Opinion articles present diverse viewpoints and do not represent the position of (WEB3+)
I invested in Kamala Harris's winning coin on Polymarket and lost two dollars.
Next Friday (11.15) from 17:30 to 19:00, I will drift to the Prince's Bookstore, and all fellow practitioners are welcome to come chat.
The Cantonese podcast GM FM has released its seventh episode, adopting a new format without a specific theme, where three hosts each select one or two pieces of web3 news for discussion. What I'm interested in is relatively niche: Memecoin and Osmosis have launched Memepay and Osmosis Pay respectively, allowing users to buy wonton noodles, so please don't miss it.
After recording the self-selected news on GM FM, we inevitably talked about the U.S. presidential election. Co-host Michael asked me which candidate I support. I could only say that if I don't even qualify to select the leader of my own home, what right do I have to comment on the internal affairs of another country (in a spokesperson tone).
Polymarket Prediction Market
I am not qualified to vote, but the Polymarket prediction market is open to Hong Kong residents, so I invested in 'Kamala Harris winning coin' a month ago, participating in a small way.
How this (incorrect) prediction was made is not important, and we will not discuss it here. The focus of this article is to discuss the mechanism design of Polymarket through this case.
The core of Polymarket lies in marketizing issues. For example, the issue of 'Who will win the 2024 U.S. presidential election' is presented in a market format within Polymarket, where one can predict the victory of Trump or Kamala Harris and purchase corresponding tokens for their victory. A month ago, as an experiment, I bought 4 tokens for Kamala Harris's victory at a unit price of 0.497 dollars, spending 1.99 dollars. If Kamala Harris ultimately wins, each token can be exchanged for 1 dollar, totaling 4 dollars. If this were a horse race, the odds for Kamala Harris would be 1:2.01. I personally strongly resist gambling; Polymarket is not a casino that expresses the ratio in reverse; otherwise, I would not use it, let alone introduce it.
As a prediction market, Polymarket's greatest feature lies in being relatively decentralized, while the center of an investment market is the dealer.
When I invested in Kamala Harris's winning coin, the price was 0.497 dollars, which is not determined by a dealer but is the result of market supply and demand, similar to the principles of DEX (Decentralized Exchange).
All transactions on Polymarket are executed on the Polygon blockchain. Each transaction represents an increase in demand for one side, and as long as the resulting currency price change is greater than 0.000001, which is the smallest unit of USDC, the price will adjust immediately.
Relying on market mechanisms has also led to another feature of Polymarket: participants can sell tokens at any time before the result is confirmed to take profits or cut losses.
At the time of writing, the election votes are being counted, and Trump is leading with 178 electoral votes compared to Kamala Harris's 99. As results are announced, the value of the currencies representing the two sides continues to fluctuate, especially when key states announce their results, which may lead to significant drops or spikes.
With Kamala Harris's campaign failing, the corresponding value of her winning token has already dropped to about 0.2 dollars.
If it were gambling, you could only leave it to fate, waiting for the final result and payout; but Polymarket, as a market, operates similarly to futures, allowing tokens to be bought and sold at any time before expiration. If I recognize my error now, I can immediately sell my Kamala Harris winning coin at market price, even though I would incur a 60% loss, I could avoid losing everything when the results are confirmed.
The process of confirming results seems self-evident, but it is crucial in a decentralized mechanism. Earlier, I mentioned that Polymarket is 'relatively' decentralized, which is serious because it considers that an absolutely decentralized model does not exist, and there is a spectrum between centralization and decentralization.
Even though all transactions on Polymarket are executed on-chain using stablecoins, since the on-chain world does not know the election results, someone still needs to inform the system of the results. In blockchain terminology, this role is called an oracle; in this case, Polymarket serves as the oracle, which is a small degree of centralization that cannot be avoided in the entire mechanism.
Prediction and gambling are very similar yet different concepts.
Some view Polymarket as a new-style casino; this understanding is akin to saying the stock market is a large casino. As a rhetorical device, there is nothing wrong with it, but it overlooks its essence.
Gambling and prediction are two concepts that are close yet different; they can be difficult to distinguish in certain situations. For this election, if you have analyzed polls, debates, platforms, and other factors in detail and judged that one side has a greater chance of winning, that is prediction; otherwise, if you are simply guessing, that is gambling.
As mentioned earlier, the essence of Polymarket is a prediction market (here 'prediction' is used as a noun), which marketizes issues, utilizing economic incentives to aggregate collective wisdom to derive the probabilities of issues, thereby formulating reasonable policies or making corresponding preparations.
