Cryptocurrency Prediction Market for US Elections

Polymarket is a decentralized prediction market platform that is powered by Polygon.

Recently, it has gained considerable attention by allowing users to bet on the outcomes of US political elections, a practice that is mostly prohibited in traditional US betting.

The platform market for the 2024 US presidential electionfor example, has seen considerable engagement, with over $364 million wagered on potential outcomes according to recent data. This increase in activity highlights a broader trend in which prediction markets like Polymarket offer a unique avenue for political engagement and speculation, circumventing restrictions imposed by US regulators on traditional betting platforms.

The Commodity Futures Trading Commission (CFTC) has been working actively to close or limit platforms offering election-related contracts, reflecting the contentious regulatory environment in which these markets operate. Despite these challenges, Polymarket’s innovative approach has positioned it as a key player in the global zeitgeist, particularly during high-stakes election cycles.

Although Polymarket is officially restricted to the United States, access via VPN is still possible. While this violates the site’s terms of use, many American punters may be able to interact due to the lack of KYC requirements, which would further limit accessibility.

Market structure and execution

Polymarket features Binary outcome markets, where users can bet on “Yes” or “No” outcomes for various events. The platform uses a continuous double auction model, where prices represent the probability of an event occurring. For example, if “Yes” shares for an event are trading at $0.56, this implies a 56% probability of that outcome.

For example, to bet on the outcome of the 2024 US presidential election using Polymarket, users first connect their EVM-compatible wallet, such as MetaMask, and deposit USDC into their Polymarket account.

US Election Odds on Polymarket

Once funded, users access the market for Winner of the 2024 presidential electionwhere they can see the current odds for each candidate. For example, as of July 24, Donald Trump has a 61% chance of winning, with shares trading at $0.61 each.

Users can then buy “Yes” shares if they think Trump will win or “No” shares if they think he will lose. If Trump wins, each “Yes” share will be worth $1, generating a profit of $0.39 per share.

Conversely, if Trump loses, “Yes” shares will become worthless. This dynamic allows users to trade their positions at any time before the market resolves, allowing them to lock in their profits or minimize their losses depending on how the probabilities change.

Technical infrastructure and reward mechanism

Polymarket levers Polygon improves scalability and reduces transaction costs. This allows the platform to handle a high volume of transactions without congesting the Ethereum network or incurring prohibitive gas fees.

The platform provides developers with REST and WebSocket API endpoints to access market data, pricing, and order history. This enables the creation of third-party tools and integrations.

One of the innovative features of Polymarket is its use of the optimistic Oracle UMA (Universal Market Access) for market resolution. The process works as follows:

1. When a market is created, a resolution request is sent to the UMA Optimistic Oracle.
2. Users can propose a resolution on demand.
3. A protest period begins, allowing the proposed resolution to be contested.
4. In the event of a dispute, the resolution is subject to the UMA Data Verification Mechanism (DVM).
5. UMA token holders vote to determine the correct outcome.

This decentralized approach ensures that market outcomes are resolved fairly and transparently without relying on a centralized authority.

Reward mechanisms

Polymarket implements several incentive structures to encourage liquidity and participation:

1. Liquidity Provider Rewards: Users who place limit orders at rest near the market midpoint are eligible for weekly rewards. This program aims to create a healthy and liquid market by encouraging balanced quotations and discouraging abusive behavior.
2. Order Scoring Function: Rewards are calculated using a complex formula that takes into account factors such as market participation, bilateral depth, and spread from the midpoint. Each market has a configured maximum spread and a minimum cutoff size for eligible orders.
3. Weekly Distribution: Rewards are distributed directly to manufacturer addresses each week, typically on Fridays at midnight ET.
4. Market Specific Rewards: Reward amount is isolated per market, allowing for targeted incentive of specific events or categories.
5. Additional incentives: Polymarket occasionally runs one-off PnL/volume public competitions to further stimulate business activity.

Features and Benefits

Polymarket’s design offers several unique advantages:

1. Real-time trading: Users can enter and exit positions at any time, enabling dynamic market participation.
2. No Native Token Requirement: Unlike some competitors, Polymarket does not require users to hold or earn a native platform token to participate.
3. Self-custodial wallets: Users retain control of their funds, improving security and reducing counterparty risk.
4. Wide range of markets: The platform supports markets on various topics including politics, sports, entertainment, etc.
5. Scalability: By leveraging Polygon, Polymarket can handle high transaction volumes with low fees.
6. Transparent Price Discovery: Continuous dual auction model provides accurate, real-time probabilities for event outcomes.

Polymarket combines blockchain, sidechain scaling, decentralized oracles, and innovative reward mechanisms to create a robust and efficient prediction market platform. Its design enables real-time trading, transparent price discovery, and fair market resolution while encouraging liquidity and participation.

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