Key Questions

-Why does the world need Polymarket?

-Will Polymarket’s popularity continue after the US election?

-Is Polymarket the next cryptocurrency killer app?

-Will there be a Polymarket token?

Interesting charts

TL, DR

Polymarket is an on-chain prediction market that addresses a critical information gap by providing quantitative odds on future events, providing a numerical representation of probability that was previously lacking in news media and social discussions.

The platform has seen significant growth over the past six months. Between April and October, monthly trading volume surged from $40 million to $2.5 billion, and open interest climbed from $20 million to $400 million. The amount of locked capital is now comparable to leading decentralized exchanges like SushiSwap AMM V3, and on par with the total value locked (TVL) of networks like TON.

In October, Polymarket’s website received 35 million visits, twice as many as popular betting sites such as FanDuel. Its predictions for the US election are often cited by popular media such as The Wall Street Journal and Bloomberg. This surge shows that Polymarket has grown from a well-known project in the cryptocurrency space to a platform for mainstream audiences, marking a milestone in the public adoption that Web3 has been eagerly seeking.

Our analysis shows that users who join Polymarket are likely to continue using the platform after the current US election cycle. 3/4 of users who hold positions trade topics unrelated to the election, indicating a continued interest in different topics.

Polymarket has not yet finalized a token generation plan. The company is exploring the possibility of launching a token for verifying the results of real-world events, but has not yet announced a formal decision.

introduce

Polymarket is a blockchain-based prediction market launched in 2020 by 22-year-old Shayne Coplan. Its timely launch allowed the platform to gain attention during the 2020 US election cycle. Despite the subsequent cryptocurrency market turmoil, Polymarket survived and returned with even greater popularity during the 2024 US election cycle.

The prediction market is an innovative trading platform where participants can create and trade contracts to speculate whether a certain event will occur in the future. By trading "yes" or "no" on the results, the market aggregates collective opinions, and the price of the "yes" contract represents the consensus probability of the event occurring at any given moment. This real-time pricing provides valuable information for understanding public expectations and predictions.

News media and social platforms often neglect to track the likelihood of events in real time. While the US election has received a lot of attention, there is no centralized source of information that consistently integrates daily developments into a quantitative assessment of expectations. The unique "representative" system used in the US election further complicates predictions, leading analytics sites like FiveThirtyEight to primarily aggregate poll results without providing exact odds on potential winners.

Polymarket’s presidential election prediction market fills this gap. New information such as candidate events and polls are immediately reflected in the future price of events. This quantification and immediacy helped Polymarket quickly gain popularity and become the universal currency for discussing the election on social media.

It would not be surprising if the Polymarket Probability Trend becomes a staple chart on major news broadcasts in the near future. Soon, networks like CNN and ABC will join CNBC and Bloomberg TV in including real-time probability charts in their coverage of major events, providing viewers with data-driven insights and context similar to those used in financial news coverage.

Going to the masses

Birth

Polymarket was founded by Shayne Coplan in 2020, during the US presidential election. The "Will Trump win the 2020 US presidential election" campaign attracted a large number of participants, with trading volume reaching $10.8 million within a few months, and helped push Polymarket's monthly trading volume to $25.9 million.

The platform has also attracted the attention of prominent figures such as Vitalik Buterin, who recognized its potential in a blog post in 2021. Although still a bit niche at the time, Polymarket has already exceeded $1 million in top trading activity, showing great potential.

Regulatory pushback

Polymarket operates at the intersection of gambling and futures trading and faces unique regulatory challenges. In October 2021, the U.S. Commodity Futures Trading Commission (CFTC) began investigating the platform. In January 2022, Polymarket reached a settlement with the CFTC, and the platform agreed to pay a $1.4 million fine for offering binary options without a futures trading license.

As part of its compliance efforts, Polymarket subsequently reorganized into an offshore platform, prohibiting U.S. residents from participating in its market. The company also appointed former U.S. Commodity Futures Trading Commission (CFTC) Commissioner J. Christopher Giancarlo as an advisor to help it navigate complex regulatory issues and ensure future compliance.

