Author: OKG Research
Recently, a researcher from OKG Research published an article titled "After Successfully Predicting the Election, Can Polymarket Sustain the 'Success of Web3'?" on FT Chinese website. The article believes that Polymarket has fully demonstrated the power of the "rational consensus" of Web3 applications in predicting the US presidential election. This is a "victory" for Web3 applications: before this, there had never been an on-chain application program that could break through the "barrier" of the Internet without relying on tokens or other external incentives, and take the initiative in competition with Web2 platforms and gain the highest market share. As one of the few on-chain innovations that can "reverse output" to the real world, Polymarket not only allows us to see the replacement of existing Web2 services by Web3 applications, but also hopes to discover more replicable successful experiences from it.
The original text is as follows:
The dust has settled on the US election, and the Republican presidential candidate Trump will return to the White House in January next year. Looking back on the entire election cycle, Polymarket, as a prediction market, has been frequently mentioned. Not only did it account for more than 80% of the total betting amount in this election, but it also demonstrated the power of "rational consensus" in predicting "who will be the next president": traditional polling agencies previously generally believed that Trump and Harris had similar probabilities of winning, while Polymarket's "real money" betting had already shown that Trump's chances of winning were far higher than Harris.
More importantly, as one of the few on-chain applications that can "reverse output" to the real world, Polymarket not only allows us to see the replacement of existing Web2 services by Web3 applications, but also hopes to find more replicable "successful" experiences from it.
1. The "Restrained" Polymarket Gathers Rational Consensus
Unlike the "wealth creation myth" that gambling speculation and MEME coins may create, Polymarket cannot bring huge returns. Compared to traditional prediction platforms, although Polymarket does not limit the betting amount, in order to avoid the possibility of a large deviation in the results, the odds are controlled within a reasonable range. This makes it difficult for users to obtain high multiple returns through betting. With the unveiling of the election results, accounts such as Theo4, Fredi9999 and zxgngl have currently obtained over 10 million in earnings, with more than 78 addresses having profits exceeding one million, but the overall investment return rate is not particularly "exaggerated", and only about 15% of the addresses have realized positive profits.
This "restrained" investment return rate has caused some speculative users to lose interest, but it has also completed the user screening in an invisible way, helping Polymarket to gather more "rational consensus". For Polymarket, the important thing has always been to exert the efficiency of the free market to improve the accuracy of predictions, rather than to bring excess returns and increase trading volume. The relatively restrained "economic incentives" allow most users to analyze events more rationally and objectively, rather than making "profitable" choices out of speculative needs: this also makes Polymarket's predictions of future events more informative than guesses and polls.
Authoritative media such as Bloomberg and the Financial Times often cite Polymarket's prediction data alongside traditional poll results when analyzing election trends; Elon Musk even directly stated that Polymarket is "more reliable than polls, after all, real money is involved in the betting here".
Polymarket may become the "future of media" as its founder Coplan often claims. Although it currently only shows advantages in a few political topics such as elections and interest rate cuts, through integration and connection with media platforms such as Substack and Bloomberg, Polymarket is becoming a "reverse oracle" (oracle), conveying the most real data and views from the Web3 on-chain world to the traditional world.
During this election cycle, Polymarket has completely defeated traditional prediction platforms in competition and has almost become the synonym for "prediction market". According to incomplete statistics from OKG Research, as of November 6, 2024, Polymarket's cumulative trading volume has exceeded $4.8 billion, with a single-month trading volume of over $2.3 billion in October, a staggering 4.5-fold increase from September.
Since May 2024, Polymarket's daily active users (DAU) have also been on a continuous rise, reaching a new single-day record of 53,000 on November 6, an increase of more than 100 times from half a year ago. However, we also notice that although the trading volume and the number of active trading users are growing, the average betting amount is continuously decreasing, with users betting less than $500 accounting for more than 85%, and more than 40% of users betting less than $50.
This may to some extent indicate that Polymarket is attracting more users with lower economic capacity or risk tolerance, rather than just being a "rich man's game". Therefore, although this seems to be a "negative" indicator, it is actually positive for Polymarket in the long run. The origin of prediction markets and their past failures have always emphasized the importance of broad participation, as the rational analysis of participants and their constant re-evaluation of new information are the foundation for prediction markets to be "accurate": only with more users participating in event prediction can the trends shown by the data more accurately reflect the market consensus.