For example, the question 'Will a new deadly infectious disease emerge in 2025?' is one of the easiest to understand. If the probability is high, the government should clearly prepare in advance by increasing medical facilities and personnel and making a series of arrangements. Otherwise, they can temporarily rest assured and focus entirely on 'boosting the economy.'
In a traditional system, such issues would likely be judged by the health bureau or government-appointed advisory groups, hierarchically influenced by the subjective will of the ruling party.
But if we hand over issues to the prediction market, not only do we decentralize the power of expression to everyone, but the economic incentives will encourage participants to take it seriously. Those unfamiliar with the issues will only participate casually, while those who have researched the issues in depth or have insider information are likely to participate significantly; from a self-interested perspective, the prediction market helps individuals monetize knowledge, but the participation of the masses will push the market probabilities toward reasonable levels, providing more comprehensive data for public policy making, thus also generating altruistic effects.
If you are clear-headed, you may have already seen the potential problems in the above example: if I were a billionaire, couldn't I place heavy bets on the emergence of a new virus in 2025 and then develop and spread the virus myself?
Indeed, the above examples are purely fictional, aimed at explaining the mechanism of prediction markets. In actual implementation, although anyone has the right to propose issues, to become a market, it must undergo Polymarket's review. Issues that have potential problems or are unethical will be rejected. Imagine someone proposing the issue 'Trump will be assassinated'; although it seems reasonable, it must not pass to avoid creating economic incentives for assassinating Trump.
The power to review issues is another element temporarily held by Polymarket, which cannot be decentralized.
In a traditional system, this aspect is naturally handled by the government, such as Taiwan's Civil Referendum Act, which, although authorizing the public to propose, sign, and vote, requires that issues first be reviewed by the Central Election Commission.
Is using Polymarket illegal?
Speaking of Taiwan, last year, seventeen individuals participating in the Taiwan presidential election issue on Polymarket were arrested for allegedly violating the (Presidential and Vice Presidential Election and Recall Act).
Perhaps because of this background, after I revealed my investment in Kamala Harris's winning coin, a fellow practitioner kindly reminded me that participating publicly in Polymarket carries risks, and Taiwanese practitioners naturally responded in agreement.
As I understand it, I am not engaging in illegal gambling but investing in a prediction market, and it does not involve domestic issues, which is fundamentally different from Americans participating in the same issues or Taiwanese participating in the presidential election issues.
Moreover, since my starting point is for academic research and discussion, my investment amount is only two dollars, which accounting standards consider immaterial. Therefore, I have sufficient reason to believe that in a progressive and enlightened society, this is a small matter within a reasonable range, part of daily civic life.
That said, I appreciate and completely understand the concerns of this fellow practitioner, and I cannot be 100% certain that I won't be sued.
Under 'the rule of law,' splashing water on others during the Water Splashing Festival can lead to imprisonment, playing the erhu on the street can lead to imprisonment, and displaying a less than three-foot-high banner reading 'Facing the crowd with a cold stare, willingly bowing to be a servant to the people' on the mountain can lead to court prosecution, and one may be sentenced at any time; in this society, no one knows where the red line is.
Since we cannot ensure safety, why must we 'take risks'? It is not to show off heroism (spending two dollars to be a hero is too cheap), but because I do not want to live in fear indefinitely, always cautious, afraid to undertake even the humble small experiments that could reasonably push society forward.
Moreover, from a sociological perspective, deviants help clarify the boundaries of crime and deviant behavior. If something goes wrong, whether it's reasonable or not, at least there is an objective effect of clarifying the red line (academic research is often detached and cold-blooded).
Conversely, if everyone keeps to themselves and no one dares to undertake 'although reasonable and meaningful, there is no guarantee that law enforcement agencies will not find a way to prosecute from a tricky angle,' then the regime could avoid both legislation and enforcement, as it has already succeeded in creating a climate of fear where everyone is cautious and obedient—that's not the society I hope to see.
I choose to live within a bearable range of risk, walking on thin ice and taking small steps.
p.s. Hong Kong people know that 'fellow practitioners' refers to addicts, but may not necessarily know that the original meaning of the term refers to 'friends with the same beliefs or similar thoughts.'
(Dream of the Red Chamber) Chapter 29 states: 'We must take down this jade and show it to those distant fellow practitioners and disciples for them to appreciate.' I refer to the participants of DHK dao as 'fellow practitioners,' not just as a joke, but sincerely, seeing everyone as 'friends with the same beliefs or similar thoughts.'
Original source: I invested in Kamala Harris's winning coin on Polymarket and lost two dollars.
Opinion articles present diverse viewpoints and do not represent the position of (WEB3+)
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