Polymarket Research: Attracted 500M Users in Six Months, Monthly Trading Volume Grew Over 60x, Can the Strong Momentum Continue?
The founder is also a 'cypherpunk', having encountered Bitcoin at the age of 15 and founded Polymarket at the age of 22.
Original Article Title: The Rise of Polymarket: Here to stay or an election phenomenon?
Original Source: Animoca Brands Research
Original Article Translation: Gary, BlockBeats
Key Questions
- Why does the world need Polymarket?
- Will Polymarket's popularity continue after the U.S. election?
- Is Polymarket the next killer application in cryptocurrency?
- Will there be a Polymarket token?
Interesting Charts
TL, DR
· Polymarket is an on-chain prediction market that addresses a key information gap by providing quantifiable odds on future events, offering probability figures previously lacking in news media and societal discussions.
· The platform has seen significant growth over the past six months. From April to October, monthly trading volume surged from $40 million to $2.5 billion, and open interest climbed from $20 million to $400 million. The amount locked now rivals leading decentralized exchanges like SushiSwap AMM V3 and is on par with the total value locked (TVL) of networks like TON.
· In October, the Polymarket website received 35 million visits, double that of popular betting sites like FanDuel. Its predictions on the U.S. election are often quoted by mainstream media outlets such as The Wall Street Journal and Bloomberg. This surge indicates that Polymarket has evolved from a prominent project in the cryptocurrency space to a platform geared toward mainstream audiences, marking a milestone in the public adoption Web3 has been eagerly seeking.
· Our analysis suggests that users joining Polymarket are likely to continue using the platform after the current U.S. election cycle. 3/4 of holding users trade on topics unrelated to the election, indicating their sustained interest in various subjects.
· Polymarket has not yet finalized a token generation plan. The company is exploring the possibility of introducing a token to validate real-world event outcomes but has not announced a formal decision.
Introduction
Polymarket is a blockchain-based prediction market founded by 22-year-old Shayne Coplan in 2020. Its timely launch garnered attention during the 2020 U.S. election cycle. Despite subsequent cryptocurrency market turbulence, Polymarket survived and made a comeback with even greater popularity during the 2024 U.S. election cycle.
A prediction market is an innovative trading platform where participants can create and trade contracts speculating on whether a future event will occur. By trading "yes" or "no" on outcomes, the market aggregates collective sentiment, with the price of the "yes" contract representing the consensus probability of that event occurring at any given time. This real-time pricing provides valuable insights into public expectations and forecasts.
Mainstream news media and social platforms often overlook real-time tracking of event probabilities. While the U.S. election receives significant attention, there is no centralized information source that consistently integrates daily developments into quantified assessments of expectations. The unique "delegate" system used in the U.S. election adds complexity to predictions, leading analysis sites like FiveThirtyEight to primarily aggregate polling results rather than provide exact odds for potential winners.
Polymarket's presidential election prediction market fills this gap. New information such as candidate activities and opinion polls immediately reflect in the future prices of events. This quantification and immediacy helped Polymarket quickly rise to fame and become the common currency of social media discourse during elections.
In the near future, it wouldn't be surprising if Polymarket's probability trends become a prominent chart in mainstream news broadcasts. Soon, TV networks like CNN and ABC will likely integrate real-time probability charts into major event coverage, providing viewers with data-driven insights and backgrounds similar to those used in financial news reporting, alongside CNBC and Bloomberg TV.
Going Mainstream
Birth
Polymarket was founded by Shayne Coplan in 2020 during the U.S. presidential election. The activity "Will Trump win the 2020 U.S. presidential election?" attracted numerous participants, with trading volumes reaching $10.8 million within months and helping boost Polymarket's monthly trading volume to $25.9 million.
The platform also caught the attention of notable figures like Vitalik Buterin, who endorsed the platform's potential in a 2021 blog post. Despite being somewhat niche at the time, Polymarket's top-tier trading activity had already surpassed $1 million, demonstrating significant potential.
Regulatory Setback
Operating at the intersection of prediction markets and futures trading, Polymarket faced unique regulatory challenges. In October 2021, the Commodity Futures Trading Commission (CFTC) in the U.S. initiated an investigation into the platform. In January 2022, Polymarket settled with the CFTC, agreeing to pay a $1.4 million fine for offering binary options without a futures trading license.