The settlement reduces some of the uncertainty surrounding Polymarket’s operations, allowing market activity to return to levels seen in early 2021. However, an important question remains: When will Polymarket be able to break into the mainstream market?

Entering the mainstream

A year after the CFTC settlement, Polymarket launched the "2024 US Election Winner" market in January 2024, which quickly sparked a surge in trading activity. Over time, major political events - including the assassination attempt against Trump and Biden's unexpected withdrawal - sparked a strong interest in election predictions. In the final month of the election, as early voting results were released, Polymarket's popularity reached an all-time high.

Throughout the 2024 election cycle, Polymarket’s monthly volume soared from a few million dollars to $50 million in January, nearly $400 million in July, and easily over $1 billion in October. Total open interest — locked USD/CAD and potential payouts after all contracts settle — increased from $7 million on January 1, 2024 to about $400 million on November 1. This locked capital exceeds TON’s total TVL, and Polymarket ranks 18th in locked capital in the blockchain infrastructure ecosystem.

Interest in Polymarket extends beyond the trading community: its search popularity on Google and web traffic have surged, reflecting widespread public attention. Its election predictions are frequently cited by major media outlets such as the Wall Street Journal, Bloomberg, and CNN, as well as public figures such as Donald Trump. Bloomberg achieved a milestone in August when it integrated Polymarket’s election odds into its terminal. Polymarket has not only become a major project in the cryptocurrency space, but has also attracted the attention of the general public - a goal that the Web3 space has long aspired to achieve.

The Web3 industry has yet to achieve mainstream adoption, largely due to the lack of a "killer app" that could create an iPhone-like moment for the space. The collaboration between Telegram and TON has generated a lot of excitement in the Web3 community as it has great potential to drive mass adoption. Similarly, Polymarket is exploring new directions that can also push the boundaries of technology, providing promising avenues to reach a wider audience and bring Web3 closer to widespread adoption.

Activities on the platform

Website traffic

As Polymarket hit record highs in terms of trading volume and number of participants, its website traffic surged. In September, Polymarket had 2.3 million unique visitors and 16 million total visits. In October, monthly visits doubled to 35 million, putting Polymarket on par with popular betting platforms such as FanDuel, which had 5 million unique visitors and 17 million visits in September, and far ahead of regulated prediction trading sites such as Kalshi, which had 118,000 unique visitors and 237,000 visits that month.

Looking at engagement metrics, Polymarket’s ratio of active traders to visitors (around 3% in July) has declined over the past three months. This suggests that a large portion of Polymarket’s audience is primarily seeking information rather than trading. This trend has become more pronounced as Polymarket’s profile has grown, reflecting its appeal as an information resource.

Furthermore, the ratio of total visits to unique visitors shows that the average website visitor consistently visits the site 7 times per month, demonstrating the high engagement and stickiness of Polymarket users. The combination of high visits and high engagement highlights the potential of Polymarket not only as a trading platform, but also as a widely trusted source of predictions on major events.

Polymarket’s primary source of visitors is direct URL typing, suggesting that most users are already familiar with the platform before visiting. Another 30% of visitors arrive via organic search, suggesting that many users are searching for Polymarket specifically by name. Social media traffic accounts for another 5%, with the primary source being Twitter, which aligns with Twitter’s active role in cryptocurrency and election discussions.

Notably, there are very few paid traffic sources, such as paid search and display ads, suggesting that the platform primarily attracts users through brand awareness and organic interest rather than paid advertising. This mix of traffic sources highlights Polymarket’s growing influence as users proactively turn to it for reliable predictive insights.

Geographically, more than half of the traffic comes from the United States, followed by four close allies of the United States, which may be significantly affected by the results of the US election.

