Polymarket is a decentralised blockchain-based prediction market platform built on top of the Ether and Polygon blockchains. It allows users to place bets on the outcome of future events, such as national elections, sporting events or economic data releases. Users can place bets via the stablecoin USDC and receive a return if the prediction is correct.
Features of Polymarket
- Decentralised structure: In contrast to traditional prediction markets, Polymarket is decentralised and uses smart contracts to ensure transparency and security of transactions. This structure reduces reliance on intermediaries and allows the market to operate more efficiently.
- Automated Market Maker (AMM) Mechanism: Polymarket uses an AMM mechanism to provide liquidity, which means that users do not need to find a counterparty in order to trade. Anyone can create a market and submit proof of results at the end of the market, or challenge them if they disagree.
- User-friendly experience: Despite the fact that Polymarket uses blockchain technology, the interface is designed to be user-friendly, allowing users to deposit funds via credit card, Apple Pay, etc. with little to no blockchain complexity.
Polymarket's profitability logic
Polymarket's profitability logic relies on the following aspects:
- Transaction fees: Polymarket charges users a 10% fee for each transaction. This means that when a user makes a profitable prediction on the platform, Polymarket takes a percentage of this as its revenue stream.
- Incentives for Liquidity Providers: The platform employs an Automated Market Maker (AMM) mechanism that allows liquidity providers to earn transaction fees by providing liquidity to a specific market. Liquidity Providers use the stablecoin USDC to fund the market and receive a corresponding revenue. This mechanism not only ensures liquidity in the market, but also attracts more users to trade.
- High Volume: Polymarket has seen a steady increase in trading volume since its launch in 2020. According to the data, the trading volume in 2024 is expected to reach $1bn. Higher volumes mean more revenue from transaction fees, which boosts the platform's profitability.
- Hot Market Topics: Polymarket focuses on popular and controversial topics such as political, sports and economic events, which usually attract a large number of users to place bets. By offering a diverse selection of markets, Polymarket is able to attract more users and increase overall trading volumes, thereby increasing profitability potential.
- User experience optimisation: Polymarket is working to improve the user experience, including working with payment service providers to enable users to place bets easily via credit card and bank transfer. This convenience may further contribute to user growth and transaction frequency, thereby increasing revenues.
Polymarket's profitability logic is built on transaction fees, liquidity incentives, high trading volumes and a focus on trending topics, while at the same time boosting the platform by optimising the user experience.
Development context
Polymarket was launched in 2020, during the New Crown epidemic, with its founder, Shayne Coplan, wanting to use the platform to help people make more informed decisions in an uncertain information environment. The platform quickly attracted media attention and was widely used during major events such as the 2024 US presidential election.