As part of compliance efforts, Polymarket subsequently restructured as an offshore platform, barring U.S. residents from participating in its markets. The company also appointed former CFTC Commissioner J. Christopher Giancarlo as an advisor to help navigate complex regulatory issues and ensure future compliance.
The settlement reduced some of the uncertainties around Polymarket's operations, bringing market activity back to early 2021 levels. However, a key question remains: When will Polymarket break into the mainstream market?
Source: CFTC Official
Going Mainstream
One year after the CFTC settlement, in January 2024, Polymarket launched the "2024 U.S. Presidential Election Winner" market, triggering a flurry of trading activity. Over time, significant political events—including an assassination attempt on Trump and Biden's unexpected withdrawal—sparked intense interest in election predictions. In the final month of the election, as early voting results rolled in, Polymarket's popularity reached an all-time high.
Throughout the entire 2024 election cycle, Polymarket's monthly trading volume surged, growing from millions of dollars in January to $50 million in January, nearly hitting $400 million by July, and comfortably exceeding $1 billion by October. The total open interest—the locked USD value against CAD and potential payouts post-settlement across all contracts—jumped from $7 million on January 1, 2024, to approximately $400 million on November 1. This locked-in capital surpassed the TVL of TON, ranking Polymarket's locked funds 18th in the blockchain infrastructure ecosystem.
Interest in Polymarket has transcended the trading community: its Google search popularity and web traffic surge reflect widespread public attention. Major media outlets such as The Wall Street Journal, Bloomberg, and CNN, as well as public figures like Donald Trump, often reference its election predictions. Bloomberg integrated Polymarket's election odds into its terminal in August, marking a milestone. Polymarket has not only become a significant project in the cryptocurrency space but has also garnered mainstream attention—a goal long sought after in the Web3 space.
The Web3 industry has yet to become a mainstream application, primarily due to the lack of a "killer app" that could create an iPhone-like moment for the sector. The collaboration between Telegram and TON has sparked enthusiasm in the Web3 community due to its immense potential to drive mass adoption. Similarly, Polymarket is also exploring new directions that can advance cutting-edge technology, offering a promising path to attract a broader audience and bring Web3 closer to widespread adoption.
Platform Activity
Website Traffic
As Polymarket's trading volume and participant numbers hit record highs, its website traffic has also surged. In September, Polymarket saw 2.3 million unique visitors and a total of 16 million visits. In October, the monthly visits doubled to 35 million, putting Polymarket on par with popular betting platforms like FanDuel, which had 5 million unique visitors and 17 million visits in September. This far exceeds regulated prediction market websites like Kalshi, which had 118,000 unique visitors and 237,000 visits that month.
In terms of engagement metrics, Polymarket's active trader to visitor ratio (around 3% in July) has seen a decline over the past three months. This indicates that the majority of Polymarket's audience is primarily seeking information rather than engaging in trades. With the increasing visibility of Polymarket, this trend has become more apparent, reflecting its appeal as an information resource.
Additionally, the total visit-to-unique-visitor ratio indicates that website visitors consistently visit the website 7 times per month on average, demonstrating the high engagement and stickiness of Polymarket users. The combination of high visitation and engagement highlights the potential of Polymarket as not only a trading platform but also a trusted source for major event prediction.
The primary source of Polymarket's visitors is direct URL entry, suggesting that most users are already familiar with the platform before visiting. Additionally, 30% of visitors come through organic search, indicating many users specifically search for Polymarket by name. Social media traffic accounts for an additional 5%, with Twitter being the main source, aligning with Twitter's active role in cryptocurrency and election discussions.
Notably, paid traffic sources (such as paid search and display ads) are minimal, indicating that the platform attracts users primarily through brand awareness and organic interest rather than paid advertising. This mix of traffic sources underscores Polymarket's growing influence as users actively seek reliable predictive insights from it.
Geographically, over half of the traffic comes from the United States, followed by four close allies of the U.S., which may be significantly impacted by the U.S. election results.