These observations suggest that most Polymarket users have effectively used the platform as a bookmark, regularly using it as a reference to follow events as they unfold. This trend aligns with CEO Shayne Coplan’s statement that Polymarket’s value lies in providing “the highest quality information on the internet.”

market

Each prediction event on Polymarket is composed of one or more markets, each of which is a binary outcome pair. For example, in the "Election" event, separate markets include "Trump Wins Y/N" and "Harris Wins Y/N", as well as lower priority markets such as "Biden Wins Y/N".

The Polymarket team is responsible for creating new markets and taking community input into account during the creation process. In late 2021 and early 2022, the team experimented with launching up to 2,000 markets per month, likely in an effort to increase user engagement. However, this rapid pace eventually stabilized at a few hundred markets per month. Starting in January 2024, market creation surged again, reaching exponential growth, suggesting that the recently added markets have resonated well with users and received positive feedback.

U.S. election-related markets have been the primary driver of Polymarket’s volume since January 2024, accounting for approximately 50% of total volume in the first half of this year, climbing to over 75% as interest in the election peaked. Interestingly, despite the surge in election-focused trading, non-election markets still attracted a significant amount of trading activity, accounting for nearly 25% of total volume. Among these, sports-related markets, such as Super Bowl and Champions League predictions, contributed significantly, indicating that user interest extends beyond the election cycle. This balance suggests that Polymarket’s appeal is broadening, making it a multifaceted prediction platform.

user

Since mid-2024, Polymarket has seen a surge in new user registrations, with more than 300,000 people signing up in October alone. This rapid influx means that 86% of users have joined the platform in the past six months. There were 235,000 active trading addresses recorded in October, and 35% of all registered users are currently trading.

As of November 3, 327,000 users (half of all registered users) held active positions. Of these, approximately 80,000 users trade exclusively in US election-related markets, with the remaining 247,000 users spread across other market categories. The heavy participation in non-election markets suggests that user interest is persistent and that the platform’s growth and relevance can be maintained even after the election cycle ends.

Rest of the world excluding the United States

Combining these observations, we discover an interesting phenomenon: while most of Polymarket’s visitors are Americans, only non-US users can actively participate in trading due to regulatory restrictions. This creates a unique dynamic for US election predictions - the rest of the world is actually predicting the next US president, while Americans are mainly observing. Polymarket has thus become a platform where international participants provide a global perspective on US political events to a predominantly US audience.

How Polymarket works

Prediction Market Mechanism

Prediction markets date back to 16th century political betting, initially focusing on events such as the succession of the Pope. These markets allow participants to bet on future outcomes, gradually evolving into a public belief platform for crowdsourcing uncertain events. In July 2018, prediction markets entered the cryptocurrency space with the launch of Augur, the first decentralized prediction platform built on Ethereum. Two years later, Polymarket was launched, enabling users to deposit USDC and bet on the future outcomes of various events.

Prediction markets work the same way as futures markets: contracts are created to pay a fixed amount when a specific event occurs, and participants trade these contracts in a similar way to stocks by submitting buy and sell bids. The current contract price at any given moment is the market's consensus estimate of the probability of the event occurring.

As discussed in James Surowiecki’s book The Wisdom of Crowds, prediction markets have traditionally been hailed for their ability to effectively aggregate diverse information and improve forecast accuracy.

Differences from traditional gambling

Although prediction markets have long existed, traditional betting markets still attract more participants. To understand why, let’s first take a closer look at betting markets.

The main differences between prediction markets and traditional gambling are: First, prediction markets operate as a two-way exchange, allowing participants to exit their positions at any time before the outcome of an event is determined. Second, prediction markets continuously update consensus odds to reflect real-time public sentiment, while traditional bookmakers mainly adjust odds to balance the betting pool and ensure that bookmakers minimize potential losses. This approach often causes bookmakers to over-correct odds and distort the true probability of events.

However, prediction markets face unique challenges, especially in terms of liquidity. In order to ensure smooth trading, exchanges must ensure that contracts are always available, which requires a stable source of liquidity. This can be achieved through automated market makers (AMMs) (similar to DEXs) or using order books supported by market makers (similar to CEXs). Both methods require incentivizing liquidity providers, which will increase costs for traders or the exchanges themselves.