The key reason for Polymarket's rapid growth is that it leverages the power of blockchain and cryptocurrencies to build the broadest market consensus more truly and effectively. The value of technology is mainly reflected in the timeliness of economic incentives and the transparency of betting data. Polymarket uses USDC as the trading currency for betting, greatly reducing transaction friction with its inherent globalization and digitalization, allowing users to participate in predictions more freely; and the idea of smart contracts and AMM also brings better market mechanisms to the prediction market - free access and better liquidity. More importantly, compared to the potential "black box operations" of traditional Web2 prediction platforms, Polymarket runs on the Polygon blockchain network, with all betting data publicly transparent, and users can query at any time and analyze based on the current real-time situation to make decisions.
2. How to Find the Next "Polymarket"?
In the total betting amount of this year's US election, Polymarket has shown absolute advantage over traditional Web2 prediction platforms. This is the "victory" of Web3 applications: before this, there had never been an application program created in the on-chain environment that could break through the "barrier" of the Internet without relying on tokens or other external incentives, and take the initiative in competition with Web2 platforms and gain the highest market share.
Many people are worried that Polymarket's dependence on the "hit product" of the election will make it lack momentum. But from the on-chain situation, although Polymarket's data has declined after the election, it is still significantly higher than before October, with a current stable daily trading volume of $30-40 million and a daily active user count of over 20,000, roughly on par with the end of October. After the "election fever", sports-related topics have taken over, with the Super Bowl champion prediction reaching $760 million in trading volume, and the UEFA Champions League champion prediction also attracting over $400 million in bets.
Of course, just as the betting results of prediction platforms cannot represent the "truth", we cannot assess whether Polymarket's "victory" can be sustained. But more than that, we are more concerned about whether Polymarket's "victory" can be replicated in other fields.
Over the past two years, the construction of Web3 infrastructure has gradually matured and even shown signs of "oversupply", and the industry has turned its attention more to the application layer. But as Web3 accelerates the process of mainstreaming under the push of internal and external forces, the application innovations that previously only satisfied the crypto user group can no longer achieve success. How to accelerate the penetration into the real world, attract more Web2 users to enter, and optimize or even replace existing Web2 services with on-chain applications has become an important direction for Web3 application innovation. But before Polymarket, we could hardly find a case of Web3 applications truly replacing existing services.
The well-known reasons for the poor performance of these on-chain applications are: in addition to compliance issues, the blockchain environment and the resulting entry barriers and usage thresholds have kept most ordinary users "off-chain". And the innovations that can truly achieve mass adoption are mostly simple, or even "mindless". If users have to "think" too much when using it, they will undoubtedly develop a fear and stay away. Before Polymarket, Augur, the first on-chain prediction market, had also attracted much attention, but failed to continuously attract users and operate due to its overly complex mechanism.
The most direct way to get more people involved is to lower the usage threshold, simplify the user interface to the extreme, and make it "one-click" to complete. Just like mobile payments today, where you only need to show a QR code and let others scan it to complete the transaction with a "beep", this is the way to gain more acceptance from ordinary users. Polymarket obviously realized this, and in the early stage, it abandoned the complex protocol design at the product level, minimizing the additional burden on users caused by unnecessary complexity, and always focusing on meeting the core needs (such as betting), abandoning other decentralized and permissionless technologies and concepts.
But Polymarket still actively utilizes the advantages brought by blockchain and cryptocurrencies, which makes Polymarket more attractive. However, the value of on-chain applications does not lie in achieving decentralization, but in providing a more efficient, more trustworthy and accessible application environment for more real-world scenarios based on blockchain and crypto assets. Therefore, Polymarket does not insist on having all activities happen on-chain, but adopts a hybrid model: only the core transactions and settlement processes are carried out on-chain, while some metadata storage and order matching are completed off-chain. This not only has greater flexibility and scalability, but also ensures that users can complete transactions at low cost and high efficiency.
In the early stage of Web3 applications, such a product model that conforms to the existing user habits may be more helpful in completing the seamless migration of more users, and replicating the "success" of Polymarket in different fields.