These observations suggest that most Polymarket users have already integrated the platform as an effective bookmark, regularly using it as a reference to track event developments. This trend aligns with CEO Shayne Coplan's statement that Polymarket's value lies in providing "the highest information on the internet."
Markets
Each predictive event on Polymarket is composed of one or more markets, each being a binary outcome pair. For example, in the "Election" event, individual markets include "Trump Win Y/N" and "Harris Win Y/N," as well as lower-priority markets like "Biden Win Y/N."
The Polymarket team is responsible for creating new markets, taking community feedback into account during the creation process. In late 2021 and early 2022, the team attempted to launch as many as 2000 markets monthly, potentially to increase user engagement. However, this rapid pace eventually stabilized to a few hundred markets per month. Starting from January 2024, the market creation volume experienced another surge, reaching exponential growth, indicating that the recently added markets resonated well with users and received positive feedback.
Since January 2024, the U.S. election-related markets have been a key driver of Polymarket's trading volume, accounting for about 50% of the total volume in the first half of this year and surging to over 75% as election interest peaked. Interestingly, despite the surge in election-focused trading, non-election markets continued to attract significant trading activity, representing nearly 25% of the total volume. Among these, sports-related markets such as the Super Bowl and Champions League predictions made a notable contribution, indicating that users' interests extend beyond the election cycle. This balance indicates that Polymarket's appeal is expanding, making it a multifaceted prediction platform.
Users
Since mid-2024, the number of new user registrations on Polymarket has surged, with over 300,000 people registering in just October. This rapid influx means that 86% of users have joined the platform in the last six months. Active trading addresses recorded in October numbered 235,000, with 35% of all registered users currently engaging in trades.
As of November 3rd, a total of 327,000 users (half of the total registered users) hold active positions. Of these, around 80,000 users are exclusively trading in U.S. election-related markets, while the remaining 247,000 users are dispersed across other market categories. The significant participation in non-election markets indicates that user interest is enduring, and even after the election cycle, the platform's growth and relevance can be sustained.
Regions Outside the U.S.
Combining these observations, we have identified an intriguing phenomenon: while most of Polymarket's visitors are Americans, regulatory restrictions mean that only non-U.S. users can actively participate in trading. This dynamic has created a unique situation for U.S. election predictions—effectively, the rest of the world is predicting the next U.S. president while Americans are mainly observing. Therefore, Polymarket has become a platform where international participants provide a global perspective on U.S. political events for a primarily U.S.-based audience.
How Polymarket Works
Prediction Market Mechanism
The concept of prediction markets can be traced back to 16th-century political betting, initially focused on events such as the succession of popes. These markets allowed participants to bet on the outcome of future events, gradually evolving into a crowdsourced public belief platform for uncertain events. In July 2018, prediction markets entered the cryptocurrency space with the launch of the first decentralized prediction platform built on Ethereum, Augur. Two years later, Polymarket was introduced, enabling users to deposit USDC and bet on the outcomes of various events.
The operation of prediction markets is similar to that of futures markets: creating contracts that pay a fixed amount upon the occurrence of a specific event, participants submit buy and sell quotes, trading these contracts in a manner similar to stocks. The current price of any contract at a given moment represents the market's consensus estimate of the probability of the event occurring.
As discussed in James Surowiecki's "The Wisdom of Crowds," traditionally, prediction markets have been highly regarded for their effective integration of various information sources to enhance prediction accuracy.
Differences from Traditional Betting
While prediction markets have long existed, traditional betting markets still attract more participants. To understand the reasons behind this, let's first delve into the details of the betting market.
The main differences between prediction markets and traditional betting lie in. Firstly, prediction markets operate in the form of a two-way exchange, allowing participants to exit their positions at any time before the event's outcome is determined. Secondly, prediction markets continuously update the consensus odds, reflecting real-time public sentiment, whereas traditional bookmakers primarily balance the betting pool by adjusting the odds to minimize potential losses. This approach often leads to bookmakers over-adjusting the odds, distorting the true probability of events.
However, prediction markets face unique challenges, especially in terms of liquidity. To ensure smooth trading, exchanges must ensure that contracts are readily available, which requires a stable source of liquidity. This can be achieved through Automated Market Makers (AMMs) (similar to DEX) or using order books supported by market makers (similar to CEX). Both approaches require incentivizing liquidity providers, which will increase the costs for traders or the exchange itself.