Liquidity challenges are particularly evident for low-odds events. While traditional betting caters to different needs by setting initial odds and pooling bets into a single pool, prediction markets rely on sufficient user interest to maintain active trading. Without sufficient activity, prediction markets struggle to achieve meaningful odds, limiting their accuracy and appeal to low-traffic events.

What’s happening on Polymarket

user interface

Polymarket stands out for its simple and smooth user experience. It uses USDC (USD Coin) to facilitate transactions, a federally regulated stablecoin backed by the US dollar. Using on-chain currency is a must because the exchange is built entirely on-chain.

Users first register via email or crypto wallet, then deposit USDC from an existing wallet or purchase directly with fiat currency through Moonpay. Once users browse the available markets and select an event, they can use real-time data to make predictions. The next step is to buy or sell stocks based on these predictions, and the potential returns will be displayed on the interface. The transaction is then confirmed through the user's account address and finally completed. In the event of a dispute, users can also raise questions to resolve the incident.

trade

On Polymarket's peer-to-peer prediction markets, trades occur directly between users, and prices emerge organically through user-driven orders. New markets start with no stock or predetermined price; traders place limit orders based on the price they are willing to pay, effectively acting as market makers. For binary events, users bid on a "yes" or "no" outcome. When the sum of the bids for "yes" and "no" equals $1, these orders are matched, forming the initial market price. For example, a $0.60 "yes" bid is paired with a $0.40 "no" bid, establishing the price. As trading proceeds, bids and asks can be matched directly at the prevailing price, increasing liquidity.

Polymarket uses ERC-1155 tokens (or "outcome tokens") to represent these binary predictions. In addition to binary options, the platform also supports more complex scenarios:

Categorical Marketplace: Users choose from multiple mutually exclusive outcomes (A, B, C).

Scalar markets: A broader question broken down into a series of yes/no contracts.

· Combination Markets: These markets allow for hierarchical forecasting by combining multiple questions.

This diversity expands the flexibility of the platform, allowing a wider range of campaigns to be created in the future.

After the event ends, the profits are distributed according to the winning and losing results of the Poli market. The winner's shares are worth $1.00 per share, while the loser's shares are worth $0.00. Market resolution occurs once the results are clear and in accordance with the established rules. If a user disagrees with the resolution, they can stake a $750 USDC deposit to challenge the resolution. The deposit will only be returned if the challenge is successful, thus establishing a mechanism that encourages valid disputes while discouraging frivolous claims.

Technical Framework

In terms of technical design, a number of components ensure that prediction markets operate in a decentralized manner.

The Gnosis Conditional Token Framework (CTF) provides an infrastructure for creating conditional tokens, allowing tokens to be created for various event outcomes. The CTF Exchange is an on-chain component of the Polymarket order book that enables atomic swaps between CTF ERC-1155 assets and ERC-20 collateral, and settles matching orders in a non-custodial manner. At the same time, operators running off-chain handle order matching and trade submissions, manage outstanding orders, and allow orders to be placed and canceled immediately off-chain.

To match betting information, the UMA CTF Adapter connects the Optimistic Oracle and CTF conditions, initializes the market by querying the UMA oracle, and obtains parsed data to settle the conditions. The UMA Optimistic Oracle resolves the prediction market during the challenge period and allows disputes, ensuring that the on-chain accurately reports off-chain events. Then there is another component: the NegRisk Adapter enables Gnosis CTF to manage binary markets, convert "NO" tokens into "YES" tokens with collateral, and integrate binary results into a unified market structure. Finally, the NegRisk Exchange is a streamlined version of the Polymarket Exchange contract, which enables trading within the NegRisk market through a central limit order book (CLOB).

company

team

The Polymarket team is led by three key individuals:

· Shayne Coplan, Founder and CEO - A native New Yorker, Shayne entered the web3 space at the age of 15, starting with Bitcoin mining. He dropped out of NYU in 2017 and founded Union.market in 2020, followed by Polymarket in 2020.

