Key Issues

-Why does the world need Polymarket?

Will Polymarket remain popular after the US election?

Is Polymarket the next Crypto Assets killer app?

• Will there be a Polymarket Token?

Interesting Charts

TL, DR

· Polymarket is an on-chain prediction market that addresses a crucial information gap by providing quantitative odds for future events, offering probability figures that were previously lacking in news media and social discussions.

The platform has achieved significant rise in the past six months. From April to October, the monthly volume surged from $40 million to $2.5 billion, and the unclosed position contracts rose from $20 million to $400 million. Now, the amount of locked capital can rival leading Decentralization exchanges such as SushiSwap AMM V3, and is on par with the total value locked (TVL) of networks like TON.

· In October, Polymarket's website received 35 million visits, twice as many as popular gambling websites like FanDuel. Its predictions for the US election are frequently cited by mainstream media such as The Wall Street Journal and Bloomberg. This sharp increase indicates that Polymarket has evolved from a well-known project in the cryptocurrency field to a platform targeting mainstream audiences, marking a milestone eagerly sought by Web3 for public adoption.

Our analysis shows that users who join Polymarket are likely to continue using the platform after the current US election cycle ends. 3/4 of Holdings users trade on topics unrelated to the election, indicating their sustained interest in different topics.

· Polymarket has not yet determined its Token generation plan. The company is exploring the possibility of introducing a Token to verify the outcomes of real-world events, but no formal decision has been announced yet.

Introduction

Polymarket is a blockchain-based prediction market launched by 22-year-old Shayne Coplan in 2020. Its timely launch caught people's attention during the 2020 US election cycle. Despite the subsequent turbulence in the cryptocurrency market, Polymarket survived and made a comeback with even greater popularity during the 2024 US election cycle.

The prediction market is an innovative trading platform where participants can create and trade contracts speculating on whether a certain event will occur in the future. By trading 'yes' or 'no' on the outcome, the market aggregates collective opinions, and the price of the 'yes' contract represents the probability of Consensus for the event to occur at any specific moment. This real-time pricing provides valuable information for understanding public expectations and predictions.

News media and social platforms often overlook real-time tracking of event possibilities. While the US election receives much attention, there is no centralized source of information that can continuously integrate daily developments into quantitative assessments of expectations. The unique 'representative' system used in the US election makes predictions more complex, resulting in analysis websites like FiveThirtyEight primarily aggregating poll results rather than providing exact odds for potential winners.

Polymarket's presidential election prediction market fills this gap. New information such as candidate activities and opinion polls is immediately reflected in the future prices of events. This quantification and real-time nature have helped Polymarket gain popularity quickly and become the common currency for social media discussions during elections.

It would not be surprising if in the near future, Polymarket's probability trends become the main charts in major news broadcasts. Soon, TV networks such as CNN and BCH will join CNBC and Bloomberg TV in incorporating real-time probability charts into their coverage of major events, providing viewers with data-driven insights and context similar to those used in financial news reporting.

Towards the Masses

Birth

Polymarket was founded by Shayne Coplan in 2020 during the US presidential election. The event 'Will Trump win the 2020 US presidential election?' attracted a large number of participants, and the trading volume reached 10.8 million USD within a few months, helping to boost Polymarket's monthly trading volume to 25.9 million USD.

The platform has also attracted attention from well-known figures such as Vitalik Buterin, who acknowledged the platform's potential in a blog post in 2021. Despite being relatively niche at the time, Polymarket's top trading activities have already exceeded 1 million USD, demonstrating enormous potential.

Regulatory Retreat

Polymarket operates at the intersection of betting and futures trading, facing unique regulatory challenges. In October 2021, the Commodity Futures Trading Commission (CFTC) began investigating the platform. In January 2022, Polymarket reached a settlement with the Commodity Futures Trading Commission, agreeing to pay a fine of $1.4 million for offering binary Options without a futures trading license.

As part of the Compliance efforts, Polymarket subsequently reorganized into an offshore platform, prohibiting US residents from participating in its markets. The company also appointed former Commodity Futures Trading Commission (CFTC) commissioner J. Christopher Giancarlo as an advisor to help it address complex regulatory issues and ensure future Compliance.

