is the Ethereum ETF prediction pool from May this year. The crux of the dispute is the definition of “approval,” with disagreements regarding partial approval (19b-4 petition) and full approval (19b-4 petition and Form S-1). The pool was dissolved as a "yes" after the SEC approved the 19b-4 petition, which led to a backlash from "no" buyers.
Still, I expect these types of issues will become less common over time as teams gradually deploy pools of clear "yes" and "no" scenarios.
Conclusion: Final Thoughts
Ultimately, prediction markets, as an important source of data, may be closest to the truth. Because of the financial incentives within the mechanism, the large financial stakes involved often outweigh the insights of individual experts. They provide a powerful and unparalleled perspective on future outcomes, shaping our understanding with stunning accuracy.
Regulators may crack down on these markets, but there’s only so much they can do because Polymarket is primarily on-chain. And historically speaking, the demand will always be there.
eternal game
It's the year 2036, and people are watching live broadcasts of the year's hottest events via VR headsets. The U.S. presidential election, which occurs every four years, has become the new sports league.
On election night, billions of people around the world were glued to their headsets—not just watching live broadcasts, but interacting in multiple VR rooms, one of which not only featured spam but also featured a prediction market. Politics and major events are no longer boring, but have become more exciting, with trillions of dollars at stake.
Image source: TechFlow in VR in the Metaverse
In this new world, prediction markets have transformed from niche financial tools to mainstream entertainment, reflecting the deep integration of technology and culture. As we move forward in this hyperconnected world, the lines between political engagement and digital entertainment continue to blur, redefining how we experience and interact with global events. The evolution of prediction markets into such a central role highlights their profound impact on our collective consciousness and how we understand and anticipate the course of history.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "Deep Wave TechFlow"
Original author: Lawrence
