You can buy or sell shares in each outcome; think of it like trading two S&P 500 stocks in close competition.
The price of the shares ranges between $0.001 and $1, reflecting the probability spectrum. An algorithm also ensures that the sum total of both shares will always equal one dollar. In this case, the share denoting a Republic victory is at an optimistic $0.65; the Dem victory share is hovering around $0.35.
Winners receive a dollar back per winning share purchased—that’s the original investment plus that of the losing side. For example, betting $0.65 on Republicans to win would generate a profit of $0.35. Conversely, a Democrat bet would earn $0.65 because the market gives it thinner odds of winning.
That’s a 65% chance Republicans will sweep the Senate and a 35% chance the Democrats will hold on.
Whatever you think of US politics, don’t discount those odds: Prediction markets have a very good record.
Unlike casual more poll respondents, speculators on prediction markets have a financial motive to trade their genuine opinion.
The prognoses generated by similar platforms—all of which also give the Republicans a sizeable lead this week—have consistently borne out. Bettors on Predict.Global and PredictIt accurately predicted the outcome of the 2018 midterms, the removal of Trump, and various elections in the UK and France.
Supporters of prediction markets describe this prodigious accuracy as the “wisdom of crowds.”
Crypto prediction markets take center stage
Polymarket’s massive $1.5 million draw is a historic moment for prediction markets, which have struggled to find a big audience over the years.
In the 1990s and early 2000s, markets like the Hollywood Stock Exchange and InTrade were popular but fell afoul of regulations around illegal gambling.
Since then, non-crypto prediction markets like PredictIt have been allowed to operate only as “research projects.” Decentralized, blockchain-based markets emerged as a way to circumvent those onerous regulations.
The first major attempt to build a crypto prediction market was the decentralized Augur, which launched in 2018 and took in around $800,000 in bets on the midterms that year. That’s just over half the current value of the Polymarket bet; it was also supplied by only two very wealthy traders.
Perhaps most importantly, the outcome of each market is judged by Polymarket itself—unlike Augur, which relied on its decentralized community. That makes resolutions more trustworthy and prevents markets from getting bogged down. On Augur, they would often take months to resolve.
However, that partially centralized structure has also left Polymarket open to legal trouble.
In January 2022, the company behind the platform, the Delaware-based Blockratize, was sued by the CFTC for offering unregistered options contracts. Following a settlement, Polymarket was made to pay $1.4 million and wind down its operations.
That means none of its users are in the U.S.—at least officially. Let’s see if they know what they’re talking about.
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