David Rosenberg, VP Business Development & Strategy - David has extensive experience in business development and strategy from Foursquare, GIPHY and Snap. He joined Polymarket in June 2020 after four years as Director of Strategy at Snap. David graduated from Cambridge University in 2011.

Liam Kovatch, Head of Engineering - 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 through the ranks to Head of Engineering.

The rest of the company is organized around business development and engineering, with 12 members responsible for growth, marketing and strategy, and eight members responsible for engineering and data, for a total of 23 employees. Part-time or outsourced professionals support other functional departments such as finance. Most team members are based in New York.

Polymarket's team size has changed over time. The company started with a team of four, and after initial success in 2020, it expanded significantly, reaching around 20 employees by mid-2022. But in the second half of 2022, possibly due to an investigation by the U.S. Commodity Futures Trading Commission (CFTC), the team was downsized and maintained a lean structure until early 2024.

The company resumed hiring in early 2024, before the pandemic or additional funding. This proactive growth suggests that the leadership team expects a more favorable operating environment for the platform, allowing it to handle the subsequent significant increase in business volume.

Operating profit and loss

Currently, Polymarket charges no fees for using the platform, including buy and sell positions, winner rewards, and deposits and withdrawals. Previously, when the platform used an automated market maker mechanism, LP fees were charged in connection with transactions to compensate liquidity providers, but this fee has been eliminated with the transition to an order book architecture by the end of 2022. While there is a fee for using a third-party service to convert fiat currency into USD/CAD, this fee belongs to the service provider, not Polymarket.

In addition to not charging fees, Polymarket also subsidizes its operating costs, including order book market making rewards, on-chain transaction gas fees, and website maintenance fees. Reports show that Polymarket has issued more than $3 million in USD/CAD rewards so far this year, with popular markets offering up to $600 USD/CAD rewards to liquidity providers every day.

Polymarket’s early cash flow was likely supported by ecosystem incentives. As a reward for adopting the UMA technology stack, the platform received approximately 160,000 UMA tokens, valued between $40,000 and $48,000. However, there is 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 rewards are critical to maintaining day-to-day operations, especially considering that the company has only raised $4 million by mid-2024.

While no formal monetization plans have been announced, the CEO has hinted that charging for platform use may be possible in the future. On the other hand, given their recent success in fundraising, the team may not be in a rush to find a source of revenue and may continue to subsidize platform operations to consolidate its leading position in the prediction market space. In addition, since more than 95% of the site's traffic is for content consumption rather than transactions, the site can quickly raise funds by increasing display ads rather than charging transaction fees.

Fundraising

Polymarket successfully raised $4 million in its first round of financing in 2020. In May 2024, the company completed two more rounds of financing, attracting a total of $70 million in funding from nine investors. It is expected that the influx of these funds will greatly enhance Polymarket's future expansion capabilities, including strengthening its talent pool and market coverage.

While there are no confirmed plans for a token generation event (TGE) at this time, recent reports indicate that Polymarket is exploring another potential funding round of $50 million. The company has also hinted at the possibility of launching a token that would allow users to verify the results of real-world events.

Given Polymarket’s rapid investor fundraising speed, and the challenges it would face in conducting a traditional IPO due to its offshore structure, the likelihood of a token generation event seems strong.

As for the company's valuation, there is no official report on the valuation of each round of financing. However, we can reasonably estimate that with the $45 million raised in the B round, Polymarket's valuation is likely to have reached the billion-dollar mark.

SWOT Analysis

Although Polymarket is four years old, it has only recently achieved significant growth and is still in a highly volatile phase. Rather than speculate on its future, a SWOT analysis can provide a clearer picture of its potential development path:

advantage

Polymarket’s greatest asset is the unprecedented public attention its prediction markets have received. This visibility attracts participants, creating a cycle where greater participation leads to more accurate and credible predictions on a wider range of topics. 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 ensures the highest level of transparency, thereby building trust. However, this advantage is less pronounced than other on-chain competitors, as Polymarket lacks proprietary intellectual property or a dedicated blockchain, making it easier for other projects to copy its model.

shortcoming

Liquidity for niche events is the main bottleneck for Polymarket to expand into different topics. This challenge is inherent in the design of prediction markets and is exacerbated by their order book model. Unlike traditional sportsbooks, which can easily cover a wide range of events, Polymarket must provide incentives for the market to narrow spreads and increase liquidity for less popular topics.