The settlement reduced some of the uncertainties surrounding Polymarket's operations, bringing market activity back to the level of early 2021. However, an important question remains: when will Polymarket break into the mainstream market?

Source: CFTC Official

Enter the mainstream

After a year of settlement with CFTC, Polymarket launched the "2024 US Election Winner" market in January 2024, which quickly sparked a flurry of trading activity. Over time, significant political events – including an assassination attempt on Trump and Biden's unexpected withdrawal – have fueled people's strong interest in election predictions. In the final month of the election, as early voting results were gradually released, Polymarket reached its all-time high in popularity.

Throughout the 2024 election cycle, Polymarket's monthly volume soared, rising from a few million dollars to 50 million dollars in January, nearly 4 billion dollars in July, and easily surpassing 1 billion dollars in October. The total amount of unclosed position contracts - the locked USD to CAD and potential payouts after all deliveries - increased from 7 million dollars on January 1, 2024, to approximately 400 million dollars on November 1. This locked capital exceeds the total TVL of TON. In the Blockchain ecosystem, Polymarket's locked capital ranks 18th.

Interest in Polymarket goes beyond the trading community: its surging search popularity and web traffic on Google reflect widespread public follow. Major media such as The Wall Street Journal, Bloomberg, CNN, and public figures like Donald Trump often quote its election predictions. Bloomberg integrated Polymarket's election odds onto its terminal in August, a milestone. Polymarket has not only become an important project in the Crypto Assets field, but also attracted follow from the general public - a goal that the Web3 field has long sought to achieve.

The Web3 industry has not yet become a mainstream application, primarily due to the lack of a "killer app" that can create an iPhone moment for this field. The collaboration between Telegram and TON has sparked enthusiastic responses in the Web3 community, as it has the potential to drive mass adoption. Similarly, Polymarket is also exploring new directions that can advance cutting-edge technology and provide promising avenues to attract a broader audience and bring Web3 closer to widespread adoption.

Activities on the platform

Website Traffic

With Polymarket's volume and number of participants reaching a historic high, its website traffic has also surged. In September, Polymarket had 2.3 million unique visitors and a total of 16 million visits. In October, the monthly traffic doubled to 35 million visits, putting Polymarket on par with popular betting platforms like FanDuel, which had 5 million unique visitors and 17 million visits in September, far surpassing regulated prediction trading websites like Kalshi, which had 118,000 unique visitors and 237,000 visits that month.

In terms of engagement indicators, Polymarket's ratio of active traders to visitors (around 3% in July) has declined over the past three months. This indicates that the majority of Polymarket's audience is primarily interested in obtaining information rather than conducting transactions. As Polymarket's popularity grows, this trend becomes more evident, reflecting its appeal as an information resource.

In addition, the ratio of total visits to unique visitors indicates that the average visitor to the website visits the website 7 times per month, demonstrating the high level of engagement and stickiness of Polymarket users. The combination of high visitation and high engagement highlights the potential of Polymarket as not only a trading platform but also a trusted source for major event predictions.

Polymarket's main source of visitors is directly entering the URL, indicating that most users are already familiar with the platform before visiting. Another 30% of visitors arrive through organic search, indicating that many users specifically search for Polymarket by name. Social media traffic accounts for an additional 5%, mainly from Twitter, which aligns with Twitter's active role in cryptocurrency and election discussions.

It is worth noting that paid traffic sources (such as paid search and display ads) are very few, indicating that the platform primarily attracts users through brand awareness and organic interest rather than paid advertising. This combination of traffic sources highlights the increasing influence of Polymarket, as users actively seek reliable predictive insights from it.

From a geographical perspective, more than half of the traffic comes from the United States, followed by four close allies of the United States, which may be significantly affected by the results of the U.S. election.

These observations indicate that most Polymarket users have already regarded the platform as an effective bookmark and regularly refer to it to track the development of events. This trend aligns with CEO Shayne Coplan's statement that Polymarket's value lies in providing the 'highest information on the internet'.

Market

Each prediction event on Polymarket consists of one or more markets, each of which is a binary outcome pair. For example, in the "Election" event, individual markets include "Trump wins Y/N" and "Harris wins Y/N", as well as lower-priority markets such as "Biden wins Y/N".

