A definitive guide to Polymarket.

We all can accept that infrastructure is important. At the end of the day, without solid foundations, it is fruitless to build anything above.

The crypto industry has been in a perpetual state of too many shovels but not enough gold mines. We have 30 different L1s with different consensus mechanisms and 70 different L2s with different rollup tech.

Why? Well, the answer is obvious. MONEY.

You see, the crypto industry is very different from its so-called Web2 predecessors. In Web2, the underlying infrastructure, such as HTTP or TCP, accrues almost no value. Yet, it’s the foundational element of the internet we use today.

With crypto, the underlying infrastructure is the blockchain itself. But, to transact on these blockchains in any form, you must pay gas fees using the native token. Therefore, the value ultimately accrues to the base layer.

This is evident with BTC, ETH, and SOL being the top coins in the industry.

Seeing this, the predatory VCs who missed out on making money in the public markets saw this as a route to easy money.

Polymarket use case...

People want to be allocated to crypto but don’t know what to do. A VC man approaches a rich man and says, “Look at ETH and SOL. I know a dev who is making a blockchain that will kill them.” The rich man's eyes light up, and he gives the VC money.

The VCs sell us smoke and mirrors as they juice the valuation in the private markets. Ultimately, they launch a mediocre chain only to dump on retail in the public markets.

I apologize for my angry rant, but the main point is that this vicious cycle of incentives has created too many chains with almost no widely used applications beyond DEXs.

Too many shovels and no gold mines.

At this stage, we can say infrastructurally, we’re at a decent point where we need to start seeing actual consumer applications get usage beyond just a crypto native crowd that is looking to farm and dump.

So far, we’ve only seen a few things go beyond the crypto-native audience:

• Bitcoin
• Ethereum
• Solana
• CEXs like Coinbase and Binance
• Casinos like Stake

Apart from the first three, which are again infrastructural pieces, you can’t really qualify the others as true crypto. There is no true on-chain crypto consumer application that has really made it.

Recently, however, we’ve seen one application really explode into the mainstream: Polymarket.

So what is Polymarket?

I’m pretty sure most of you already know this by now, but for those living under a rock, let me give you a quick primer.

Put simply, it’s a platform where you can bet on your beliefs.

It’s a decentralized prediction market. The concept of a prediction market has been around for multiple centuries.

It’s the very simple concept of profiting from your beliefs about a certain outcome with the information you have compared to the beliefs of another individual.

In some ways, it’s a very bare-bones representation of what a market is.

But when you read this, you may think that there are a ton of betting platforms that, in one way or another, offer a very similar service. They have a bunch of different markets for different outcomes, they give you odds for them, and you, as a user, can bet those odds.

So, where does Polymarket differ?

Well, I’m gonna say the forbidden words. Blockchain fixes this.

The edge that Polymarket has over any regular betting market or prediction market is that it is decentralized.

It is built on Polygon, so gas fees and transaction times aren’t an issue. Their main benefit is combining elements of an AMM or automated market makers with on-chain orderbooks for their markets. So you can think of it as the Uniswap for prediction markets.

Just like Uniswap provides the infrastructure to create a tradeable market for any token, Polymarket does the same for prediction markets.

Due to this decentralized nature, the options ( and I don’t mean the instrument you guys use to gamble with) of markets available are essentially endless. From news to politics to crypto to sports to business to the environment, a market can be created for literally anything.

It’s permissionless, so anybody can create a market for any possible outcome, provide liquidity to that market, and ultimately allow anybody to bet on a certain outcome.

If we get a little deeper into the weeds, then we can see that Polymarket is binary predictions market. As the name suggests, that means all markets on Polymarket have two options: YES or NO.

To make these markets, at the most basic level, it’s important to understand a few things.

First, all markets are made within the $0-$1 range. For example, if the market for a certain outcome is currently $0.35 for yes, the market is ascribing a 35% probability to said outcome happening.

Additionally, $1 of liquidity can mint one YES and one NO token simultaneously. Lastly, when the best are settled, the winners redeem at $1 while the losers, well, simply lose their money.

With that in mind, let’s go over a rough example.

Imagine you have two degenerate gamblers: Tim and Tom. Like most of crypto Twitter, they consider themselves experts on a wide variety of topics. So naturally, when they saw the odds of an earthquake hitting Japan, they thought it was time to embrace their inner geography expert and make some bets.

Let’s say the price for YES is $0.40, which means NO will be $0.60. Let’s say Tim wants to buy the YES, and Tom wants to sell the YES. If Tim buys 10 YES and Tom sells 10 YES, then it’s a simple transfer of $4 from Tim to Tom.

But what if they want to take opposite sides of the trade? Tim will buy YES for $0.40, and Tom will buy NO for $0.60. This may seem conflicting at first, but is simple. You get $4 from Tim and $6 from Tom which equals to $10.

Remember, $1 can mint one YES and one NO token. Hence, the $10 here equals 10 of each token and is distributed to the respective parties.