Another limiting factor is that Polymarket is led by a US-centric team that operates a platform that is inherently exclusive to US trading participants. This mismatch could hinder its global growth while continuing to be mired in US regulatory issues. The Super Bowl remains the most popular sporting event on the scene, suggesting that the platform’s strategy remains heavily skewed towards the tastes of US audiences.

opportunity

Polymarket has risen to prominence with its reliable crowdsourced event predictions and is well positioned to become an integral part of media and social content consumption. This integration could drive additional traffic and open up new revenue streams.

Polymarket’s data also has strong potential as an alternative asset for quantitative trading. Due to the high reliability of its predictions, the platform may attract greater interest from institutional investors and algorithmic traders, triggering demand for predictions on more diverse events.

From a geographical perspective, Polymarket’s success can quickly expand to regions such as Asia and the Middle East where Web3 applications are becoming increasingly widespread. The demand for forecasting regional events in local languages ​​is also huge.

challenge

Like other platforms in the space, Polymarket faces legal uncertainty. Regulatory challenges have affected similar entities such as Betfair and PredictIt, raising questions about whether peer-to-peer predictions will be classified as gambling, securities, or other financial products in different countries. Increased regulatory scrutiny carries significant risks.

A key operational threat lies in the potential for market manipulation by participants. Since Polymarket is a decentralized platform, individuals or groups with large amounts of capital could influence the odds, leading to potentially misleading trends and undermining trust in its forecasts.

end

Polymarket has experienced explosive growth since the beginning of 2024, positioning itself as the go-to place for crowdsourced predictions on major events, particularly filling the gap in media coverage and social discussion around the US election. In the past six months, the platform has attracted 500 million users and accumulated $400 million in deposited assets.

Our analysis suggests that Polymarket’s strong momentum is likely to continue beyond the election. In the media, citing Polymarket’s predictions has become a regular practice in traditional media and social platforms, and among platform users, the majority have taken positions on topics other than the US election, reflecting their continued engagement with different events.

In the long term, Polymarket’s growth will depend on a deft grasp of market positioning, content strategy, and the regulatory environment. As the platform’s visibility grows, so will public scrutiny and competition from both traditional and online platforms. To fully leverage its visibility and influence, the Polymarket team must make strategic choices to strengthen its position without losing the public interest it has cultivated.

Appendix: Polymarket’s on-chain technology stack

a.CTF Exchange (Central Trading Facility or Conditional Token Framework Exchange)

CTF Exchange is the primary trading interface and matching engine that facilitates conditional token markets based on the outcomes of specific events.

In structure, it works as a "CLOB" (central limit order book) or a "BLOB" (binary limit order book) where users can place buy and sell orders. These orders are usually signed in accordance with the EIP-712 standard of structured data, allowing off-chain order creation and on-chain settlement, thereby reducing gas costs and improving transaction efficiency. By processing orders and matching them according to pricing parameters, the exchange enables users to buy and sell conditional tokens that are directly linked to the probability of an event.

