My daughter was learning about the Canary in the coal mine, and it got me thinking: Can we have a Canary to help us run our businesses?

The phrase “canary in the mine” can be traced to the late 19th century, following a tragic explosion in a Welsh coal mine. John Scott Haldane, a pioneering engineer and the “father of oxygen therapy,” introduced the idea of using canaries as ‘sentinel species’: animals that can detect danger to human life before we ourselves are aware of it These birds were carried into mines to detect dangerous gasses, such as carbon monoxide and firedamp. If the canary showed signs of distress, it served as an early warning system for miners.

While better detection equipment eventually led to the canaries’ retirement (the use of canaries was outlawed in 1986 for instance in Britain), the phrase lives on, illustrating how humans are often quite poor at recognizing developing events until it’s too late. And given the complexities of today’s fast-changing world – including the deluge of often contradictory and misleading information we’re faced with every day – we need ‘canaries’ more than ever.

One of the most exciting breeds of modern-day canaries is Polymarket, a platform that is revolutionizing how we predict future events. Polymarket is a onchain information market platform that leverages blockchain technology and the wisdom of the crowd to transform how we forecast outcomes in various domains, from politics and finance to sports and entertainment.

It’s really taken off for everyday life. Even the Business Insider, which often shares updates and insights about prediction markets,​ are now posting Trump’s odds of winning from Polymarket. According to a Consensus 2024 interview with Shayne Coplan, the CEO and Founder of Polymarket, more than $380 million in bets have been placed on the outcome of the U.S. presidential election alone on crypto-based Polymarket, dwarfing previous records for the entire sector.

What is Polymarket?

Polymarket is a decentralized platform that allows users to bet on the outcomes of real-world events. Unlike traditional betting platforms, Polymarket is built using the Polygon protocol, a Layer-2 Ethereum scaling solution. The blockchain ensures transparency, security, and a trustless environment where the integrity of each market is maintained by smart contracts.

I had the chance to discuss with Sandeep Nailwal, co-founder of Polygon, and he told me that “I am thrilled to see Polymarket rapidly growing on our Ethereum scaling solution Polygon POS. Polymarket’s success sets the standard for the future of decentralized finance and prediction markets.”

Indeed, Polymarket is one of the fastest growing onchain applications.

How It Works

Polymarket functions as a prediction market where users can buy and sell shares in the outcome of future events. Each market is represented by a specific question, such as “Will candidate X win the election?” or “Will the price of Bitcoin exceed $50,000 by the end of the year?”. Users purchase shares in the outcomes they believe will occur, and the market price of these shares reflects the collective sentiment and probability of the event.

In its simplest form, Polymarket is trading on current events and familiar topics. As of July 24th, there are over $920 million in total predictions.

The company has established itself as a highly accurate gauge of future events by allowing users to trade on outcomes with real money on the line. This harnesses the well-known phenomenon of the “wisdom of crowds”, which describes how large populations can deliver astonishingly precise predictions.

A trivial example is the “Guess How Many M&Ms In The Jar” game. If 100 people guess, and you take the average of those guesses, the answer will be accurate to within a small handful of candies; if 1,000 people guess, it might be just single digits away. And there’s a long heritage of using the wisdom of crowds to predict the future: betting patterns are one of the main ways bookmakers use to calculate the odds.

Polymarket’s unique approach has led to viral organic sharing of its markets, especially during significant events like election cycles. Users have found it more reliable than traditional news sources, leading to habitual use and critical mass for Polymarket. Despite initial skepticism from the market, the team’s conviction in their vision has paid off, resulting in a platform that people frequently check and discuss, making Polymarket a standout.

Polymarket’s user base is diverse, ranging from crypto enthusiasts to those interested in hedging bets on world events to those that just want to see how the crowd is feeling on a set of topics. The platform provides a speculative experience where users can gain an edge through research and informed opinions. This has created a novel trading environment that fulfills an innate human desire to predict and bet on outcomes, often surpassing traditional polls in accuracy.

