Markets
What is Polymarket? A Guide to Decentralized Prediction Markets
Prediction markets like Polymarket are becoming increasingly popular due to the perception of increased 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 peer-to-peer online gambling platforms that allow users to trade stocks tied to the outcome of a future event. Similar to a traditional gambling platform, users can bet on sporting events, political events, and more. However, rather than simply placing a bet, they purchase stocks that fluctuate in value based on current market sentiment about the outcome of the event.
For example, users can bet that candidate X will win a political election. Stocks will typically start trading at $0.50, indicating a 50/50 chance of success or failure. They can be sold at any value as long as the market has liquidity to sell them. If candidate X wins, the stock will be worth $1.00, and if he loses, the price will drop to $0.00.
These markets often accept cryptocurrencies in exchange for shares.
What is Polymarket? Polymarket explained
Polymarket is a prediction market hosted on the Ethereum blockchain. Users can purchase stocks using USD Coin (USDC).
Polymarché | Home page
So what is Polymarket for?
Presentation of Polymarket
Polymarket offers trading on US political outcomes, cryptocurrency prices, sports, world politics and other aspects of trends and news.
Market fluctuations during staking may cause impermanent losswhere the funds involved are consumed by the needs of the market to which the user contributes.
Main features of Polymarket
Polymarket bills itself as a decentralized prediction market. Of course, true decentralization is hard to come by, and Polymarket staff control many different aspects of the platform, including litigation, market creation, maintenance, and other decision-making.
Although not entirely decentralized, it is often considered a fairer and more transparent way to speculate 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. Similarly, event-driven stocks are priced based on trading activity and real-time market valuations by the community. Smart contracts are used to automate some aspects of trading activities.
The CLOB (Centralized Limit Order Book) allows for on-chain, custodian-free settlement of trades, while in the background, off-chain matchmaking services also operate, making the system hybrid-decentralized.
Although the online documentation states that Polymarket does not charge fees for transactions, this appears to be a semantic statement, and in practice the platform charges 2% net on trading profits.
Benefits of using Polymarket
Polymarket is considered more transparent than other gambling platforms due to its use of smart contracts and blockchain technology. Users have much more information about how the prices of their shares are calculated than if they were simply placing a bet at a bookmaker.
Likewise, stocks are programmed to pay out when certain conditions are met and reported in the media, and this programmatic system of guaranteed payouts is perceived as slightly more reliable than traditional games of chance.
There is often a wider range of events open for trading on Polymarket compared to traditional gaming platforms, which levels the playing field for certain analysts with different types of expertise and interests.
Finally, users have the ability to trade stocks while remaining somewhat agnostic about the actual outcome of a future event, a feature not typically supported in traditional gambling games.
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 can actually be considered a higher-risk endeavor than simply buying stocks. Providing liquidity and profiting from it should be considered somewhat advanced.
The value of staked assets can fluctuate significantly, leaving liquidity providers with worthless or reduced-value assets.
Of course, another risk is losing money by betting on the incorrect outcome of a market. The Polymarket community is known to be more analytical and methodical than regular gambling sites, which makes the competition quite tough for unsuspecting newcomers.
There is also, as always in DeFi, the risk that the platform itself will fail or fall prey to some sort of hack, exploitation, or bad action by the team or outside forces.
Is Polymarket legit?
There is no solid evidence to assess the legitimacy of Polymarket one way or the other. No widely publicized scandals have so far tarnished the platform’s reputation.
TrustPilot reviews contain anecdotal reports from users who feel that some markets they traded in were resolved unfairly or inaccurately, but there is no hard evidence that this is the case at this time.
Polymarket Review: Getting Started with Polymarket
To get started with Polymarket, you will need to create an account and deposit USDC which you can purchase for fiat currencies or cryptocurrencies 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 any ID or pass a KYC check at this time.
Go to your profile and navigate to Wallet, then Deposit to make a deposit in USDC. Once this is done, you are ready to buy and sell stocks at future events!
You can navigate the Polymarket interface by filtering markets based on category.
Polymarché | Markets
Currently, the markets menu includes markets on the Middle East, pop culture, crypto, politics, sports and science.
You can also browse the New, Trending, Liquid and Coming Soon categories.
New markets may have more favorable pricing 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, stocks 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 the right one. However, sometimes a market that is ending soon has a healthier margin that you can still work with. Markets that are ending soon also tie up your assets for a shorter period of time than a new market, some of which can take months to resolve.
Highly liquid markets are often preferred because buying stocks in a low-liquidity market can cause prices to fall, meaning you lose some of your funds in the trade.
How to Trade and Stay Safe on Polymarket
The Polymarket platform can attract new users due to the multitude of different events in which to buy stocks. New users are often 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 probability of an event, rather than simply buying stocks based on intuition. Of course, swing trading is also possible, in which users do not intend to see a market end but rather 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 order to aim for long-term profitability, as well as to 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 provided for educational purposes only.