For low-odds events, liquidity challenges are particularly evident. Traditional betting meets various needs by setting initial odds and pooling bets into one pool, while prediction markets rely on sufficient user interest to maintain active trading. Without enough activity, prediction markets struggle to reach meaningful odds, thereby limiting their accuracy and attractiveness for low-traffic events.
What's Happening on Polymarket
User Interface
Polymarket stands out for its simple and seamless user experience. It uses USDC (USD Coin) to facilitate transactions, which is a US dollar-backed, federally regulated stablecoin. The use of on-chain currency is necessary as the exchange is entirely built on-chain.
Users first register via email or a crypto wallet, then deposit USDC from an existing wallet or purchase directly with fiat using Moonpay. Users browse available markets and select an event, then engage in predictions using real-time data. The next steps involve buying or selling shares based on these predictions, with the interface displaying potential returns. Confirmation is then done via the user's account address, completing the transaction. In cases of dispute, users can raise challenges to resolve the event.
Trading
In Polymarket's peer-to-peer prediction market, trading occurs directly between users, with prices naturally formed through user-driven orders. New markets start with no shares or set prices; traders place limit orders at prices they are willing to pay, effectively acting as market makers. For binary events, users bid on the outcome of "yes" or "no." When the sum of "yes" and "no" bids equals 1 US dollar, these orders match, establishing the initial market price. For instance, a $0.60 bid for "yes" matches with a $0.40 bid for "no" to determine the price. As trading progresses, bids and asks can directly match at the prevailing price, enhancing liquidity.
Polymarket uses ERC-1155 tokens (or "outcome tokens") to represent these binary predictions. Apart from binary options, the platform supports more complex scenarios:
· Categorical Markets: Users choose from multiple mutually exclusive outcomes (A, B, C).
· Scalar Markets: Broader questions are divided into a series of "yes/no" contracts.
· Composite Markets: These markets allow layering predictions by combining multiple questions.
This diversity expands the platform's flexibility, enabling the creation of broader activities in the future.
Upon the conclusion of an event on Polymarket, profits are distributed based on the outcome. The winning side's share is valued at $1.00 per share, while the losing side's share is valued at $0.00. Once the result is clear and complies with the established rules, a market resolution occurs. If a user disputes the resolution, they can challenge it by staking a $750 USDC deposit. The deposit is only refunded if the challenge is successful, establishing an incentive for valid disputes while deterring frivolous claims.
Technical Framework
On the technical design front, several components ensure the prediction market operates in a decentralized manner.
The Gnosis Conditional Token Framework (CTF) provides the infrastructure for creating conditional tokens, allowing the creation of tokens for various event outcomes. The CTF Exchange is an on-chain component of the Polymarket order book, enabling atomic swaps between CTF ERC-1155 assets and ERC-20 collateral in a non-custodial manner and settling matched orders off-chain. Simultaneously, off-chain operators handle order matching and trade submissions, manage unfilled orders, and enable placing and canceling orders off-chain instantly.
To match betting information, the UMA CTF Adapter connects the Optimistic Oracle and CTF conditions, initializing markets by querying UMA's Attestation for resolution data to settle conditions. The UMA Optimistic Oracle resolves prediction markets during a challenge period, allowing for disputes to ensure on-chain accurate reporting of off-chain events. Another component, the NegRisk Adapter, enables Gnosis CTF to manage binary markets, converting "NO" tokens into collateralized "YES" tokens, integrating binary outcomes into a unified market structure. Finally, the NegRisk Exchange is a streamlined version of the Polymarket exchange contract, facilitating trading within NegRisk markets through a Central Limit Order Book (CLOB).
Company
Team
The Polymarket team is led by three key individuals:
· Shayne Coplan, Founder & CEO -- Shayne, a native New Yorker, entered the web3 space at 15, starting with Bitcoin mining. He dropped out of New York University in 2017 and founded Union.market in 2020, followed by Polymarket later in 2020.
· David Rosenberg, VP of Business Development & Strategy -- David has rich experience in business development and strategy, having worked at Foursquare, GIPHY, and Snap. After four years as Director of Strategy at Snap, he joined Polymarket in June 2020. David graduated from the University of Cambridge in 2011.
