Polymarket and the rising popularity of political prediction markets

Photo via Polymarket/Public domain/Wikimedia Commons

In the rapidly-evolving world of decentralized finance, Polymarket, an American exchange, has emerged as a bridge between prediction markets and blockchain technology.

The platform allows users to place bets on the outcomes of various events, ranging from presidential elections to weather patterns. Polymarket is particularly known for its focus on political and legislative outcome betting.

Users can only place bets using USD Coin (USDC), a feature that has made the platform especially popular among cryptocurrency enthusiasts.

Similar to traditional financial exchange markets, Polymarket users essentially buy and sell assets. However, these assets are tied to “yes” or “no” answers about the outcome of specific events. During trading, the likelihood of an outcome is displayed, offering a prediction of the event’s result.

This type of platform, known as a prediction market, operates on the idea that collective wisdom—often backed by significant financial stakes—can predict outcomes more accurately than individual experts, even if many participants lack specialized knowledge.

One of the earliest examples of prediction markets is the Electronic Market at the University of Iowa, operational since 1988. It has outperformed traditional polling predictions for presidential elections between 60% and 100% of the time.

Polymarket appears to follow in these footsteps. For instance, before the clock struck midnight on the 2024 Presidential Election night, the platform predicted President-elect Donald Trump’s victory with 95% certainty. According to Investopedia, Polymarket CEO Shayne Coplan called this outcome a “vindication” of the platform’s predictive capabilities.

Polymarket also accurately predicted J.D. Vance to be Trump’s running mate before the announcement, with $94 million wagered on the decision before it was confirmed on Truth Social.

Despite its successes, Polymarket was banned in the United States. Prediction markets tied to real-world events are classified as commodity markets and must be registered with the Commodity Futures Trading Commission (CFTC). Polymarket is not registered.

In 2022, the CFTC filed civil action against the company, resulting in a $1.4 million fine and an agreement to shut down its event-based markets.

Nevertheless, an estimated $3.2 billion in cryptocurrency flowed through Polymarket during the 2024 election, indicating that many Americans bypassed the ban. VPN services are suspected to have enabled U.S.-based users to spoof their locations and access the platform illegally.

The FBI later raided Coplan’s SoHo residence, seizing his electronic devices. Sources close to Coplan described the raid as “political theater” and claimed that authorities could have obtained the devices without resorting to such a public spectacle, according to BraveNewCoin. 

A Polymarket spokesperson echoed this sentiment in a statement to Reuters, calling the raid “political retribution by the outgoing administration against Polymarket for providing a market that correctly called the 2024 presidential election.”

With the election season behind it, Polymarket has now opened betting on the potential effects of Trump’s presidency. For example, upon opening the app, users are greeted with options such as “Trump deportation executive action in the first 100 days,” “Trump ends Ukraine war before inauguration” and “Trump ends Gaza war by first 100 days” all equipped with the matching prediction numbers. 

Not only is betting on the continuation of war morally reprehensible, only 12.7%  of the people doing it are making a profit, according to Cointelegraph. A data analytics tool known as Layerhub showed that 87.3% of Polymarket’s users’ crypto wallets did not make a profit, and most of the ones that did only reaped a reward between 0 and 100 dollars. 

Despite this, it seems that Polymarket has led a charge of election betting as brokers such as Robinhood and Interactive Brokers have joined the game, each launching betting markets last month. 

Coplan has hopes that, after Polymarket’s success during this election, the public view of prediction markets may be swayed. “I understand that it’s a novel concept and people were skeptical when it came around. But hopefully now people will be a lot more embracing of market-based information,” he said, according to Investopedia. 

Coplan’s hope may become a reality as Trump is openly pro-crypto, pledging to make America “the crypto capital of the planet.” Since his victory in the polls, the most popular cryptocurrency, Bitcoin, nears $100,000. 

Trump also vowed to end the Securities and Exchange Commission (SEC)’s “anti-crypto crusade.” 

It is safe to say that this crypto success story is not going anywhere anytime soon despite its illegality. Only time will tell if prediction markets are the future of polling, but Polymarket aims to put up a fight.