Over the past few years, decentralized prediction markets like Polymarket have gained massive traction. As the 2024 US Presidential election nears, these markets have entered the mainstream, with American media giants like Newsweek and Wall Street Journal using odds on Polymarket to report presidential polls.
Notably, US residents are prohibited from betting on Polymarket. That means the bets that are placed on the platform come from people living in other countries but interested in US affairs.
Do you want to learn more about Polymarket and how it works? If so, keep reading to find out.
Prediction Markets Explained
Prediction markets are not new. They have been in existence since the 17th century, allowing people to bet on the possible outcomes of future events like elections, sports, and legal cases, among others. The concept is straightforward: If you bet correctly, you receive money. However, you lose your stake if your prediction is wrong.
The mechanics applied in the prediction markets are also simple. The value of a single “share” in these markets ranges between $0.00 and $1. Each share price represents the chance of winning in percentage. For instance, if the share price for a particular presidential candidate is 66 cents, then it means that they have a 66% chance of being elected based on the placed bets.
If you wish to predict the outcome of this year’s US Presidential election, you need to purchase shares of the candidate you believe will win. Once the election results have been announced, the share price of the winning candidate shoots to $1, and if you placed odds on them, you are likely to pocket some money.
Types of Prediction Markets
Several types of prediction markets exist. They include:
1. Binary markets: In such markets, users can only bet two options, either yes or no.
2. Categorial markets: Here, users have multiple options to choose from. For example, in the election markets, you can bet on any listed candidate.
3. Scalar markets: In these markets, your bet should either be “higher” or “lower” than the specified level. For instance, you may be asked to predict whether the US population will be higher or lower than 330 million in the next census.
It is worth mentioning that when you place a bet, you can cash out your shares whenever you want since there is no lockup period. That means you do not have to wait until the outcome of a particular event is determined.
For instance, in the Presidential election case, if you think that your favorite candidate will crush their opponent during an upcoming debate, you can acquire the candidate’s shares with the expectation that they will surge in value after that debate, allowing you to sell them for a profit instantly.
Since the share prices are determined by demand and supply, expect them to change every minute.
How Polymarket Works
Polymarket runs on the Polygon and Ethereum blockchains. Like any other decentralized prediction market, it allows anyone to create a market, meaning any user can specify an event for others to speculate on. For instance, as our reader, you can go to Polymarket and create a market for whether Sure Trade Group will attain more traffic in August than in July.
Polymarket uses AMM (Automated Market Makers) to provide liquidity. Anyone can be a liquidity provider here. For this reason, decentralized prediction markets tend to be more liquid than centralized markets.
Liquidity providers on Polymarket usually earn a portion of the fees charged on each trade executed on the platform.
Once an event has come to an end on Polymarket, proof of an outcome must be submitted to UMA, a decentralized oracle that allows market participants to challenge the outcome before the final outcome is posted on Polymarket.
Unlike centralized prediction markets, Polymarket operates without immediaries and imposes cheaper fees. Moreover, since the platform is decentralized in nature, it offers much-need privacy to users who want to remain anonymous while placing bets.
SureTradeGroup.com is not responsible for the content, accuracy, quality, advertising, products or any other content posted on the site. Some of the content on this site is paid content that is not written or posted by our writers or editors and the opinions expressed do not reflect the opinions of this website. Any disagreement you may have with brands or companies mentioned in articles will need to be taken care of directly with those specific brands and companies. The responsibility of anyone who may click links in our articles and ultimately sign up for that product or service is their own. Forex, Stocks, Cryptocurrencies, NFTs and Dogital Tokens are all a high-risk asset, investing in them can lead to losses. Readers should do their own research before taking any action.