· Liam Kovatch, Engineering Lead - Liam dropped out of Columbia University in 2018 to start his DeFi career. Previously, he founded Paradigm Labs and served as the first engineer at 0x. He joined Polymarket in 2021 and quickly rose to the role of Engineering Lead.
Other departments of the company focus on business development and engineering design, with 12 members dedicated to growth, marketing, and strategy, and 8 members focused on engineering design and data, totaling 23 employees. Part-time or outsourced professionals support functions like finance. Most team members work in New York.
Over time, Polymarket's team size has been evolving. The company initially started with a team of four, expanded significantly after an initial success in 2020, reaching around 20 employees by mid-2022. However, in the second half of 2022, possibly due to an investigation by the Commodity Futures Trading Commission (CFTC), the team downsized and maintained a lean structure until early 2024.
The company resumed hiring in early 2024, without a significant outbreak or additional funding at that time. This proactive growth indicates that the leadership team anticipated a more favorable operational environment for the platform, enabling them to handle a subsequent surge in business volume.
Operating Profit and Loss
Currently, Polymarket does not charge any fees for platform usage, including position trading, winner rewards, and fund withdrawals. Previously, when the platform used an automated market maker mechanism, LP fees related to trades were charged to compensate liquidity providers. However, with the transition to an order book architecture by the end of 2022, these fees were eliminated. While there is a fee for using third-party services to convert fiat to USD to CAD, this fee goes to the service provider, not Polymarket.
In addition to not charging fees, Polymarket subsidizes its operating costs, including order book market-making rewards, on-chain transaction gas fees, and website maintenance fees. Reports indicate that Polymarket has distributed over $3 million in USD to CAD rewards year-to-date, with popular markets offering liquidity providers rewards of up to $600 USD to CAD per day.
Polymarket's early cash flow likely received support from ecosystem incentive measures. By adopting the UMA technology stack for rewards, the platform received around 160,000 UMA tokens valued between $40,000 and $48,000. However, there is currently no public information on whether Polymarket received rewards or profit-sharing from its exclusive fiat-to-USDC on-chain partner, Moonpay, or its exclusive blockchain partner, Polygon. These incentives are crucial for sustaining day-to-day operations, especially considering the company only raised $4 million by mid-2024.
Although no formal monetization plan has been announced, the CEO has hinted that there may be future fees for platform usage. On the other hand, given their recent fundraising success, the team may not be in a hurry to seek revenue streams and may continue to subsidize platform operations to solidify their leading position in the prediction market space. Furthermore, since over 95% of the website's traffic is for content consumption rather than transactions, the website could quickly raise funds by increasing display ads instead of charging transaction fees.
Fundraising
Polymarket conducted its first fundraising round in 2020, successfully raising $4 million. In May 2024, the company completed two additional fundraising rounds, attracting $70 million from 9 investors. The influx of this funding is expected to greatly enhance Polymarket's future expansion capabilities, including strengthening its talent pool and market coverage.
While there is currently no confirmed Token Generation Event (TGE) plan, recent reports indicate that Polymarket is exploring a potential $50 million additional fundraising round. The company has also hinted at the possibility of launching a token that would allow users to verify the outcomes of real-world events.
Considering Polymarket's rapid investor fundraising pace and the challenges it may face with a traditional initial public offering due to its offshore structure, a Token Generation Event seems highly likely.
Regarding the company's valuation, there is currently no official report on the valuations of each fundraising round. However, it is reasonable to estimate that with a $45 million raised in the B round, Polymarket's valuation may have already reached the billion-dollar mark.
SWOT Analysis
Although Polymarket has been around for four years, significant development has only recently occurred, and it is currently in a highly volatile stage. Instead of speculating wildly about its future, it's better to understand its potential development path more clearly through a SWOT analysis:
Strengths
Polymarket's biggest asset is its unprecedented public attention in the prediction market. This visibility has attracted participants, creating a cycle where higher participation leads to more accurate, more reliable predictions, and the involved topics become more diverse. If managed properly, this self-reinforcing cycle can solidify Polymarket's leading position.
