Polymarket’s success in the US election: what to do after the election

Author: Jack Inabinet, Bankless; Compiler: 0xjs@黄金财经

Interest in Polygon-based prediction market Polymarket has never been higher.

The platform, which allows traders to create markets around countless "yes" or "no" outcomes, has made a splash during the chaotic and turbulent US presidential election. Over the past few months, traders hoping to make money by predicting which candidate will win have bet hundreds of millions of dollars on the platform, pushing Polymarket's business metrics and visibility to all-time highs.

There is no doubt that Polymarket has been incredibly successful this year, but with all nine of its prediction markets related to the presidential election, can it maintain this momentum and revolutionize the way unbiased information thrives in the AI ​​era?

Today, we discuss the future of cryptocurrency's hottest prediction platform after the election.

Prediction markets can generate speculation on almost anything.

Because bettors risk their own capital in these markets, many crypto idealists see prediction markets as excellent arbiters of truth and believe they will continue to develop and penetrate the mainstream as the ultimate source of unbiased information.

However, while prediction markets are often cited as a valuable mechanism for speculation and hedging, limited market demand makes this function difficult to achieve in reality.

While permissionless prediction infrastructure can provide accurate information in some cases, these markets lack the important combination of savers, gamblers, and savvy individuals required to maintain momentum.

1. Due to their zero-sum nature, they do not receive continuous passive inflows from savers such as stocks, bonds, and cryptocurrencies, which makes it difficult to generate returns in the long run without an advantage.

2. Gamblers certainly like to bet through Polymarket, but such users are not interested in the vast majority of Polymarket's available markets because these markets lack dopamine stimulation due to non-instant payments and niche themes.

3. Without a continuous flow of investment from these two key roles, the small-scale market will make it impossible for savvy people with advantages (such as market makers) to make profits, correct prices and drive the market to reality, thereby destroying their promised function of providing accurate insights into each market.

Thus, Polymarket does make it easier for the average person to accurately observe the probability of a certain event, but it is undeniable that the protocol is limited by limited liquidity and the amount of profit that can be extracted across markets.

Potential market participants may not speculate in the “Will the marijuana ban be rescheduled in 2024?” market, where liquidity is only a few hundred dollars and the spread between yes and no is 15 cents, so trading industry-related stocks may be a better choice.

In theory, one could use Polymarket to “hedge” their money market portfolio against the impact of a possible rate cut by the Federal Reserve at its July meeting, however, such a hedge is best represented through existing federal funds futures derivatives, which provide deeper liquidity and greater capital efficiency through leverage.

While striving to provide pure knowledge to anyone through financially incentivized prediction markets is a laudable goal, Polymarket faces a difficult road to achieving adoption for such use cases due to a lack of market demand and the intention of US regulators to crack down on its leading politically-tinged election contracts.

It’s undeniable that Polymarket will attract speculators as long as cryptocurrencies exist, but prediction markets seem to lack the ideal utility that bulls insist on.

Polymarket has achieved rare success during a cycle where retail investors have been largely absent. But with many predicting a massive retreat from the platform after the US election in November, it’s hard to bet on their ability to expand indefinitely.