Author: ParaFi Capital; Translated by: 0xxz@Golden Finance

Given Polymarket’s recent explosive growth, the ParaFi team has been analyzing on-chain data to understand two key questions:

1) What factors are driving Polymarket’s recent traction?

2) To what extent is Polymarket’s growth driven by the US election?

For background, ParaFi has been researching and investing in prediction markets since 2018. Today, ParaFi is the largest single investor in Polymarket, having invested in its 2020 seed round and doubling down in the years that followed.

As the 2024 US election approaches, Polymarket's trading volume so far this year has reached US$688 million (Note: the latest data has exceeded US$1 billion), and its weekly active users have increased by about 14 times, from about 1,400 to more than 20,000.

However, trading volume is only part of the story. There is much more to uncover.

Polymarket website traffic

Polymarket is widely regarded as the “source of truth” for real-time insights into the world’s most critical events, and has been cited by presidential candidates and media outlets including Bloomberg and the Wall Street Journal.

Polymarket.com's web traffic has grown exponentially. Daily page views have increased 10-fold over the past 12 months, with cumulative page views exceeding 32 million. In the second half of July, daily page views peaked at 1.3 million, with daily visitors peaking at 185,000.

From this data, we can see that the number of people visiting Polymarket.com is several orders of magnitude higher than the number of users who actually trade. The popularity of Polymarket shows that the platform is becoming a powerful alternative to traditional media.

Is the election the only factor driving Polymarket’s popularity?

Not exactly. Of the nearly 70,000 addresses that have used Polymarket, only 42% chose election-related markets for their first trade. The remaining 58% (about 40,000 users) initially traded in non-election markets, including cultural, business, scientific, and macro markets.

Some of our favorite markets include: Olympic medal count, Taylor Swift engagement timeline, and GPT-5 release date.

While trading activity was more balanced for the first time, in recent weeks more than 70% of daily volume in U.S. dollar terms has been tied to election-related markets. This is not surprising given the proximity and volatility of events around the election.

But other markets have also managed to capture the public’s attention. For example, in May 2024, a surge in non-election-related trading volume was driven by the Ethereum ETF approval market, which saw cumulative trading volume of over $13 million.

Trading volumes in non-election-related markets have also surged this year, up 391% year to date.

Of the more than 28,000 users who placed bets on election-related markets for the first time, 56% subsequently traded in other markets.

Basically, almost half of the users who traded in election-related markets for the first time turned to markets covering topics such as economy, sports and cryptocurrencies.

What is Polymarket’s retention rate?

The quarterly retention rates for different groups are another proof that users are staying on the platform. Of the users who joined the platform in Q1 2023, at least 15% used the platform in each subsequent quarter.

Perhaps more importantly, retention has not dropped dramatically as the quarters progressed. So far, the Q1 2023 cohort has returned in roughly the same proportion in Q3 2023 as it did in Q3 2024.

With the hype surrounding election-related trading, retention rates have actually improved slightly in recent quarters as traders from the early cohorts are motivated to return to the platform.

Retention rates are also much higher for the most recent cohort. More than 45% of users who made their first trade on Polymarket in Q1 2024 traded in the following quarter, compared to just 25% of users who made their first trade in Q1 2023.

Matching volume surges

Trading volume is also only part of the picture of overall trading activity. Consistent with the trends we’ve seen in trading value and number of users, the number of matched trades on Polymarket has also surged over the past few months. Since the beginning of the year, daily matched trades have jumped more than 3,000%, exceeding 40,000 at the end of July.

The increase in matched trades isn’t shocking given the rise in other metrics, but it does suggest that the growth in volume isn’t just due to users placing higher stakes. The volume of trades actually facilitated by Polymarket is also climbing.

It’s also worth noting that the daily matching volume divided by the number of daily active users has been trending upwards recently. While this trend has fluctuated so far this year, the ratio suggests that, on average, users are more engaged with the platform on a daily basis.

Super users’ leading role weakens

Judging from the transaction volume data, super users do not necessarily dominate the platform.

We define super users as those who trade at least $250,000 per day. In Q1 and Q2 2024, super users accounted for an average of 51% of daily trading volume. But their market share has been declining recently as Polymarket’s user base shifts toward smaller traders.

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The ParaFi team is excited to continue watching and working with Polymarket in the coming years. We believe that prediction markets are a valuable tool for humanity - acting as "truth machines" by leveraging the wisdom of the crowd. Our sense is that this is just the beginning for Polymarket.

Disclaimer: All data is based on the Polymarket central limit order book from November 21, 2022 to July 29, 2024 (excluding automated market maker data).

Election-related markets encompass sizable ($1M+ in volume) markets identified by the ParaFi team as being relevant to the outcome of the 2024 U.S. presidential election. Non-election-related markets do include smaller markets that are politically relevant.

A “user” is defined as the address of any market maker or taker of an order on Polymarket. While all queries used in this article were developed by the ParaFi team, we appreciate the existing Dune dashboard created by @richardchen3 and @/lifewillbeokay for useful inspiration.

The above content is for reference only. It should not be considered as investment advice.