The Polymarket team is responsible for creating new markets while considering community feedback during the creation process. In late 2021 and early 2022, the team attempted to launch as many as 2,000 markets per month, possibly to increase user engagement. However, this fast pace eventually stabilized at a few hundred markets per month. Starting in January 2024, the number of market creations surged again, reaching an exponential rise, indicating that the recently added markets have been well received among users and have received positive feedback.

Since January 2024, the US election-related market has been a major driver of Polymarket's volume, accounting for about 50% of the total volume in the first half of this year. As the election attention peaked, the volume climbed to over 75%. Interestingly, despite the surge in election-focused trading, non-election markets still attracted a large amount of trading activity, accounting for nearly 25% of the total volume. Among them, markets related to sports such as predictions for the Super Bowl and the Champions League have made significant contributions, indicating that user interests go beyond the election cycle. This balance demonstrates that Polymarket's appeal is expanding, making it a multifaceted prediction platform.

User

Since mid-2024, the number of new user registrations on Polymarket has surged, with over 300,000 registrations in October alone. This rapid influx means that 86% of users have joined the platform in the past six months. There were 235,000 active trading addresses recorded in October, and 35% of all registered users are currently engaged in trading.

As of November 3, a total of 327,000 users (half of the total registered users) held active positions. Of these, about 80,000 users traded specifically in markets related to the U.S. elections, while the remaining 247,000 users were distributed across other market categories. The significant participation in non-election markets indicates that user interest is enduring, so even after the end of the election cycle, the platform's rise and correlation can be maintained.

Other regions of the world except the United States

Taking all these observations together, we have discovered an interesting phenomenon: although most visitors to Polymarket are Americans, due to regulatory restrictions, only non-US users can actively participate in trading. This creates a unique dynamic for predicting the US presidential election - in fact, the rest of the world is predicting the next US president, while Americans are mainly observing. Therefore, Polymarket has become a platform where international participants provide a global perspective on US political events for a primarily American audience.

How does Polymarket work

prediction market mechanism

From political betting in the 16th century, initially focused on events such as the succession of popes. These markets allow participants to bet on future outcomes and have gradually evolved into a crowdfunding platform for uncertain events. In July 2018, prediction markets entered the cryptocurrency field with the launch of Augur, the first decentralized prediction platform built on the Ethereum blockchain. Two years later, Polymarket was launched, allowing users to deposit USDC and bet on the future outcomes of various events.

The operation of the prediction market is similar to that of the futures market: creating contracts that pay a fixed amount when a specific event occurs, participants trade these contracts in a manner similar to stocks by submitting buy and sell quotes. The current contract price at any given time is a consistent estimate of the market's probability of the event occurring.

As discussed in James Surowiecki's 'The Wisdom of Crowds', prediction markets have traditionally been highly regarded for their ability to effectively integrate various information and improve predictive accuracy.

The difference from traditional gambling

Although the prediction market has long existed, traditional gambling markets still attract more participants. To understand the reasons behind this, let's first take a detailed look at the gambling market.

The main difference between prediction markets and traditional gambling lies in several aspects. Firstly, prediction markets operate as a two-way exchange, allowing participants to exit their positions at any time before the outcome of the event is determined. Secondly, prediction markets constantly update consensus odds, reflecting real-time public sentiment, while traditional dealers mainly balance the betting pool by adjusting odds to minimize potential losses. This approach often leads to dealers over-adjusting the odds and distorting the true probability of events.

However, prediction markets face unique challenges, especially in terms of Liquidity. To ensure smooth trading, exchanges must ensure that contracts are always available, which requires a stable source of Liquidity. This can be achieved through AMM (Automated Market Maker) (similar to DEX) or using order books supported by market makers (similar to CEX). Both methods require incentivizing Liquidity Providers, which will increase the costs for traders or the exchanges themselves.

For low-odds events, Liquidity challenges are particularly evident. Traditional gambling satisfies different needs by setting initial odds and concentrating bets into a pool, while prediction markets rely on sufficient user interest to maintain active trading. Without sufficient activity, prediction markets struggle to achieve meaningful odds, thereby limiting their accuracy and appeal for low-traffic events.

