Nativity
It is the year of our lord 1503, and the Papal Conclave is in session. The citizens of the Papal States await, for their lord to be anointed and reign from the Apostolic Palace. The Papal States were in turmoil, and was surrounded by three hostile armies due to the Italian Wars in the backdrop of the Protestant Reformation.
In Rome, many a people wait breathlessly, for the citizens are not only living in history, but also betting on the election. Banking houses employed messengers (“sensali”) to make scuttle city-wide to deliver betting slips and the changing odds in real-time as the 39 cardinals electors were locked in seclusion until a new pope has been elected. After a tense day, Cardinal Piccolomini (the favorite with 30 to 100 odds), arose as Pius III, the 215th Pontifex Maximus of the Catholic Church. Many a citizens wept, some with tears of joy from the monetary return, and others, financial ruin.
Unfortunately (or ambivalently for the zealous gambler), Pope Pius III only reigned for 26 days, before succumbing to an infected leg ulcer that took his life. Another papal conclave took place within the same month thereafter, granting the citizens of Rome yet another chance to make it all back.
Over the next few decades, such stories repeated itself over and over again - papal betting is now the norm and an established sport for the citizens in Rome. By the end of the 16th century, this has become so egregiously rampant that the 229th Pope, Gregory XIV decisively stepped in to ban the practice once and for all, on the threat of excommunication.
History however, has always rhymed, and electoral betting is akin to a Hydra - frequently banned, but never dead. Election betting also made a resurgence in the early 20th century. In the 1916 election between Charles Evans Hughes and Woodrow Wilson, the size of the pool swelled to a staggering $280m in today’s dollars.
Today, in the US, such a practice is highly regulated, and requires the blessings of the CFTC (derivative markets regulator). More importantly, following a 2012 ruling, the markets regulated cannot offer political-event contracts. This leaves a huge vacuum to be filled, and a massive opportunity for an upstart to dominate.
Chaos begets
We live in a highly dramatized world, where bellicosity is rewarded. The rise of short form media further drives this impetus, as our shorter attention span thrive in a hyper-informational world. In this age of instant gratification and primary abundance (in first world countries), being provocative rewards creators with attention and thus monetary rewards. Nothing encapsulates this further more than the 2024 US election, which is one of the most contentious in the last few decades. This in turn, has stoked the rise of prediction markets, keeping audiences even more fanatic to their cults.
From sports to entertainment, betting has always captivated humanity. Now, prediction markets are bringing this same allure to politics and more fringe events, and is likely to stay for good.
No other crypto app has captured this mindshare as much as Polymarket, one of the world’s largest prediction market. Polymarket wasn’t the first crypto prediction market, but is at the right place and at the right time, with an uncanny business development team backed by an exceptional social marketing team.
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Chapter I: Genesis
The pioneer in crypto prediction markets is Augur, which allows third parties to bet on outcomes of events. Founded in 2015, Augur was one of the earliest of protocols to do an ICO ($REP), in the same year. It took 3 years of research before it launched on mainnet in 2018. Augur v2 was launched in 2020, but onchain activity hasn’t materially picked up. At its peak, open interest of v2 has only barely broke $11m, while it currently sits at a mere $500k as of today.
Chapter II: Road to dominance
Polymarket’s birth was in the shadows of Augur v2, in 2020. Like Augur, Polymarket is a decentralized prediction market platform that allows users to trade on the outcome of world events. It grinded through the years, but really only came into prominence in 2023 following a controversial market betting if Titan, the submersible touring the wreckage of the Titanic, would be found in time before oxygen ran out.
By today (July 2024), Polymarket has evolved to become one of the largest prediction market in the world, with over $283m in open interest alone for the presidential election between Biden and Trump. This triumphs over all other betting platforms by far, including centralized competitor betfair (£31m in open interest).
Polymarket operates on a very simple level - users buy shares of a market, which prices denote the current probability of the event (from 0 to 1). These prices fluctuate based on real time market and financial demand, which denotes an event probabilities. Notably, users can exit a market at any time, as with most liquid assets on the market. The protocol also supports mutually exclusive markets featuring multiple binary questions, which further opens up complex strategies for traders.
Polymarket at its core is a hybrid decentralized prediction market, which is key to bypass KYC procedures via USDC on Polygon. Architecturally, it is partially onchain; order matching on its order books are done offchain, but all bets are settled on Polygon itself. The creation of markets however, are somewhat permissioned - users have to get approved on the discord manually by the team.
