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  • How Polymarket works
  • Is Polymarket the house?
  • Collective Intelligence
  • Decentralization

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Polymarket

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Last updated 2 months ago

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is a decentralized prediction market platform that enables users to speculate on the outcomes of real-world events across various domains, including politics, sports, and entertainment. Operating on the Ethereum blockchain, it leverages smart contracts to facilitate transparent and secure transactions. Learn more .

How Polymarket works

  1. Market Creation. Polymarket's team, with input from its community, creates markets based on user interest and demand. Users can suggest new markets through channels like Discord or Twitter.

  2. Trading Mechanism. Users buy and sell shares representing potential outcomes of events. Each share is priced between $0.00 and $1.00, reflecting the market's perceived probability of the event occurring. For instance, if a "Yes" share is priced at $0.60, the market estimates a 60% chance of that outcome. Both market and limit orders are accepted. Limit orders are open orders (pending trades) that only execute when the market trades at your desired price. The order book contains all pending limit orders.

  3. Resolution and Payouts. Upon the event's conclusion, the platform determines the actual outcome using predefined, credible sources. Shares corresponding to the correct outcome are redeemed at $1.00 each, while those for the incorrect outcome become worthless.

Is Polymarket the house?

Polymarket is not the house. All trades happen peer-to-peer (p2p). Polymarket is different in three ways:

  1. Traders interact directly with each other (peer-to-peer), not with Polymarket. Polymarket is a marketplace comprised of traders on both sides of any given market. This means you're always trading with other users, not against a centralized entity or "house." Prices and odds on Polymarket are determined by supply and demand. As traders buy and sell shares in outcomes, prices (odds) fluctuate to reflect the collective sentiment and knowledge of market participants.

  2. Polymarket does not charge trading fees. Unlike bookmakers or wagering operations, Polymarket does not charge deposit/withdrawal fees, or any type of trading fees. This means that Polymarket does not stand to benefit from the outcome of any market or usage of any trader.

  3. Transact at any time. Polymarket enables you to sell your position at any time before the market resolves, provided there is a willing buyer of your shares. This offers flexibility and allows you to manage your risk and lock in profits or cut losses as you see fit.

Collective Intelligence

Prediction markets operate on the principle of put your money where your mouth is.

This expression means that in a prediction market, users must back up their beliefs with a financial commitment. If someone believes that a specific event will occur, they can buy shares favoring that outcome, thereby investing actual money. This makes the prediction more serious and engaged than a simple opinion or theoretical guess.

Studies show that prediction markets like Polymarket are often more accurate than experts, polls, and pundits for these reasons:

  1. participants are financially incentivized to be correct, hence bettors have skin in the game;

  2. while legacy polls capture a snapshot of opinion at a specific moment, they are often outdated by the time they're published, prediction markets reflect real-time sentiment as events unfold, offering continuous updates and a more dynamic understanding of public opinion.

Decentralization

these markets leverage collective intelligence of diverse participants. Research by James Surowiecki, author of , has highlighted how the so-called wisdom of crowds can outperform subjective opinions made by any single member of the group, even if an expert in the field;

Polymarket operates on , a proof-of-stake zero-knowledge rollup layer 2 blockchain built on Ethereum. All transactions are denominated in USDC, a US-dollar pegged stablecoin. Funds are deposited on a non-custodial wallet (you own the private keys). By utilizing blockchain technology, Polymarket ensures transparency and security, eliminating the need for intermediaries.

Polymarket
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