In a third scenario, what if they both want to sell? Tim wants to sell 10 YES, and Tom wants to sell 10 NO. A match is still simple. You take 10 tokens from each participant and merge them in the book to the $10 that it equates to. Give $4 to Tim and $6 to Tom. Fairly simple.

This is how the general orderbook works. But there’s more.

Polymarket adds something they call fixed product market makers (FPMMs) to this general model, which essentially takes the liqudiity provider concept from AMMs and introduces it to this orderbook.

LPs can provide single or double-sided lqiudiity to the pools through resting limit orders and are incentivized to do so through the Polymarket rewards program. The rewards are calculated through various formulas which you can see here.

But this covers the general functionalities of Polymarket.

Now you may be wondering, if markets can be made for literally anything, how are they settled?

Well, they use oracles. Specifically UMA oracles.

When the outcome of a certain event has concluded, users can use the oracle to provide proof. Once verified, the market is settled. Those on the correct side of the trade will be able to redeem their tokens at $1, while those on the losing side of the trade will simply lose their bet amount. You can, of course, trade the market in between by closing your positions before the outcome is settled.

Polymarket supremacy

So why am I talking to you about Polymarket?

Well, for years, we’ve heard phrases like “mass adoption” or “the future of finance.” Now, all of these statements may have some merit, but we haven’t seen anything hit critical mass in terms of crypto-native consumer applications.

At the end of the day, that is one of the biggest signs of adoption.

Polymarket has achieved that.

Stats about Polymarket are difficult to find, but let me run you through the ones that I did find.

They recently crossed the $1B cumulative trading volume mark. Last month was one of their best months in history. They did around $300M in volume with over 50K new accounts created, all while averaging around 5-6K daily active users.

Outside of DEXs and CEXs, these kinds of numbers are almost unheard of for any crypto-native project.

A lot of their recent success can be attributed to political betting. There are multiple markets to bet on the outcomes of different elections, but by far, the most popular market has been the one on the US election. That market alone has seen $426M in bets placed.

A major reason for their popularity has been Donald Trump. Not only because he is a mega crypto bull but because in 2021, Polymarket odds had him as low as 10%, and after his recent campaigning, he is now in the driver's seat with a 61% chance of winning.

The headlines for this rise wrote themselves, and naturally, Polymarket was a major beneficiary of it. Now, they’re in the eyes of millions of non-crypto native people, many of whom have onboarded themselves to place their own bets on Polymarket.

It’s reached the point where traditional media outlets like Forbes and Bloomberg are saying that markets like Polymarket provide a much more accurate real-time reading of political sentiment than regular polling numbers.

That’s pretty wild if you think about it.

So what’s next for Polymarket?

Now that Polymarket has seen such a sharp rise in popularity and activity, what happens next?

Well, we can’t say definitively what will happen, but if I had to bet (lol), I would bet on them having an even brighter future.

Why? I hear you ask.

Well, it’s simply because of the flexibility.

You can equate it to Minecraft in some ways. Minecraft provided users with the basic tools and an open world as their canvas.

With this as the foundation, users let their imagination run wild and built their own worlds and game modes, ultimately creating a community of millions of engaged gamers.

Similarly, Polymarket has provided the foundational infrastructure for users to build literally any binary prediction market they want. Now, users can let their imaginations run wild and create or trade any market based on their beliefs.

You heard rumours about a potential merger between two massive companies which you think you have asymmetric information on? You can make your bets on Polymarket.

You have a strong intuition about a certain athlete in an Olympic event? Just go to Polymarket and profit from it.

Deadpool & Wolverine just came out and you think it’s going to break records? Take a bet and recover the money you spent on tickets.

You’re a weather expert and believe snowfall this winter will be higher than anticipated? Take the bet and spend the entire winter in a warm remote island.

The possibilities are endless.

The only difference until now was that people didn’t know about the platform. After the attention it got from the presidential elections, there is no reason to think that it will taper off.

The rate at which gambling amongst the younger populations is increasing is quite alarming, to say the least. It feels like almost every person within the age range of 18-30 is gambling online or sports betting.

Now, imagine this demographic being introduced to a platform where they can literally bet on anything. No limits, no restrictions, no KYC, and self-custody. I think their success story is just getting started.

Lessons for the industry

Ultimately, the purpose of this piece is not to toot Polymarkets's horn. The idea is to simply highlight one of the few crypto-native applications that has managed to expand beyond a crypto-native audience.

While most of crypto Twitter is consumed by the financial nihilism of “everything is a scam, so let’s just buy meme coins,” products like Polymarket are proof that people will come if developers put in a little time and effort into building good products.

There’s a lot of short-term thinking for long-term ideas. If teams were willing to get their feet stuck in and play the long game rather than farm users for some quick cash, the payoff down the road would be tenfold.

Nothing has fundamentally changed about blockchains. They are still as important and powerful a tool as they were a few years ago.

Now, we just need some good consumer applications that utilize this infrastructure and actually bring the masses on-chain.