Polymarket’s $3.2 Billion Election Bet Shows Web3 Potential

All eyes are on the U.S. presidential election today. Though the outcome may not be known for days, one thing is certain: The crypto space has already come out on top. This isn’t just due to Donald Trump’s enthusiastic endorsements or Kamala Harris’ reserved nod to the industry. Equally noteworthy is the rising interest in the Web3 prediction platform Polymarket.

In October, the platform hit a record-breaking $2.5 billion in trading volume. The first five days of November added another $577 million, according to Dune Analytics. When combined with trading volume from January through September, the total is roughly $3.2 billion worth of crypto bets.

While the presidential race has undeniably fueled activity, Polymarket’s own popularity has soared. Since the 2020 election, the trade volume has risen 47-fold, while monthly active traders surged from 2,000 to over 214,000 — a 107-fold increase.

Decentralized prediction markets have become a compelling real-world application for blockchain. They provide cost-effective, globally accessible, and round-the-clock trading. This edge enabled Polymarket to outperform traditional centralized prediction markets not just in theory, but also in practice. Yet, it is not without controversy, facing challenges such as uncertain legal standing in the U.S. and allegations of wash trading.

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Polymarket Beats TradFi Alternatives

Polymarket is a Web3 platform where users can buy and sell shares in the probability of real-world events, from election outcomes to sports scores. Its user base leans heavily into the crypto community, as shown by a distinct skew toward pro-Trump bets. While traditional finance platforms like Kalshi, PredictIt, or Interactive Brokers show 57%, 55%, and 58% probabilities for Trump on election day, Polymarket gives the former president a 62% chance.

Known for its venturesome spirit, the crypto community is likely contributing to Polymarket's success. The platform now outperforms its well-established TradFi alternatives. The Trump-Harris presidential election bet has attracted $235 million on Kalshi and $44 million on PredictIt, per their websites. Interactive Brokers’ ForecastTrader platform does not disclose cumulative bet amounts but reported a daily volume of $28 million on November 4. Polymarket, by contrast, has recorded nearly $3.2 billion in all-time bets, with $100 million traded on November 4 alone.

The disparity between these platforms is huge. Polymarket’s strong crypto community certainly plays a role, but it is likely that at least some of its new users have opened their first crypto wallets specifically to bet on the platform. This is a promising sign for broader crypto adoption.

How Polymarket Works

Polymarket is built on Polygon, an Ethereum layer-2 solution enabling faster and cheaper transactions. Its smart contracts automate transaction execution, ensuring security and transparency. All betting-related data can be easily accessed on the blockchain.

Unlike traditional betting platforms, Polymarket doesn’t act as the “house” or take positions against its users. This eliminates concerns over the potential misuse of insider knowledge. Instead, it functions as a peer-to-peer marketplace where prices are set by supply and demand. Prices on Polymarket reflect collective probabilities, shifting dynamically as users buy and sell shares. All trades are conducted in USDC, a stablecoin pegged to the U.S. dollar.

To resolve contracts, Polymarket leverages the UMA protocol that determines the outcome of events. Built on Ethereum, Universal Market Access is a decentralized oracle. It verifies off-chain data via an incentive-based on-chain voting system. Once an event's outcome is confirmed, Polymarket's smart contracts will pay the winners.

Polymarket’s decentralized nature gives users complete control over their funds via self-custodial wallets. This means that the platform itself does not access or hold users’ private funds. It also makes Polymarket globally accessible, except for the United States. After facing a $1.4 million fine from the Commodity Futures Trading Commission for offering event-based contracts, Polymarket had to scale back its U.S. services.

Controversies Around Polymarket

Last month, Polymarket faced scrutiny over a "whale" trader who reportedly boosted Donald Trump’s odds on the platform. The user bet $28.6 million on the former president from four different accounts, the New York Times reported. However, the platform’s spokesperson stated that the user was “taking a directional position based on personal views of the election” rather than trying to influence public opinion.

Also, a Fortune reported that analysts from blockchain firms Chaos Labs and Inca Digital found signs of wash trading on Polymarket. Wash trading is a form of market manipulation where shares are repeatedly bought and sold to inflate trading volume. Both traditional finance and its crypto alternative ban this practice for its potential to mislead about real demand. The analysts claimed the prediction platform's actual volume was only $1.75 billion, not the $2.7 billion reported by Polymarket at that time.

Polymarket’s representative responded by emphasizing the platform’s transparency: “Unlike on Wall Street, Polymarket makes all transactions on its platform transparent and publicly available, including to researchers,” CoinDesk reported, pointing out that users may also be engaging in this behavior to profit from airdrops, tokens freely given away to active users. Moreover, the platform "expressly prohibits market manipulation."

Some X users speculate that this high-frequency trading may relate to “airdrop farming,” where users aim to qualify for potential token giveaways through frequent trades. The absence of trading fees (users pay only a small amount to liquidity providers) may encourage this behavior. Indeed, while Polymarket does not have its own token, speculations around such a possibility persist. Issuing a token could help the platform increase activity, draw new users, and reward its existing community.

The unclear nature of the U.S. legal landscape presents yet another unresolved issue for Polymarket. Despite adding former CFTC chair J. Christopher Giancarlo to its advisory board in 2022, the platform is still restricted in the country. However, with both Trump and Harris signaling openness to a more favorable regulatory stance on crypto, Polymarket may yet gain a way to operate in this crucial market.

Every election reflects shifting societal and economic trends, and in 2024, the rise of crypto is undeniably one of them. Regardless of who wins the White House, the next administration will be expected to adopt a clear approach to the crypto industry.