Its on-chain architecture also sets it apart from traditional prediction markets as it can ensure the highest level of transparency, building trust. However, compared to other on-chain competitors, this advantage of Polymarket is not as pronounced as the project lacks proprietary intellectual property or a dedicated blockchain, making it easier for other projects to replicate its model.
Cons
The liquidity of niche events is the primary bottleneck for Polymarket's expansion into different topics. This challenge is inherent in prediction market design, and its order book model exacerbates this challenge. Traditional sports betting companies can easily cover a wide range of events, unlike Polymarket, which must provide incentives for market liquidity to narrow spreads and increase liquidity for less popular topics.
Another limiting factor is that Polymarket is led by a US-centered team, and its platform inherently excludes US-based traders. This mismatch could hinder its global growth while continuing to face regulatory issues in the US. The Super Bowl remains "the most popular live sports event, indicating that the platform's strategy still heavily favors the American audience's taste.
Opportunities
Polymarket has gained prominence with its reliable crowdsourced event predictions and has the potential to become an indispensable part of media and social content consumption. This integration can bring more traffic and open up new revenue streams.
As an alternative asset for quantitative trading, Polymarket's data also holds significant potential. Due to the high reliability of predictions, the platform may attract greater interest from institutional investors and algorithmic traders, leading to a demand for predictions on more diverse events.
From a regional perspective, Polymarket's success could quickly expand to regions where Web3 applications are becoming increasingly prevalent, such as Asia and the Middle East. There is also significant demand for predicting region-specific events in local languages.
Challenges
Like other platforms in the field, Polymarket also faces legal uncertainty. Regulatory challenges have already impacted similar entities like Betfair and PredictIt, raising questions about whether peer-to-peer prediction will be classified as gambling, securities, or other financial products in different countries. The strengthening of regulatory scrutiny poses significant risks.
A key operational threat is the possibility of market manipulation by participants. As Polymarket is a decentralized platform, individuals or groups with substantial funds may influence odds, leading to potential misleading trends that undermine trust in their predictions.
Conclusion
Since the beginning of 2024, Polymarket has experienced explosive growth, positioning itself as the go-to place for crowdsourced prediction of significant events, particularly filling the gap in media coverage and social discourse around the US elections. Over the past six months, the platform has attracted 500 million users and amassed $4 billion in total value locked.
Our analysis indicates that Polymarket's strong momentum is likely to continue post-election. On the media front, citing Polymarket's predictions has become a common practice for traditional media and social platforms, while among platform users, the majority have taken positions on topics beyond the U.S. election, reflecting their ongoing engagement with various events.
In the long term, Polymarket's development will depend on a savvy grasp of market positioning, content strategy, and regulatory environment. As the platform's visibility grows, public scrutiny and competition from both traditional platforms and Web3 platforms will intensify. To fully leverage its visibility and influence, the Polymarket team must make strategic choices to strengthen its position while retaining the public interest it has cultivated.
Appendix: Polymarket's On-Chain Technology Stack
Source: Polymarket Github
a.CTF Exchange (Centralized Trade Mechanism or Conditional Token Framework Exchange)
The CTF Exchange serves as the primary trading interface and matching engine, facilitating markets for conditional tokens based on specific event outcomes.
Structurally, it can function as a "CLOB" (Central Limit Order Book) or "BLOB" (Binary Limit Order Book), where users can place buy and sell orders. These orders are typically signed according to the structured data EIP-712 standard, enabling off-chain order creation and on-chain settlement, reducing gas costs and enhancing transaction efficiency. By processing orders and matching based on pricing parameters, the exchange allows users to trade conditional tokens directly linked to event probabilities.
