The Wolf Den #1004 - Polymarket Is Dominating
Is this our killer app?
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In This Issue:
Polymarket Is Dominating
Bitcoin Thoughts And Analysis
Legacy Markets
Vitalik Calls Out Crypto UX
USDC Is Making Progress In Europe
CBOE Advocates For Solana
Bitcoin Crash: Is The Worst Finally Over? | Macro Monday
Polymarket Is Dominating
I’m not much of a gambler these days, but I must admit, Polymarket fascinates me.
Almost exactly one year ago, in newsletter #777—a fitting number for a newsletter dedicated to a prediction market—I introduced Polymarket, outlining its pros and cons. I concluded with my forecast that 2024 could be a significant year for the platform.
Little did we know, since that newsletter, Polymarket would experience unprecedented and explosive growth in every measurable metric, establishing itself as the clear leader in the prediction market sector.
When I first covered Polymarket, the featured markets were niche and not particularly engaging. I joked that in just a few clicks, you could toggle between betting on the opening weekend earnings of a Barbie movie and the potential for an incident at the Zaporizhzhia nuclear facility.
Polymarket was ruffling feathers, but its market impact wasn’t fully realized yet. When I first covered Polymarket, the platform’s Total Value Locked (TVL) was just $5.74 million, with a monthly volume of $6.2 million. Today, these figures have surged to $47.12 million TVL and $111.5 million in monthly volume (as of June).
In just one year, TVL multiplied by 8.2x, and monthly volume soared by 17.98x.
How did this happen, you might ask? One word—politics.
Among the twelve current markets highlighted on the Polymarket landing page, eleven revolve around the U.S. presidential election. Polymarket users aren't lining up to speculate on which cat coin hits $1 billion first; they're overwhelmingly drawn to betting on the 2024 presidential winner.
The Presidential Election Winner 2024 market has captured $240.7m.
Democratic Nominee 2024: $97.4m
Biden drops out of presidential race?: $13.1m
To illustrate the explosive impact of politics on Polymarket, consider one of crypto's most captivating recent markets: “Will an Ethereum ETF be approved by May 31?” This market closed with an astounding $13.2 million in bets. Meanwhile, Biden’s potential dropout market is rapidly gaining traction and might soon surpass Ethereum’s ETF speculation.
By now, I assume you understand the basics of Polymarket. For my more technical readers, let's delve deeper. Polymarket’s name derives from Polygon, an Ethereum Layer 2 solution that enables the platform to scale efficiently while keeping transaction costs very low.
When a new prediction market emerges on Polymarket, a smart contract is created on the blockchain. This contract outlines the market's parameters, including potential outcomes, timeframes, and related trading details. Moreover, this contract safeguards participants' funds, ensuring the market's authenticity and integrity.
From the official Polymarket Docs:
“When a user first uses Polymarket.com to trade they are prompted to create a wallet. When they do this, a 1 of 1 multisig is deployed to Polygon which is controlled/owned by the accessing EOA (either MetaMask wallet or MagicLink wallet). This proxy wallet is where all the user's positions (ERC1155) and USDC (ERC20) are held.
All outcomes on Polymarket are tokenized on the Polygon network. Specifically, Polymarket outcome shares are binary outcomes (ie “YES” and “NO”) represented using Gnosis’ Conditional Token Framework (CTF).
At any time, after a condition has been prepared on the CTF contract (via prepareCondition), it is possible to ‘split’ collateral into a full (position) set. In other words, one unit USDC can be split into 1 YES unit and 1 NO unit.”
Just recently, Polymarket completed its Series B funding round, raising $45 million with participation from Peter Thiel’s Founders Fund, 1confirmation, Dragonfly, ParaFi, and Vitalik Buterin. The crypto space is backing Polymarket and Polymarket is growing at unfathomable pace.
The issue facing Polymarket is that the platform essentially has only until early November to capitalize on the current political momentum. This isn’t necessarily detrimental, as Polymarket doesn't rely on a native token. However, maintaining this product-market fit and sustaining interest beyond political events could pose a challenge for the platform.