What Happened on Polymarket

User Interface

Polymarket stands out for its simple and smooth user experience. It uses USDC (USD Coin) to facilitate transactions, USDC is a federally regulated stablecoin backed by the US dollar. The use of on-chain currency is necessary because the exchange is fully built on-chain.

Users first need to register via email or encryptionWallet, and then deposit USDC from an existing Wallet or purchase directly with Fiat Currency through Moonpay. After browsing the available markets and selecting an event, users can make predictions based on real-time data. The next step is to buy or sell stocks based on these predictions, and the potential return will be displayed on the interface. Finally, the transaction is completed by confirming with the user's accountAddress. In case of disputes, users can also raise questions to resolve the event.

Trading

On Polymarket's peer-to-peer prediction market, trades are conducted directly between users, and prices are naturally generated through user-driven order books. There are no stocks or predetermined prices at the start of a new market; traders act as market makers by placing limit orders at prices they are willing to pay. For binary events, users bid on the outcome of 'Yes' or 'No'. When the sum of bids for 'Yes' and 'No' equals $1, these orders are matched to form an initial market price. For example, a bid of $0.60 for 'Yes' is paired with a bid of $0.40 for 'No' to determine the price. As trading progresses, bids and asks can be matched directly at the prevailing price, increasing liquidity.

Polymarket uses ERC-1155 Tokens (or 'Outcome Tokens') to represent these binary predictions. In addition to binary options, the platform also supports more complex scenarios:

· Category Market: Users choose from multiple mutually exclusive results (A, B, C).

· Scalar Market: More extensive issues are subdivided into a series of 'yes/no' contracts.

· Composite Market: These markets can be hierarchically predicted by combining multiple questions.

This diversity expands the flexibility of the platform, enabling the creation of a wider range of activities in the future.

After the event ends in the Poly Market, profits are distributed based on the outcome. The value of the winning party's shares is $1.00 per share, while the value of the losing party's shares is $0.00. Once the result is clear and in accordance with established rules, a market resolution occurs. If a user disagrees with the resolution, they can bet 750 USDC Margin to challenge the resolution. The Margin will only be refunded if the challenge is successful, creating an incentive for valid disputes while preventing meaningless claims.

Technical Framework

In terms of technical design, some components ensure that prediction market operates in a decentralized manner.

The Gnosis Conditional Token Framework (CTF) provides the underlying structure for creating conditional tokens, allowing the creation of tokens for various event outcomes. CTF exchange is an on-chain component of the Polymarket order book, enabling atomic swaps between CTF ERC-1155 assets and ERC-20 collateral in a non-custodial manner, and facilitating settlement matching orders. Meanwhile, off-chain operators handle order matching and transaction submission, manage unfulfilled orders, and allow immediate off-chain order placement and cancellation.

To match the betting information, the UMA CTF adapter connects the Optimistic Oracle and CTF conditions, initializes the market by querying the UMA Oracle, and obtains resolution data for Settlement conditions. The UMA Optimistic Oracle resolves the prediction market during the challenge period and allows disputes to ensure on-chain accurate reporting of off-chain events. Then there is another component: the NegRisk Adapter enables Gnosis CTF to manage binary markets, converting "NO" tokens to "YES" tokens with Collateral, and integrating binary outcomes into a unified market structure. Finally, the NegRisk Exchange is a streamlined version of the Polymarket exchange contract, which enables trading within the NegRisk market through a Central Limit Order Book (CLOB).

Company

Team

The Polymarket team is led by three key figures:

· Shayne Coplan, Founder and CEO -- Shayne is a born and raised New Yorker who entered the web3 field at the age of 15, starting with BTCMining. He dropped out of New York University in 2017 and founded Union.market in 2020, followed by Polymarket in the same year.

· David Rosenberg, Vice President of Business Development and Strategy - David has rich experience in business development and strategy, having worked at Foursquare, GIPHY, and Snap. After serving as Director of Strategy at Snap for four years, he joined Polymarket in June 2020. David graduated from the University of Cambridge in 2011.