The growth of Polymarket began in earnest at the start of 2024, with monthly volumes hitting an ATH of $151m as of July, up $6m in the same time last year. MAU hit a staggering 25k, up from 1k in July 2023. 2024 also saw an influx of new users, with over 70k new members in the last 3 months alone.
Chapter III: Crucible
Arguably, the success of Polymarket is two-pronged:
a. Being in the right place and in the right time with solid PMF
The polarization of US politics, beside our shrinking attention span from a hyper-informational world as social media brainrot consumes our psyche has led to the rise of dramatization of real-life events and the radicalization of everything, from actions to content.
Such polarization does not directly lead to political violence, but has certainly fanned the flames of an environment that encourages it. This can be seen time and time again from the Jan 6 2021 US Capitol attack (where supporters of Trump stormed the edifice in an attempt to keep the then-president in power) to the attempted assassination of Trump in Jul 2024 this month. While the US might arguably have avoided a civil war, the increasing numbers of schizo-posting on all timelines shows that no end is in sight.
In the same vein, the rise of short form media applications like TikTok has shortened its addicted users’ attention spans. The act of doom-scrolling essentially shares the same fundamental principles as slot machines (“random reinforcement”), with constant gratification and dopamine hits.
b. Solid GTM marketing strategy to attract and retain mindshare
Polymarket’s twitter marketing strategy also stands out amongst its competitors. Characterized by colorful memes and witty quips, it garners far more impressions and interactions. Contrast this with the run-of-the-mill boomer competitor tweet, and the comparison is stark.
Polymarket’s virality factor also helps in fueling organic marketing, helping not only retain, but also grow mindshare. This is highly crucial, especially given the cyclical nature of the largest-of-life events.
organic marketing with tweets going viral from shock factor
Chapter IV: Portents
The brightest of lights cast the longest of shadows. Despite the limelight in mainstream media, Polymarket does face potential omens that demand its stewards to navigate carefully.
a. The interest from the US election is supranormal; volumes will likely drop majorly post-election
The impact post-election will definitely be outsized, and operational mitigation can only go so far. Alongside the occasional larger-than-life events in our interesting times, the sports market also offer an excellent cash cow for Polymarket to buff its coffers despite the saturated and fragmented nature of the vertical.
b. Niche and possibly “viral” markets can bring in both mindshare and toxic flow
While exotic markets like Bryan Johnson’s sperm count are highly entertaining, the risk of the pool being socially exposed to toxic flow and insider trading is not low. The subject (or his close friends and family) will likely know the result before settlement and can use this to their financial advantage. As such, these pools will likely be mostly for marketing purposes rather than for actual financial benefit.
c. Subjectivity of resolutions can highly polarize the community, which might lead Polymarket to favor the majority
In highly technical prediction markets, it is tempting for the protocol to side with the tyranny of the masses. One such potential example was the ETH ETF prediction pool in May this year. The crux of the dispute lies between what such a “approval” constituted, with varying opinions between a partial approval (19b-4 filings) and a full approval (19b-4 filings AND Form S-1). The pool resolved into a “yes” after the SEC greenlit the 19b-4 filings, which led to a backlash from “no” buyers.
That said, I do foresee overtime for such issues to crop up less, as the team will over time deploy pools with highly clear cut “yes” and “no” scenarios.
Epilogue: the final word
Ultimately, prediction markets serve as an important source of data, and arguably is the closest source of truth. The substantial financial stakes involved often surpass the insights of individual experts, due to the financial incentives within the mechanism. In the end, they provide a powerful and unparalleled perspective on future outcomes, shaping our understanding with remarkable accuracy.
Regulators likely could clamp down on these markets, but they can only do so much as Polymarket is mostly onchain. And if history is of any indication, the demand will always be there.
The eternal bet
The year is now 2036, and humanity tunes in on their VR visor to the live broadcasting of the hottest event of the year. Humans now have a new sport league every 4 years - the US presidential election.
As the election night unfolds, billions globally are glued to their visor - not just watching the live-stream, but also in multiple VR rooms, and one that provides not just shitposting capabilities, but also a prediction market. Politics and larger-than-life are no longer stale nor boring, but more thrilling than ever with trillions at stake.
In this new world, prediction markets have transformed from niche financial instruments into mainstream entertainment, reflecting the deep integration of technology and culture. As we navigate this hyper-connected world, the boundaries between political engagement and digital entertainment continue to blur, redefining how we experience and interact with global events. The evolution of prediction markets into such a central role underscores their profound impact on our collective consciousness and the future of how we understand and anticipate the unfolding of history.
If anyone is building definitive social apps onchain, feel free to reach out in my DMs on twitter. Shoutout to tzedonn for his erudite pls fix comments on my draft.