The impact of politics on the platform is undeniable.
Every chart I pull from Dune reveals a similar pattern: daily volume, daily active traders, open interest, and monthly new accounts—all showing epic signs of growth.
The conversation around Polymarket becomes particularly intriguing when considering what this platform means for the future of financial speculation, markets, and gambling.
Accessing Polymarket isn’t complicated, but it does require familiarity with common native crypto practices that aren’t well understood by the mainstream: paying gas, connecting wallets, using USDC, and token transfers.
This barrier to access has led critics to argue that some polls are skewed towards the opinions of the crypto community, as participants must be familiar with basic crypto concepts. While the platform's free market nature could potentially mitigate this, I believe there is some merit to this concern.
For example, in terms of politics on the platform, this could potentially bias Trump’s polling percentages, given the Republican party's support for crypto and the overall presence of crypto users participating in the votes.
Naturally, those unfamiliar with crypto must first grasp the basics before using the platform. Over time, as understanding crypto becomes as common as internet use and the platform enhances its user-friendliness, this barrier will dissolve, and the bias will diminish. However, it's crucial to recognize this aspect at its current stage of development.
That said, the list of cons for Polymarket is pretty short. The platform hasn’t tarnished its name with a botched airdrop, has kept fees and spreads ridiculously low, found an explosive market fit, and has added a layer of depth to crypto’s use case in prediction markets.
Polymarket offers a fascinating early glimpse into the future of prediction markets, which could theoretically evolve into a multi-trillion-dollar industry. While this may sound ambitious, it's not beyond the realm of possibility. Polymarket thrives because there's always a future to bet on, and there's growing disinterest and mistrust in traditional financial products to provide fair and affordable access.
Plus, where else can you safely bet on natural disasters, crypto Twitter beef, and the confirmation of aliens at the same time? Nowhere else as far as I’m aware.
Polymarket may occasionally be way off the mark, but it consistently offers accessible insights from the collective wisdom of its users, which holds high intrinsic value for anyone curious enough to look. Moreover, it serves as a deterrent to conspiracy theorists, who now have to back their claims financially or risk losing credibility.
All in all, Polymarket provides a unique avenue for discovering truth and incentivizing experts to capitalize on their knowledge and profit from those with poor predictions. Prediction markets like Polymarket act as a check on the ‘experts’ we rely on and the ‘mainstream media’ we are forced to consume.
Of course, insider knowledge is a valid concern for the platform, but it’s a factor in any financially incentivized market. Expanding Polymarket's leaderboard and enhancing the social aspects of the site could also be promising avenues, potentially transforming it into a social platform as much as it is already a financial one.
Polymarket is truly fascinating, and it will be remarkable if it can sustain this level of growth and swiftly progress to Series C funding.
Crypto might be in a bear market, but prediction markets certainly aren’t.
Full disclosure: Polymarket hasn’t reached out to me, and I don’t know anyone running the platform. I have also never placed a bet; I'm simply a silent observer who enjoys watching its growth.
Bitcoin Thoughts And Analysis
The daily 200 MA is currently acting as resistance. Algos and humans alike use this line for trades, so it is not surprise that we are finding some trouble here.
This is the first step to a recovery - getting above the red line. The real signal would be a break back into the blue range.
For now, we have a nice bounce, but nothing more. Let’s see if oversold conditions and bullish divergence can send us further.
Legacy Markets
Stocks rose as traders anticipate Federal Reserve interest rate cuts. The S&P 500 hit a new peak, marking its sixth consecutive daily advance. The Euro Stoxx 600, S&P 500, and Nasdaq 100 futures also increased after Fed Chair Jerome Powell's comments on the US economy. Traders are projecting two rate cuts in 2024.
Yields on two-year Treasuries neared a three-month low, fueling bets on a steeper US yield curve. Nicola Mai of Pimco noted that rate cuts and fiscal concerns could lead to curve steepening. The S&P 500's recent climb is its longest winning streak since January, driven by Powell's remarks on a cooling job market. Further insights might come from Powell's testimony and upcoming US inflation and jobs data.