· Liam Kovatch, Engineering Manager - Liam dropped out of Columbia University in 2018 and began his Decentralized Finance career. Before that, he founded Paradigm Labs and served as the first engineer at 0x. He joined Polymarket in 2021 and quickly rose to the position of Engineering Manager.

Other departments of the company are focused on business development and engineering design, with 12 members responsible for rise, marketing, and strategy, and 8 members responsible for engineering design and data, totaling 23 employees. Part-time or outsourced professionals provide support for finance and other functional departments. Most team members work in New York.

As time goes by, the team size of Polymarket is also constantly changing. The company originally had only a team of four people. After achieving initial success in 2020, it expanded significantly, with the number of employees reaching around 20 by mid-2022. However, in the second half of 2022, possibly due to the investigation by the Commodity Futures Trading Commission (CFTC), the team underwent downsizing and maintained a streamlined structure until early 2024.

The company resumed hiring in early 2024, before the outbreak or obtaining additional funding. This proactive rise indicates that the leadership team expects the platform to enter a more favorable operating environment, enabling it to cope with the subsequent significant rise in business volume.

Operating Profit and Loss

Currently, Polymarket does not charge any fees for using the platform, including buying and selling positions, winning rewards, and fund deposits and withdrawals. Previously, when using the AMM mechanism on the platform, LP fees related to trading were charged to compensate Liquidity providers, but with the transition to the order book architecture by the end of 2022, these fees have been eliminated. Although using third-party services to exchange Fiat Currency for USD to CAD incurs a fee, this fee belongs to the service provider, not Polymarket.

In addition to not charging fees, Polymarket also subsidizes its operating costs, including order book maker rewards, on-chain transaction gas fees, and website maintenance fees. Reports show that Polymarket has distributed over $3 million in USD to CAD rewards this year, with popular markets offering up to $600 in USD to CAD rewards to Liquidity Providers daily.

Polymarket's early cash flow was likely supported by ecosystem incentives. As a reward for adopting the UMA technology stack, the platform received approximately 160,000 UMA Tokens, worth between $40,000 and $48,000. However, it is currently not publicly known whether Polymarket received rewards or profit sharing from its exclusive fiat currency to USDC on-chain partner Moonpay or its exclusive Block chain partner Polygon. These incentives are crucial for maintaining daily operations, especially considering that the company has raised only $4 million by mid-2024.

Although no formal monetization plan has been announced, the CEO has hinted at the possibility of charging for platform usage in the future. On the other hand, given the team's recent success in fundraising, they may not be in a hurry to find sources of revenue and may continue to subsidize platform operations to consolidate their leading position in the prediction market field. Additionally, since over 95% of the website's traffic is for content consumption rather than transactions, the website can quickly raise funds by increasing display ads instead of charging transaction fees.

Fundraising

Polymarket raised $4 million in its first round of financing in 2020. In May 2024, the company completed two more rounds of financing, attracting a total of $70 million from 9 investors. It is expected that the influx of these funds will greatly enhance Polymarket's future expansion capabilities, including strengthening its talent pool and market coverage.

Although there is currently no confirmed Token Generation Event (TGE) plan, recent reports indicate that Polymarket is exploring another potential round of $50 million in financing. The company also hinted at the possibility of launching a Token that would allow users to verify the outcomes of real-world events.

Given Polymarket's rapid investor funding speed and the potential challenges it may face due to its offshore structure in conducting a traditional Initial Public Offering, the likelihood of a token generation event seems high.

As for the company's valuation, there is currently no official report on the valuation of each round of financing. However, we can reasonably estimate that with the B round raising $45 million, Polymarket's valuation is likely to have reached the billion-dollar mark.

SWOT Analysis

Despite having a history of four years, Polymarket has only recently experienced significant development and is currently in a highly volatile stage. Instead of speculating on its future, it is better to gain a clearer understanding of its potential development path through SWOT analysis.

Advantages

Polymarket's biggest asset is its unprecedented public attention to the prediction market. This level of visibility attracts participants, creating a cycle where greater participation leads to more accurate, trustworthy predictions on a wider range of topics. If managed properly, this self-reinforcing cycle can solidify Polymarket's leading position.

