How does Polymarket resolve markets?

Polymarket's prediction markets leverages collective trader knowledge to determine event probabilities, resolving outcomes through a meticulous market resolution process that ensures accuracy.

Feb 08, 2025 at 01:00 pm

Key Points

• Polymarket uses a process called prediction markets to resolve its markets.
• Prediction markets are a type of market where traders buy and sell contracts that pay out if a certain event occurs.
• In the case of Polymarket, the contracts are for events such as the outcome of elections, the price of stocks, or the weather.
• The price of a contract reflects the probability of the event occurring, as determined by the collective wisdom of the traders in the market.
• When the event occurs, the contracts are settled and the winners are paid out.

How Polymarket Resolves Markets

Polymarket uses a prediction market to resolve its markets. A prediction market is a market made up of a group of people who are betting on the outcome of some event. For example, each person in a prediction market might buy a contract for $1, which would pay out $2 if their chosen candidate wins an election. If they don't choose the winner, there would be no payout. Polymarket's market works by having users create questions and set odds for certain outcomes. For example, someone could create a question called "Who will win the next US presidential election?" and set the odds for Trump and Biden as 50/50. They could also create other questions like "What will the price of Bitcoin be in 2024?" or "When will the next global pandemic begin?". Users can then buy and sell contracts for those questions, with the goal of making a profit. If they correctly predict that Trump will win the election, they can sell their contract for more than they paid for it. Market participants are incentivized to update their beliefs and trade accordingly, as the market evolves in response to new information, resulting in a more efficient and accurate prediction.

How Polymarket Determines the Outcome of a Market

1. Determine the Winning Market Outcome

It may seem like common sense to assume that the market prediction for an event is correct after it occurs. However, prediction markets are rarely so straightforward. For many prediction markets, real-world events are uncertain and can have ambiguous outcomes.

To account for this, Polymarket employs a method called "market resolution" to establish the official outcome for a market. Market resolution occurs only after a market reaches maturity, which is typically a couple of weeks before the event occurs.

A market enters the resolution phase when the time window for the event has passed and it's no longer possible for the event to occur, or when there is sufficient information for the market's outcome to be reasonably certain. To determine the outcome, Polymarket considers a broad range of factors, including expert opinions, official sources, and media consensus. Polymarket uses market resolution to assign a clear outcome to markets, although it's possible that multiple outcomes may be reasonable.

2. Resolve Any Open Market Contracts

Once the market is resolved, any outstanding contracts on the losing side will be canceled, and these funds will be redistributed to all contract holders on the winning side in proportion to their holdings.

3. Calculate Payouts and Fees

Polymarket calculates the payout for each winning contract based on the market's resolution outcome. The payout is determined by the initial purchase price of the contract and the odds of the outcome at the time of purchase and may be subject to a resolution fee.

FAQs

What is Polymarket?

Polymarket is a platform for prediction markets, which are a type of market where traders buy and sell contracts that pay out if a certain event occurs.

How do prediction markets work?

Prediction markets are a type of market where traders buy and sell contracts that pay out if a certain event occurs. The price of a contract reflects the probability of the event occurring, as determined by the collective wisdom of the traders in the market.

How does Polymarket resolve markets?

Polymarket uses a process called market resolution to determine the outcome of its markets. Market resolution occurs only after a market reaches maturity, which is typically a couple of weeks before the event occurs. To determine the outcome, Polymarket considers a broad range of factors, including expert opinions, official sources, and media consensus.

Are there any risks involved in using Polymarket?

There are a number of risks involved in using Polymarket, including but not limited to:

• The risk of losing money: The price of a contract can fluctuate, and there is no guarantee that a contract will pay out.
• The risk of fraud: Polymarket relies on the honesty of its traders, and there is no guarantee that all traders will be honest.
• The risk of technical problems: Polymarket is a complex platform, and there is no guarantee that it will always work perfectly.