In Europe, Enagas SA surged after selling its stake in Tallgrass Energy to Blackstone Infrastructure Partners. In commodities, oil edged lower due to concerns about Chinese demand and Federal Reserve rate cuts, while copper and iron ore declined, and gold remained steady.
Key events this week:
Jerome Powell testifies to the House Financial Services Committee, Wednesday
Fed’s Austan Goolsbee, Michelle Bowman and Lisa Cook speak, Wednesday
US CPI, initial jobless claims, Thursday
Fed’s Raphael Bostic and Alberto Musalem speak, Thursday
China trade, Friday
University of Michigan consumer sentiment, US PPI, Friday
Citigroup, JPMorgan and Wells Fargo earnings, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.3% as of 10:06 a.m. London time
S&P 500 futures rose 0.1%
Nasdaq 100 futures rose 0.2%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index was little changed
The MSCI Emerging Markets Index fell 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0819
The Japanese yen fell 0.1% to 161.55 per dollar
The offshore yuan was little changed at 7.2926 per dollar
The British pound rose 0.1% to $1.2799
Cryptocurrencies
Bitcoin rose 1.3% to $58,668.86
Ether rose 0.4% to $3,084.51
Bonds
The yield on 10-year Treasuries declined one basis point to 4.29%
Germany’s 10-year yield declined four basis points to 2.54%
Britain’s 10-year yield declined four basis points to 4.12%
Commodities
Brent crude rose 0.2% to $84.80 a barrel
Spot gold rose 0.4% to $2,372.46 an ounce
Vitalik Calls Out Crypto UX
Talk about a fitting news story. In his tweet, Vitalik highlights the pain points in user experience, specifically calling out Polymarket as an example. In the side-by-side comparison he presents, users must correctly select the Polygon network, not Polygon zkEVM, to avoid losing funds. This simple mistake is not only going to deter people from trying dApps, but will also result in lost funds. This article from Coin Edition has a good breakdown.
Vitalik’s proposed solution is the implementation of ERC-3770 and ERC-7683 standards, which, “introduces a new address standard with a human-readable prefix for chain-specific addresses” along with, “simplifying cross-chain swaps and ensure consistent, seamless interactions across different networks.” All of these technical details may be complex, but they'll lead to a smoother user experience on platforms like Polymarket.
USDC Is Making Progress In Europe
If you recall from last week, Circle became the first stablecoin issuer to achieve compliance with MICA, the European Union’s landmark Market in Crypto-Assets regulation, earning registration as an electronic money institution (EMI) in France. This means that Circle’s USDC and the newer Euro Coin are fully compliant across the entire region.
According to Kaiko Research, “Since June 30, Circle’s EURC and USDC saw the strongest increase in daily trading volume.” Furthermore, “In 2024, USDC saw its weekly trading volume surge to $23 billion, up from $9 billion in 2023 and $5 billion in 2022. As a result, USDC’s market share recently reached a record high, nearing FDUSD’s 14%.”
All of this is positive news for USDC’s growth, but the region is still dominated by non-compliant stablecoins, which account for 88% of the total volume (primarily USDT). A stricter crackdown on non-compliant stablecoins would be massively beneficial for USDC if it were to come.
CBOE Advocates For Solana
Solana was not only designated a commodity by the CBOE in its listing document but also finds support from the exchange as an early ally for ETF issuers, advocating for SEC approval of exchange-traded funds. Currently, VanEck and 21Shares are the sole issuers to have filed S-1s for Solana ETFs, with the CBOE poised to list the 21Shares product. My outlook on the ETF's prospects remains unchanged pending a regime change, though BlackRock's potential involvement could tilt the odds slightly in a favorable direction.
Bitcoin Crash: Is The Worst Finally Over? | Macro Monday
Join Dave Weisberger, Mike McGlone, and our special guest today Noelle Acheson, as we break down what's happening in macro and crypto!
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