Its on-chain architecture also sets it apart from traditional prediction markets, as it ensures the highest level of transparency, thereby establishing trust. However, compared to other on-chain competitors, this advantage of Polymarket is not significant because Polymarket lacks proprietary intellectual property or a dedicated blockchain, making it easier for other projects to replicate its model.

Disadvantages

The Liquidity of niche events is the main bottleneck for Polymarket to expand to different themes. This challenge is inherent in the design of prediction markets, and its order book model exacerbates this challenge. Traditional sports betting companies can easily cover a variety of events, while Polymarket is different. It must provide incentive mechanisms for the market to narrow the spread and improve the Liquidity of less popular themes.

Another limiting factor is that Polymarket is led by a US-centric team, and its operation platform essentially excludes US traders. This mismatch may hinder its global expansion while continuing to be entangled in US regulatory issues. The Super Bowl champion is still the most popular live sports event, indicating that the platform's strategy still heavily favors the taste of the US audience.

Opportunity

Polymarket has gained a reputation for its reliable crowdsourced event predictions and is fully capable of becoming an indispensable part of media and social content consumption. This integration can bring more traffic and open up new sources of revenue.

As an alternative asset for quantitative trading, Polymarket's data also has strong potential. Due to the high reliability of predictions, the platform may attract greater interest from institutional investors and algorithm traders, thereby generating demand for predictions of more diverse events.

From a geographical perspective, the success of Polymarket can quickly expand to regions where Web3 applications, such as Asia and the Middle East, are becoming increasingly popular. The demand for predicting regional activities in local languages is also immense.

Challenge

Like other platforms in the field, Polymarket also faces legal uncertainties. Regulatory challenges have affected similar entities such as Betfair and PredictIt, raising questions about whether peer-to-peer prediction will be classified as gambling, securities, or other financial products in different countries. The strengthening of regulatory scrutiny brings significant risks.

A key operational threat is the potential for participants to manipulate the market. As Polymarket is a decentralized platform, individuals or groups with substantial funds may influence the odds, leading to potential misleading trends and undermining trust in their predictions.

Conclusion

Since early 2024, Polymarket has experienced explosive rise and positioned itself as the preferred place for crowdsourced predictions on major events, particularly filling the gaps in media coverage and social discussions around the US elections. Over the past six months, the platform has attracted 500 million users and accumulated $400 million in assets.

Our analysis indicates that Polymarket's strong momentum is likely to continue after the election. In terms of media, citing Polymarket's forecasts has become a regular practice for traditional media and social platforms. Among platform users, most have taken positions on topics beyond the U.S. election, reflecting their ongoing engagement with different events.

In the long run, the development of Polymarket will depend on a clever grasp of market positioning, content strategy, and regulatory environment. With the increasing popularity of the platform, public supervision and competition from traditional platforms and Web 3 platforms will also become increasingly fierce. In order to fully leverage its reputation and influence, the Polymarket team must make strategic choices to strengthen its position while not losing the public interest that has already been cultivated.

Appendix: Polymarket's on-chain technology stack

Source: Polymarket Github

a.CTF exchange (Centralized Trading Facility or Token Framework exchange)

CTF exchange is the main trading interface and matching engine, providing convenience for the conditional Token market based on specific event outcomes.

In structure, it can be used as a "CLOB" (Central Limit Order Book) or "BLOB" (Binary Limit Order Book), where users can place buy and sell orders. These orders are often signed according to the structured data EIP-712 standard, allowing off-chain order creation and on-chain settlement, thus dropping gas costs and improving trading efficiency. By processing orders and matching them according to pricing parameters, the exchange allows users to buy and sell conditional Tokens directly linked to event probabilities.

