Polymarket and the new generation of "betting economics"

According to Business Insider, online prediction market platform Polymarket is raising a new round of funding, with some investors valuing it at as much as $10 billion. This figure represents an astonishing jump of almost tenfold from its $1 billion valuation just three months ago. This crypto startup, founded in 2020, has not only attracted the triple blessing of Silicon Valley capital, political power, and crypto funds, but has also achieved astonishing growth in trading volume: on the eve of the 2024 US presidential election, Polymarket's monthly trading volume reached a record high of US$2.5 billion in October 2024. Although it has declined from its peak, the platform still maintains a monthly trading volume of approximately US$1 billion, exceeding its total for the entire year of 2023. Polymarket was founded in 2020 by Shayne Coplan. Coplan studied computer science at New York University (NYU) but dropped out before graduation to focus on technologies and concepts related to cryptocurrency and prediction markets. Polymarket's funding backing is impressive: Silicon Valley Capital: Three months ago, Peter Thiel's Founders Fund led Polymarket's previous funding round, valuing the company at approximately $1 billion. This round of funding provides the Polymarket platform with robust early-stage support and a solid capital base. Thiel, known for his investments in Facebook, SpaceX, and Palantir, is a clear sign that prediction markets have entered the mainstream venture capital market. Political Connections: Donald Trump Jr.'s (Donald Trump's son) 1789 Capital invested tens of millions of dollars in the latest funding round, with the exact amount undisclosed. Donald Trump Jr. himself has also joined the advisory board. 1789 Capital is a relatively new venture capital firm, founded in 2022 by Omeed Malik, Chris Buskirk, Rebekah Mercer, and others. The fund emphasizes "patriotic capitalism" and investments guided by American values. In addition to Polymarket, its portfolio includes companies in defense technology, AI, biotech, media, and other sectors. Crypto Capital: In its early funding round, Polymarket received support from several Web3 funds (Polychain Capital, ParaFi Capital, and Coinbase Ventures), valuing the natural fit between prediction markets, crypto payments, and smart contracts. This combination of Silicon Valley, politics, and crypto has created a unique moat for Polymarket: it can withstand regulatory challenges while leveraging public opinion to attract traffic. Previously, in 2021, the U.S. Commodity Futures Trading Commission (CFTC) banned Polymarket from offering prediction contracts in the United States. However, in 2024, U.S. regulatory stance shifted, allowing Polymarket to operate legally within the country. This "green light" not only enhanced its legitimacy but also became a key factor in investors' bold investment. Competition and Traffic: Surpassing Gambling Giants Polymarket's rise is not an isolated phenomenon. The prediction market as a whole is undergoing a revaluation of capital. Its main competitor, Kalshi, has doubled its valuation from $2 billion to $5 billion this year, demonstrating a collective investment in this sector. Compared to traditional gambling platforms, Polymarket's growth is even more explosive. While sports betting giants like FanDuel and DraftKings rely on cyclical events like the NFL and NBA to drive traffic, Polymarket's contracts cover a wider range of topics: from US elections and Supreme Court decisions to Federal Reserve interest rate decisions, geopolitical conflicts, and even gossip. This breadth ensures continued popularity year-round. More importantly, prediction markets are closely tied to the news cycle. For example, during the 2024 US presidential debates, Polymarket's related markets saw daily trading volume exceeding $100 million. Furthermore, during the events surrounding the Ukraine conflict or the upcoming Federal Reserve interest rate meetings, related contracts quickly become a focus of capital. This "event-as-market" nature is an advantage that traditional betting platforms struggle to replicate. Consequently, Polymarket has not only caught up with or even surpassed established betting giants in scale, but has also demonstrated unique competitiveness in terms of reach, user engagement, and social influence. It is transforming from a niche crypto experiment into a mainstream "information-based entertainment and speculation platform." Why are prediction markets so popular? Information Efficiency: Price is Consensus Prediction markets transform dispersed opinions into immediate price signals through betting. Compared to the lags and biases of polls, prediction market prices are more like the real-time "wisdom of the crowd." Whether it's a presidential election or an international conflict, they can be quickly converted into market contracts. The more popular the event, the higher the trading volume, forming a self-reinforcing cycle. Dual Drivers of Speculation and Entertainment Users can both express their opinions and earn profits. Major events inherently generate buzz, making prediction markets both speculative and entertaining. In its report "Prediction Markets Are Having a Moment," Coinbase identified prediction markets as the next major use case for crypto, citing their reliance on stablecoins and on-chain settlement, low friction costs, and strong scalability. In its report "Prediction Markets and Beyond," a16z Crypto noted that prediction markets hold great potential not only in politics and finance but also in AI, decentralized science (DeSci), and governance mechanisms. a16z's "State of Crypto" report directly singled out prediction markets as one of the sectors poised for future growth. With leading industry institutions betting on this direction, capital naturally flocked to it. The Future of "Information Exchange"? Risks and Controversy Despite rising valuations and trading volumes, prediction markets remain fraught with risks. The most frequently cited issue is manipulation: while market prices theoretically represent collective wisdom, in reality, large players can easily create false probability signals through concentrated betting over a short period of time, thereby misleading public expectations. Another long-standing challenge is arbitration and adjudication mechanisms. Prediction market contracts often require clear definitions of future events, but many real-world events are inherently ambiguous, making the final determination process prone to controversy. If arbitration lacks transparency or credibility, user trust will be eroded, and the market mechanism will fail. Furthermore, policy and ethical concerns continue to linger in Washington and academia. Critics argue that prediction markets can amplify polarized sentiment on sensitive topics like elections and geopolitics, and even provide a platform for misinformation. Supporters emphasize their transparent value as a "thermometer of social expectations." This controversy means its future development will be challenging. From its early monthly trading volume of less than $100 million to a peak of $2.5 billion in October 2024, Polymarket has rapidly transcended skepticism and entered the mainstream. While more insightful and timely than traditional polls, it also carries its own controversy. Whether supporters or opponents, the market can no longer ignore its presence. Future public expectations are quietly crystallizing in price curves that fluctuate with events, no longer relying solely on expert interpretation.