Where we're going, we don't need roads (or existing derivatives contracts)!

What is Polymarket?

Polymarket is an innovative decentralized prediction market that allows users to trade on the outcomes of various future events using cryptocurrencies. It is currently the largest real-money prediction market of its kind. Unlike traditional financial instruments that typically involve complex derivatives and are subject to regulatory oversight, individual Polymarket contracts operates on a blockchain, enabling a transparent, decentralized platform where users can make predictions on a wide array of topics—ranging from politics and sports to economic indicators. Note, this doesn’t mean Polymarket is completely decentralized. The platform and technology infrastructure that powers it is closely held and owned by a traditional corporate entity, similar to any other public stock exchange.

At its core, Polymarket allows traders/betters/risk hedgers of all types to express a direct opinion on the outcomes of future events. Smart contracts—self-executing contracts with the terms of the agreement directly written into code—are utilized to automate payouts. For traders, this is the holy grail of financial derivatives. The power to quickly define new tradable markets for unknown outcomes has the potential to be applicable to every risk industry. Polymarket is quickly expanding into a diverse range of bettable events - from my count, in 2024, there are currently ~1000 different active contracts across the site.

To settle event outcomes, Polymarket utilizes oracles - third-party services that provide smart contracts with external data, enabling them to interact with real-world events or information that exists outside the blockchain. Since blockchains are inherently isolated from the external world to maintain security and decentralization, oracles act as bridges, delivering reliable data that smart contracts can use to execute functions based on real-world occurrences. For instance, in a prediction market like Polymarket, a smart contract might need to know the outcome of a sports event or election to determine which users win or lose their predictions. An oracle fetches this information from a trusted external source and delivers it to the blockchain. I talk more about the functionality of prediction market oracles and smart contracts in another article.

PolyMarket growth has been impressive - and I believe it has much further to go

Key Features of Polymarket

Several unique features set Polymarket apart from traditional financial markets:

• Decentralization: By utilizing blockchain technology, Polymarket operates without the need for a central authority to settle markets. This not only enhances transparency but also makes the platform resistant to censorship and manipulation by centralized entities.
• Crypto-Enabled Transactions: The use of cryptocurrencies on the platform allows for quick, low-cost transactions that can occur across borders without the usual friction of traditional financial systems. This is particularly advantageous for users in regions with restrictive financial regulations or limited access to global markets.
• Event-Oriented Markets: Unlike traditional markets that may focus on stocks, commodities, or currencies, Polymarket allows users to create markets based on virtually any event. This flexibility enables a much broader scope of market participation and can lead to unique insights into public sentiment on various topics.

How Polymarket Disrupts Traditional Financial Systems