In addition to basic order matching, CTF exchange also interacts with various Decentralization modules to ensure the accuracy and credibility of event resolution. For example, when an event is resolved, CTF exchange communicates with the UMA CTF adapter to retrieve the final result, and then updates the users' conditional Tokens. The exchange also incorporates Liquidity provisioning mechanisms by incentivizing operators to forward matched orders and conduct on-chain Settlement transactions.

b.NegRisk exchange

NegRisk exchange supports mutually exclusive binary markets: breaking down complex scenarios into multiple yes/no questions, each focusing on specific outcomes. For example, "Winner of the 2024 presidential election" can be broken down into individual questions, each for each candidate ("Will Joe Biden win the 2024 US presidential election?" or "Will Donald Trump win the 2024 US presidential election?"), with each question supporting two possible outcomes.

c. UMA Optimistic Oracle

The UMA Optimistic Oracle acts as a Decentralization layer, providing reliable event outcomes to address the issues of on-chain prediction market. Unlike traditional oracle systems, the optimistic oracle system operates on an "optimistic" validation model, which means that the data submitted by proposers is considered correct unless challenged. This design maximally drops the cost of high-frequency on-chain computation, as the resolution of disputes only occurs when observers (challengers) flag the data. When an event in the prediction market concludes, proposers provide the result to the UMA optimistic oracle and maintain the dispute open for a predetermined period. The dispute window allows any network participant to challenge the validity of the data, and upon successful challenge, the proposer is penalized while the challenger is rewarded. The Oracle's architecture consists of proposers, challengers, and resolvers. Once the data is ultimately determined and undisputed, the oracle provides settlement data to connected applications such as UMA CTF adapter, enabling conditional Token Settlement.

d. UMA CTF Adapter

The UMA CTF Adapter, as an intermediate layer between the CTF Exchange Center and the UMA Optimistic Oracle, converts event outcome data into a format compatible with conditional tokens. After the Oracle confirms the resolution of the event, the CTF Adapter retrieves the data and processes it according to the specifications required by the Gnosis conditional token framework. This conversion process includes verifying the integrity of the data and initializing the conditions required for triggering token payment.

Source:

The UMA CTF Adapter ensures interoperability between various on-chain systems and protocols by connecting the CTF exchange's external data requirements with the functionality of Oracle. This adapter initializes condition parsing on the CTF exchange, triggers smart contracts, and releases or exchanges tokens based on the final outcome of events. The structure of its code repository can accommodate multiple data formats and validate conditions in different markets, allowing prediction markets to be flexibly built on the UMA and Gnosis frameworks.

e. Operator

Operators act as facilitators, forwarding matched orders for Settlement, and sometimes even executing orders themselves. These operators ensure that buy and sell orders on the CTF exchange are executed quickly, minimizing friction to improve system efficiency for end users. By signing orders that comply with the EIP-712 standard, these operators increase the security of transactions, while reducing natural gas costs by implementing off-chain order management drop.

From a technical perspective, operators act as off-chain Liquidity providers or market makers, ensuring that there is always sufficient supply and demand for various activities Token. Operators can manage order execution without directly participating in CTF exchangeSmart Contract, thereby achieving scalability and cost-effectiveness.

f. Conditional Token

Polymarket CTF Exchange is an exchange protocol that facilitates atomic swaps between Conditional Token Framework (CTF) ERC1155 assets and ERC20 collateral assets. The open-source nature of this framework means it can be customized and integrated into multiple dApps, thereby enhancing the scalability of the prediction market.

Under the Gnosis Conditional Token Framework, conditional tokens can be created.

Condition Tokens are the basic assets traded on the prediction market, representing users' risk exposure to specific event outcomes. These Tokens are minted based on predefined conditions set within the Gnosis Condition Token framework, with the value of each Token dependent on the resolution of specific events. For example, in a political election prediction market, Condition Tokens can represent the likelihood of each candidate winning. Users buy these Tokens to essentially bet on their chosen outcome. As market demand fluctuates, the value of Tokens also fluctuates, thus reflecting the real-time probability of event outcomes.

In technical terms, conditional Token is an asset based on Smart Contract, which uses the ERC-1155 standard, allowing the creation of Tokens with customizable conditions. Conditional Token retains a deeper level of fungibility, as all conditions are stored in a single contract and are not tied to specific collateral Tokens.

"Users will hold conditional tokens in "Positions". A position can be simple (with only one condition) or complex (involving multiple conditions). For example, you no longer hold A and N - where A and N are the outcomes of two events - but you can hold the position AN, representing event N, because event A has already occurred."

After the event is resolved, the Token linked to the successful outcome will appreciate or be exchangeable for rewards, while the Token representing the unsuccessful outcome will depreciate.