Election bets made up nearly 80% of trading volume in August on Polymarket.
Posted September 24, 2024 at 11:47 am EST.
Decentralized betting platform Polymarket has grown by more than 70 times in trading volume this year, largely due to its hosting of bets centered on the U.S. presidential election. Its success has triggered a flurry of new market entrants, including dYDx, WinterMute, Myriad Markets, Drift, and Limitless, each announcing its own betting platform in recent weeks.
But data from The Block and Dune suggests that trading volume will fall significantly after November 5, potentially as much as 80%. This raises the question of how large the online betting market actually is without election bets, and whether there’s a pathway to success for later entrants.
Elections Driving the Majority of Volume
Election bets made up 77.6% of trading volume on Polymarket in August, according to Dune. Monthly volume data for Polymarket aggregated by The Block showed that total trading volume for August amounted to $472.8 million, meaning that Polymarket hosted roughly $367 million in election–related trades for the month.
The total trading volume for August represented a whopping 7,043% increase compared to December 2023, when Polymarket saw only $6.6 million in total trading volume. Richard Chen, the author of the Dune analytics query and a former general partner at 1confirmation, one of Polymarket’s venture investors, said he started tracking what percentage of Polymarket’s trades were election-related in January 2024 since that’s when trading volume increased significantly. Almost two-thirds of that growth was elections-related, according to Chen’s Dune dashboard.
Why Polymarket Should Have a Higher Base Post-Election
George Washington University economics professor Robin Hanson, who has studied betting markets for over 15 years, said it’s safe to assume that many of those users will stick around for non-election related bets after November 5, too. That’s because these users have already surpassed barriers to entry, such as creating an account, connecting a crypto wallet, and—in the case of American users—learning how to access the site via a VPN, since Polymarket is blocked in the United States. The company settled with the CFTC in early 2022 for failing to register as a designated contract market (likely because the CFTC does not have set rules for regulating decentralized markets), and had to block users in the U.S. as a result.
Polymarket did not respond to requests for comment for this story.
Read more: The US Presidential Election Isn’t the Only Reason for Polymarket’s Success
To explain why she thinks users will continue betting even after Nov. 5, Hanson used the analogy of a supermarket advertising attractive products in the windows outside of its store. “[The markets] have visible products and sales that attract people to the store, who then might buy other stuff and get in the habit of it,” Hanson explained. “The question is how successful they are in attracting people to their other products via this burst of attention.”
One piece of data suggests that Polymarket has already been able to attract users to other products, which is that non-election related trading volume in January 2024 was more than double total trading volume in December 2023. Polymarket’s homepage also prompts users to look at non-election topics such as Federal Reserve interest rate moves, developments in the Israeli-Palestinian conflict, and the outcome of the trial of rapper Sean Combs, better known as “Diddy.”
Why Some Newer Entrants Could Gain a Toehold
Like Polymarket, dYdX is an off-shore betting market, meaning it operates outside the CFTC’s strict regulations for designated contract-markets and so can host prediction products on nearly any topic it wants. This is in contrast to prediction markets such as Kalshi, which are prohibited from hosting products related to terrorism, assassination, war, gaming, or activity that violates state or federal law (whether election betting is permitted in the U.S. is currently being considered in a lawsuit between Kalshi and the CFTC). Offshore markets can thus tap into profitable areas that US-regulated markets cannot, such as sports betting, which is considered a subset of gaming.
Read more: Drift’s New Predictions Market Not Trying to ‘Vampire Attack’ Polymarket, Says Co-Founder
Hanson added that there are a variety of untapped topics that corporations or other groups might be interested in paying to sponsor. These topics could focus on user sentiment, such as what’s polled ahead of an election, or assist in corporate decision-making, such as assessing demand or expectations for a product. Polymarket, for example, is currently hosting a market on whether ChatGPT will be integrated with Apple’s iPhone before October. Companies like Amazon and Netflix often use private prediction markets this way, though Hanson says there’s significant untapped potential for these types of markets on public platforms. “Leaders of an organization might want to know, say, ‘Will we make this deadline?’” explained Hanson. “They can pay to make a betting market to find out what the chance of making that deadline is, and essentially use that to make cheap corporate decisions.”
Some new market entrants, too, pitch themselves as serving niches that existing platforms do not. dYdX, for example, plans to list perpetual futures on its prediction markets, granting users who are late to join a prediction market product an opportunity for greater upside by placing leveraged bets. Limitless, meanwhile, is focusing on prediction markets that expire quickly, like the daily price of cryptocurrency tokens.
Though newcomers are projecting confidence about their markets, however, their success is at this stage only a hypothetical. While the prediction markets of Limitless and Drift are already live, other newcomers such as Wintermute, dYdX, and Myriad Markets have yet to publicly launch their prediction markets. Wintermute said it plans to launch sometime this week, dYdX is expected to debut later this year, and Myriad is currently in a private beta and hasn’t set a launch date yet. Meanwhile, Limitless’ success thus far doesn’t come close to that of Polymarket’s, with just over $4 million in trading volume so far this month according to Dune. And daily volumes have not shown consistent growth, fluctuating between $100,000 and $365,000 in recent days.
With prediction market trading volume likely to fall after November 5, it’s very likely there won’t be enough user interest for everyone to have a piece of the prediction market pie.
Powered by WPeMatico
