Like artificial intelligence, the Web3 world wants a piece of the action in online betting markets. There is no greater example than this than the August announcement by a former Polymarket executive that he will invest $15 million in another blockchain-based online prediction market instead of building it on the traditional web.
Toni Gemayel, for Head of Growth for Polymarket and Kalshi, said on his X social media account on Aug. 27 that he will put up $15 million, together with Coinbase Ventures and other venture capitalist in a blockchain-based start up called The Clearing Company to “build the first on-chain, permissionless and regulated prediction market.”
In June, Polymarket raised $200 million on a $1 billion valuation, followed by rival Kalshi which raised $185 million on a $2 billion valuation that same month, Techopedia reported. In August, Polymarket generated more than $644 million in overall trading volume.
Polymarket might look like the traditional internet, but it is a decentralized platform built on Ethereum ETH and Polygon (MATIC/USD) Layer 2 for fast and low-cost transactions. It allows users to bet on the outcomes of real-world events like elections, sports, and economic outcomes using stablecoins. It is, arguably, the ring leader in the space, surpassing major betting platforms on the traditional web like FanDuel FLUT and DraftKings DKNG in web traffic.
David Tawil, president of ProChain Capital, a cryptocurrency investment firm in New York City, said on his X account on Aug. 29 that around 40% of Polymarket’s sales volume comes from sports betting; 40% comes from bets on cryptocurrency price moves.
VCs Bet Big on “Info Finance”
Vitalik Buterin, Ethereum co-founder, said prediction markets were part of a larger category he dubbed “info finance”. People are betting on polls. Will Ethereum hit $5,000 by December 1? Place your bets.
“Prediction markets are making media experiential,” said Loxley Fernandes, CEO and co-founder of Myriad, another on-chain prediction market. “Of course there are both economic and psychological incentives for participating, but I think they can all be summed up in the simple reality that people are tired of being told what is true in corporate polling, and what is valuable. They are tired of being abused by traditional media. Prediction markets return the power to people to determine what is true and what is valuable.
Myriad recently hit $10 million in U.S. dollar coin trading volume. Fernandes was the CEO of Rug Radio, a decentralized Web3 media network. Myriad is owned by Dastan, the parent company of Rug Radio and blockchain news and information publisher Decrypt.
Based on Polymarket’s success versus the big sports betters on Web2, Web3 seems to be the future of these prediction betting platforms going forward.
“The primary difference is open sourced intelligence. Blockchain enables clear, precise transactions globally without the need for intermediaries to approve who can and can’t participate,” said Fernandes.
Web2 vs Web3 Prediction Markets
In a Web2 world, if you want to bet on the U.S. election, FanDuel, DraftKings, and others each run their own markets. Odds may differ, liquidity is fragmented, and arbitrage is harder.
In a Web3 world, that same election prediction market exists once on-chain, but then multiple apps and other blockchains can plug into it. Traders on different platforms are all drawing from the same pool of liquidity and so arbitrage opportunities exist across the different interfaces even though they all resolve back to that one canonical on-chain market.
“This unification creates deeper markets and more accurate forecasts,” said Fernandes, adding that these “info finance” markets can thrive even when they’re politically or commercially inconvenient.
Prediction markets have also changed the way people follow the news, especially how they react and rethink about polling the public on an issue. “In a world of fake news and biased media, prediction markets are the ultimate signal in a sea of noise, because money is one the line,” said Alex Witt, general partner at Nevada-based VC firm Verda Ventures and former asset manager at Goldman Sachs. Verda invested in DeFi start-up Mento in October 2024 and put in about $7 million in stablecoin fintech startup Beam in May.
“VCs are interested in these platforms because there is proven user demand, and regulatory tailwinds now,” Witt said. Verda Ventures is an investor in Myriad’s parent company, Dastan.
The prediction market sector is projected to grow to $95.5 billion by 2035, while stablecoin adoption is expected to reach $2 trillion by 2028, according to market research firm Metatech Insights.
“There is potential for a ‘killer use case’ scenario,” Witt said. The transparency and efficiency of using blockchain to aggregate crowd wisdom, makes on-chain prediction markets superior to traditional crowd surveys or traditional betting.”
Last year, Kalshi triumphed in a court case against the Commodity Futures Trading Commission, allowing the platform to offer political-based betting contracts. Kalshi argued the contracts were no different than any other type of future contract and, surprisingly, won. Kalshi is not a Web3 prediction market.
While some retail investors may not like the risky gambling aspect of prediction markets, they can invest in the companies themselves.
Some on-chain prediction market players include Augur (REP/USD) and Gnosis (GNO/USD).
Meanwhile CME Group announced a deal with FanDuel in late August to offer new event contracts. Customers will be able to express their views multiple times a day on a wide range of market bets with simple “yes” or “no” positions for as little as $1. This does give FanDuel bets the cover of being regulated, and void of investor fraud schemes, something that cannot be said so easily about the Web3 versions.
Polymarket was banned in the U.S. in 2022 pending compliance with the Commodity Futures Trading Commission. Polymarket’s acquisition of QCX, a U.S.-based derivatives exchange and clearinghouse (QC Clearing) — together called QCEX – is licensed by the CFTC and so Polymarket now operates under regulatory compliance.
The writer is a cryptocurrency investor and holds Ethereum.
Image Credits: Author