After all, plenty of people lie to pollsters; but their wagers always tell the truth. This simple truth, combined with the transparency and real-time nature of Polymarket’s markets, has made it a trusted source of high-quality information, leading to widespread organic reach and strong user engagement.

Benefits of Polymarket

Polymarket is revolutionizing the way we interact with and predict information, akin to how the stock market reacts instantaneously to new data shared during earnings calls. By creating an information market on a wide range of topics, Polymarket invites participants to reach a consensus not merely through opinions but by putting their money where their mouth is.

This approach leverages financial stakes to enhance the accuracy and reliability of predictions. For instance, markets on Polymarket now look at cultural events like predicting which country will win the most Olympic medals, or forecasting box office successes for upcoming movies. This method ensures a more robust and engaged consensus, transforming speculative opinions into valuable predictive data.

Polymarket operates uniquely compared to traditional platforms through its decentralized structure. No single entity holds control over the platform; instead, it runs on the blockchain, with smart contracts managing the creation, resolution, and settlement of markets. This decentralization guarantees that the platform remains secure, transparent, and immune to manipulation, unlike so many traditional betting markets.

Adding to its innovative approach, Polymarket uses automated market makers (AMMs) to ensure liquidity, allowing users to buy or sell shares without waiting for a counterparty. The prices of these shares adjust automatically based on supply and demand, reflecting the dynamic probabilities of outcomes. Polymarket also excels in information aggregation by harnessing the collective wisdom of its users.

As participants trade shares based on their beliefs and insights, the market prices coalesce these individual perspectives into a collective forecast, often surpassing the accuracy of individual experts. To ensure a fair and transparent resolution, each market relies on a predefined resolution source or oracle to determine the event’s outcome.

For example, in a bet on the outcome of the Super Bowl, the resolution source would be the official game results as reported by the NFL. Once the event is resolved, smart contracts automatically distribute payouts to the holders of the winning shares, maintaining a seamless and trustless settlement process.

Real-World Applications

Polymarket has proven its value in various domains.

• Political Forecasting: Users have successfully predicted election outcomes, providing a real-time pulse on political sentiment.
• Financial Markets: Traders use Polymarket to hedge against or speculate on financial events, such as interest rate changes or stock market movements.
• Public Health: During the COVID-19 pandemic, Polymarket hosted markets on vaccine rollout timelines and public health measures, offering insights into public expectations and policy impacts.

Challenges and Future Prospects

While Polymarket offers numerous benefits, it also faces challenges. Regulatory scrutiny is a significant concern, as prediction markets can be seen as a form of gambling. Additionally, the accuracy of the oracles and the need for reliable resolution sources are critical to maintaining trust in the platform.

Also, due to regulatory action by the Commodity Futures Trading Commission, Polymarket is currently restricted from operating in the U.S. One could wonder how accurate it will be predicting the US elections without US allowed to participate.

Despite these challenges, the future of Polymarket looks incredibly promising. As decentralized finance (DeFi) and blockchain technology continue to evolve, Polymarket is well-positioned to expand its offerings and user base. The platform’s ability to provide accurate, real-time forecasts makes it a valuable tool in a world where information is increasingly decentralized and democratized.

What’s Next?

Polymarket is more than just a prediction market; it is a glimpse into the future of onchain information systems. By combining the transparency and security of blockchain with the collective intelligence of its users, Polymarket is revolutionizing how we predict and understand future events.

Like those poor canaries, it has the potential to alert us to what’s just around the next corner. What’s most exciting is that by analyzing patterns of user behavior, we can identify “unknown unknowns” we didn’t even know were coming down the track.

Whether for political forecasting, financial speculation, or public health insights, Polymarket represents a powerful tool for harnessing the wisdom of the crowd to provide some much-needed predictability in a baffling, fast-changing world.