In addition to basic order matching, the CTF Exchange also interacts with various decentralized modules to ensure the accuracy and credibility of event resolution. For example, upon event resolution, the CTF Exchange communicates with the UMA CTF Adapter to retrieve the final outcome, subsequently updating users' holdings of conditional tokens. The exchange further incorporates a liquidity provision mechanism by incentivizing operators to relay matched orders and settle transactions on-chain.
b.NegRisk Exchange
The NegRisk Exchange supports mutually exclusive binary markets: breaking down complex scenarios into multiple yes/no questions, each focusing on a specific outcome. For instance, the "2024 Presidential Election Winner" can be decomposed into individual questions, each targeting a candidate ("Will Joe Biden win the 2024 U.S. presidential election?" or "Will Donald Trump win the 2024 U.S. presidential election?"), with each question supporting two possible outcomes.
c. UMA Optimistic Oracle
The UMA Optimistic Oracle, as a decentralized resolution layer, provides reliable event outcomes to address on-chain prediction market issues. Unlike traditional oracle systems, an optimistic oracle system operates on an "optimistic" validation model, where the data submitted by proposers is considered correct unless challenged. This design significantly reduces the cost of high-frequency on-chain computation since the Oracle only resorts to dispute resolution when observers (disputants) flag the data. When an event in a prediction market concludes, the proposer provides the outcome to the UMA Optimistic Oracle and keeps the dispute open for a predetermined period. The dispute window allows any network participant to challenge the validity of the data, and upon successful challenge, the proposer is penalized, while the challenger receives a reward. The Oracle's architecture consists of proposers, challengers, and resolvers. Once the data is conclusively determined and undisputed, the oracle provides the resolved data to connected applications like the UMA CTF Adapter for conditional token settlement.
d. UMA CTF Adapter
The UMA CTF Adapter, as an intermediary between a CTF exchange and the UMA Optimistic Oracle, converts event outcome data into a format compatible with conditional tokens. After the Oracle confirms the event resolution, the CTF Adapter retrieves the data and processes it according to the specifications required by the Gnosis Conditional Token Framework. This conversion process includes validating the data's integrity and initializing the conditions necessary to trigger token payouts.
Source: https://github.com/Polymarket/uma-ctf-adapter
The UMA CTF Adapter ensures interoperability between various on-chain systems and protocols, essentially connecting the CTF exchange's need for external data with the Oracle's functionality. This adapter initializes condition resolution on CTF exchanges, triggers smart contracts, and releases or redeems tokens based on the final event outcome. Its codebase structure accommodates multiple data formats and validates conditions across different markets, enabling prediction markets to flexibly build on the UMA and Gnosis frameworks.
e. Operator
An operator plays the role of a facilitator, forwarding matched orders for settlement, sometimes even personally executing orders. These operators ensure that buy and sell orders on the CTF exchange are quickly executed, reducing friction to a minimum, thus enhancing the system's efficiency for end-users. By signing orders that comply with the EIP-712 standard, these operators enhance transaction security while lowering gas costs through off-chain order management.
Technically, operators act as off-chain liquidity providers or market makers, ensuring adequate token supply and demand for various activities. Operators can manage order execution without directly interacting with the CTF exchange smart contract, achieving scalability and cost-effectiveness.
f. Conditional Token
The Polymarket CTF Exchange is an exchange protocol that facilitates atomic swaps between Conditional Token Framework (CTF) ERC1155 assets and ERC20 collateral assets. The open nature of this framework allows for adjustments and integrations across multiple dApps, enhancing the scalability of prediction markets.
Within the Gnosis Conditional Token Framework, conditional tokens can be created.
Conditional tokens are the underlying assets of trades on prediction markets, representing users' risk exposure to specific event outcomes. These tokens are minted based on predefined conditions set within the Gnosis Conditional Token Framework, where each token's value depends on the resolution of a specific event. For example, in a political election prediction market, conditional tokens could represent each candidate's odds of winning. Users purchase these tokens essentially betting on their chosen outcome. As market demand fluctuates, the token's value also fluctuates, reflecting real-time probabilities of event outcomes.
Technically, conditional tokens are smart contract-based assets that leverage the ERC-1155 standard, allowing the creation of tokens with customizable conditions. Conditional tokens retain deeper fungibility as all conditions are held within a single contract and are not tied to specific collateral tokens.
“The user will hold a conditional token in a ‘position.’ A position can be simple (involving only one condition) or complex (involving multiple conditions). For example, you no longer hold A and N separately—where A and N are results of two events—but you can hold a position AN, representing event N as event A has already occurred.”
After the event is resolved, tokens tied to the successful outcome will appreciate or provide a redeemable reward, while tokens representing the unsuccessful outcome will depreciate.
This article is contributed content and does not represent the views of BlockBeats.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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