How Polymarket Works and Why It Is More Effective Than Traditional Analysts

Polymarket is a blockchain-based prediction market platform that allows users to bet on outcomes of future events, such as political elections or current events. Leveraging blockchain technology, Polymarket ensures transparency, immutability of transactions and privacy of personal data, reducing access “friction” and making predictions accessible to a wide audience. Users can buy and sell “shares” on certain outcomes, and the price of these shares reflects the probability of the event occurring according to the market. For example, if many people buy shares on a candidate’s victory, the price of those shares increases, suggesting a high probability prediction for that outcome.

The reason Polymarket has predicted better than many political analysts lies in the “skin in the game” principle, which implies that those who participate have a direct economic interest in the accuracy of their predictions. Users are incentivized to inform themselves, basing their decisions on real data rather than personal preferences or political narratives. Unlike analysts, who can be influenced by personal bias or external pressures, Polymarket users risk their own funds, which reduces the possibility of bias.

In addition, the transparency of the blockchain allows users’ behavior to be observed and analyzed, making the market more resistant to manipulation, even if there are sometimes attempts to influence prices through massive transactions. Overall, this approach has proven to be more accurate than traditional polling and political analysis, especially in complex events such as elections.

Who has invested in Polymarket?

Among the prominent names, Peter Thiel has financially backed Polymarket through his venture capital fund, Founders Fund. In May 2024, Polymarket raised $45 million in a Series B funding round led by Founders Fund, with participation from other investors such as 1confirmation, ParaFi, Vitalik Buterin, Dragonfly, and Kevin Hartz. This investment helped solidify Polymarket’s position in blockchain-based predictive marketplaces.

In addition to Peter Thiel’s Founders Fund, Polymarket has attracted investments from several prominent figures in the tech and crypto sectors. Other prominent investors include:

  • 1confirmation: a venture capital fund focused on investments in cryptocurrency and blockchain technologies.
  • ParaFi Capital: an investment fund focusing on digital assets and decentralized finance (DeFi).
  • Vitalik Buterin: co-founder of Ethereum, known for his leading role in blockchain development.
  • Dragonfly Capital: a global venture capital fund that invests in cryptocurrency projects and companies.
  • Kevin Hartz: co-founder of Eventbrite and investor in successful tech startups.

Polymarket Controversies and Regulatory Challenges.

Polymarket has faced several controversies related to regulatory compliance and allegations of market manipulation. In January 2022, the U.S. Commodity Futures Trading Commission (CFTC) fined Polymarket $1.4 million, accusing it of operating an unregistered binary options market and failing to comply with applicable regulations. The CFTC also ordered the platform to cease operations related to markets that did not comply with the Commodity Exchange Act.

Subsequently, in May 2022, Polymarket appointed J. Christopher Giancarlo, former chairman of the CFTC, as chairman of its advisory committee, likely in an effort to strengthen its position on regulatory compliance.

In November 2024, the French National Gaming Authority began examining Polymarket’s operations, assessing its compliance with French gambling legislation. This examination was initiated after a French trader, known as Theo, made $47 million betting on Donald Trump’s victory in the U.S. presidential election, raising concerns about the size and influence of bets placed on the platform.

In addition, Polymarket has been the subject of allegations of “wash trading,” a practice in which a trader simultaneously buys and sells the same asset to create apparent market activity and manipulate prices. These allegations have raised questions about the integrity of the prediction markets offered by the platform and their reliability as predictive indicators.

These controversies highlight the challenges Polymarket faces in navigating between technological innovation and compliance with existing regulations, as well as maintaining user confidence about the integrity of its operations.

Conclusions: Between Innovation and Regulation

Polymarket represents an innovative example of a blockchain-based prediction market, demonstrating the technology’s effectiveness in predicting complex events. While the platform offers benefits such as transparency and economic incentives for informed participation, it is also at the center of regulatory controversy and accusations of manipulation. Its impact has attracted the attention of authorities in several countries, which raise questions about the ethics and compliance of decentralized predictive markets. The challenge for Polymarket will be to maintain its relevance and reliability while striking a balance between innovation and regulatory compliance in order to continue to offer value to its users.

  1. Article on Decrypt: Polymarket Faces Potential Ban in France After Raking in $3.5B from US Election

  2. Article on DLA Piper regarding CFTC fine: CFTC Settles Enforcement Action Against DeFi Platform Polymarket

  3. Wikipedia page of Polymarket: Polymarket - Wikipedia

  4. Nasdaq article on wash trading allegations: What Does Polymarket Wash Trading Scandal Mean for Crypto Markets?