In addition to basic order matching, the CTF exchange interacts with various decentralized modules to ensure the accuracy and credibility of event resolution. For example, when an event is resolved, the CTF exchange communicates with the UMA CTF adapter to retrieve the final result and subsequently update the conditional tokens held by the user. The exchange also incorporates a liquidity provision mechanism by incentivizing operators to forward matching orders and settle transactions on-chain.

b. NegRisk Exchange

NegRisk Exchange supports mutually exclusive binary markets: complex scenarios are broken down into multiple yes/no questions, each focusing on a specific outcome. For example, "Winner of the 2024 Presidential Election" can be broken down into individual questions, one for each candidate ("Will Joe Biden win the 2024 US Presidential Election?" or "Will Donald Trump win the 2024 US Presidential Election?"), each supporting two possible outcomes.

c. UMA Optimistic Oracle

The UMA Optimistic Oracle acts as a decentralized resolution layer, providing reliable event results to resolve on-chain prediction markets. Unlike traditional oracle systems, the Optimistic Oracle system operates based on an "optimistic" validation model, which means that data submitted by the proposer is considered correct unless challenged. This design minimizes the frequency of costly on-chain computations, as the oracle will only resort to dispute resolution when an observer (disputer) marks the data. When an event in a prediction market ends, the proposer will provide the result to the UMA Optimistic Oracle and remain open for dispute for a predetermined period of time. The dispute window allows any network participant to challenge the validity of the data, and if the challenge is successful, the proposer will be punished and the disputant will be rewarded. The Oracle architecture consists of proposers, disputants, and resolvers. Once the data is finalized and undisputed, the oracle will provide the resolved data to connected applications such as the UMA CTF adapter, enabling the settlement of conditional tokens.

d. UMA CTF Adapter

The UMA CTF Adapter acts as an intermediary between the CTF Exchange and the UMA Optimistic Oracle, converting event result data into a format compatible with conditional tokens. After the Oracle confirms the resolution of the event, the CTF Adapter takes that data and processes it according to the specifications required by the Gnosis Conditional Token Framework. This conversion process includes verifying the integrity of the data and initializing the conditions required to trigger a token payment.

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. The adapter initializes conditional parsing on the CTF exchange, triggering smart contracts to release or redeem tokens based on the final outcome of the event. Its codebase is structured to accommodate multiple data formats and validate conditions on different markets, allowing prediction markets to be flexibly built on top of the UMA and Gnosis frameworks.

e. Operator

Operators act as facilitators, forwarding matched orders for settlement and sometimes even executing orders themselves. These operators ensure that buy and sell orders on the CTF exchange are executed quickly and with minimal friction, making the system more efficient for end users. By signing orders that comply with the EIP-712 standard, these operators increase the security of transactions while reducing gas costs by enabling off-chain order management.

From a technical perspective, the Operator acts as an off-chain liquidity provider or market maker, ensuring that there is always sufficient supply and demand for various activity outcome tokens. The Operator manages the execution of orders without direct involvement in the CTF exchange smart contract, thus achieving scalability and cost-efficiency.

f. Conditional Tokens

Polymarket CTF Exchange is an exchange protocol that facilitates atomic swaps between Conditional Token Framework (CTF) ERC1155 assets and ERC20 collateral assets. The open source nature of the framework means it can be adapted and integrated in multiple dApps, increasing the scalability of prediction markets.

Under the Gnosis Conditional Token Framework, conditional tokens can be created.

Conditional tokens are the fundamental assets traded on prediction markets, representing a user's exposure to a specific event outcome. These tokens are minted based on predefined conditions set within the Gnosis Conditional Token Framework, where the value of each token depends on the resolution of a specific event. For example, in a political election prediction market, a conditional token could represent each candidate's odds of winning. By purchasing these tokens, users are essentially placing a bet on the outcome of their choice. As market demand fluctuates, so too will the value of the token, reflecting the real-time probability of an event outcome.

In terms of technology, conditional tokens are smart contract-based assets that utilize the ERC-1155 standard to allow the creation of tokens with customizable conditions. Conditional tokens retain a deeper level of fungibility because all conditions are kept in a single contract and are not tied to a specific collateral token.

“You will hold conditional tokens in ‘positions’. Positions can be simple (with just one condition) or complex (involving multiple conditions). For example, instead of holding A and N – where A and N are the results of two events – you can now hold position AN, which represents event N because event A has already happened.”

Once an event is resolved, tokens tied to successful outcomes will appreciate in value or become redeemable for rewards, while tokens representing failed outcomes will depreciate in value.

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