Markets
What is Polymarket? A Guide to Decentralized Prediction Markets
Prediction markets like Polymarket are becoming increasingly popular due to the perception of greater transparency compared to traditional gambling.
This article will explore how the Polymarket prediction market works, including how to use it and whether or not it is a safe place to store and trade funds.
What are prediction markets?
Prediction markets are online, peer-to-peer betting platforms that allow people to trade stocks tied to the outcome of a future event. Similar to a traditional betting platform, users can place bets on sporting events, political events, and more. However, instead of simply placing a bet, they purchase stocks that fluctuate in value based on the current market sentiment regarding the outcome of the event.
For example, users might bet that Candidate X will win a political election. The stock would typically start trading at $0.50, indicating a 50/50 chance of success or failure. It can be sold at any price, as long as the market has liquidity to sell it. If Candidate X wins, the stock will be worth $1.00, and if he loses, the price drops to $0.00.
These markets often accept cryptocurrencies in exchange for stocks.
What is Polymarket? Polymarket explained
Polymarket is a prediction market hosted on the Ethereum blockchain. Users can buy stocks using USD Coin (USDC).
Polymarket | Home
So what is Polymarket for?
Polymarket Overview
Polymarket offers trading on US political outcomes, cryptocurrency prices, sports, world politics, and other aspects of trending and breaking news.
Market fluctuations when betting can cause impermanent losswhere the staked funds are consumed by the needs of the market the user is contributing to.
Main features of Polymarket
Polymarket bills itself as a decentralized prediction market. Of course, true decentralization is hard to come by, and the Polymarket team controls many different aspects of the platform, including bidding, market creation, maintenance, and other decision-making.
Despite not being fully decentralized, it is often seen as a fairer and more transparent way of speculating on future events, compared to the more opaque systems used in traditional gambling, where odds are set by bookmakers at will.
How does Polymarket work?
The platform uses user-provided liquidity pools to facilitate trading, and similarly, event share prices are set based on real-time trading activity and market assessments by the community. Smart contracts are used to automate aspects of exchange activities.
The CLOB (centralized limit order book) enables on-chain and non-custodial trade settlement, while in the background, off-chain matchmaking services are also in action, making the system hybrid-decentralized.
While online documentation claims that Polymarket does not charge trading fees, this appears to be a semantic statement and in practice the platform charges a net 2% on trading earnings.
Benefits of using Polymarket
Polymarket is seen as more transparent than other betting platforms due to its use of smart contracts and blockchain technology. Users have much more insight into how their share prices are calculated compared to simply placing a bet at a bookmaker.
Similarly, stocks are programmed to pay out when certain conditions are met and reported in the news, and this programmatic system of guaranteed payouts is perceived as slightly more reliable than traditional gambling.
There is generally a wider range of events open for trading on Polymarket compared to traditional betting platforms, leveling the playing field for certain analysts with different types of expertise and interests.
Finally, users have the opportunity to trade stocks while remaining somewhat agnostic as to the actual outcome of a future event, a feature not typically supported in traditional gambling.
Potential risks and challenges
Polymarket is not without its own unique risks and challenges. First, users may find that making money by providing liquidity is easier said than done, and in fact, it may be seen as a higher-risk endeavor than simply buying stocks. Providing liquidity and profiting from it should be viewed as something advanced.
The value of staked assets can fluctuate dramatically, leaving liquidity providers with worthless or reduced value assets.
Of course, another risk is simply losing money by betting on the incorrect outcome of a market. The Polymarket community is known for being analytical and methodical compared to the typical betting site, making the competition quite fierce for unsuspecting newbies.
There is also, as always in DeFi, the risk of the platform itself failing or falling victim to some sort of hack, exploit, or bad action by the team or external forces.
Is Polymarket legit?
There is no strong evidence to make an assessment about the legitimacy of Polymarket one way or the other. No widely publicized scandals have tarnished the platform’s reputation so far.
TrustPilot reviews have some reports from users who felt that certain markets they traded on were settled unfairly or inaccurately, but there is no concrete evidence that this is the case at this time.
Polymarket Review: Introduction to Polymarket
To get started with Polymarket, you will need to register an account and deposit some USDC, which can be purchased with fiat or cryptocurrency on most major cryptocurrency exchanges.
First, create an account by signing up with your name and email address. The platform does not require you to provide an ID or go through a KYC verification at this point.
Navigate to your profile and go to Wallet, then Deposit to make a deposit of USDC. Once this is complete, you’ll be ready to buy and sell shares at upcoming events!
You can navigate the Polymarket interface by filtering markets based on category.
Polymarket | Markets
Currently, the markets menu includes markets on the Middle East, pop culture, cryptocurrencies, politics, sports and science.
You can also browse by New, Trending, Liquid, and Ending Soon.
New markets may be more favourably priced in some cases, as fewer people will have placed their bets and the outcome will be somewhat uncertain. On the other hand, markets that are ending soon will likely have a fairly well-determined outcome. In some cases, shares will already be locked in at around $0.99, indicating a 99% probability of a particular outcome.
These markets will be difficult to trade profitably unless you believe that the 1% outcome is correct. However, sometimes a market that is ending soon will have a healthier margin that you can still work with. Markets that are ending soon also lock up your assets for a shorter period of time than a new market, some of which can take months to resolve.
Markets with high liquidity are generally preferred, as buying stocks in a low liquidity market can cause price slippage, meaning you are losing some of your funds on the trade.
How to Trade and Stay Safe on Polymarket
The Polymarket platform can attract new users by having so many different events to buy stocks on. New users are generally advised to take a methodical and evidence-based approach to predicting the outcome of any event.
Successful Polymarket traders often work with a lot of historical data and build models to predict the likelihood of an event, rather than simply buying stocks based on intuition. Of course, swing trading is also possible, where users don’t aim to see a market through to the end, but rather to take profits before the market ends.
As with any type of financial speculation, it is important to have a risk management plan and well-established entry and exit points in place to achieve long-term profitability, as well as thoroughly research and test any trading strategy before using real funds.
You can learn more about risk management here.
Disclosure: This article does not constitute investment advice. The content and materials presented on this page are for educational purposes only.