Up to 89% of Polymarket users carry losses, shows on-chain data

Polymarket rose to the top of popularity during the week of the US elections. However, for most users, the platform is extremely risky, with 89% of the market participants losing money. 

Polymarket has become notorious for large-scale gains, like the $47M earned by player Freddi9999 for betting on Donald Trump’s electoral victory. To achieve outsized earnings, whales bet up to $70M. 

Yet while the elections and popular vote markets were hot, their earnings also came at a price. To achieve its payouts, up to 89% of Polymarket participants are on the losing side of bets. The ratio of winners to losers can shift, but it remains close to those borders.

Soon after the US election results were announced, Polymarket had 14.3% of users in profit and 85.7% carrying losses. Due to the structure of bets, those positions can shift, and some whales have chosen to carry losses for a while until a bet resolves. 

Each bet on Polymarket includes opposing tokens on the Polygon network. Their price, adding up to 100%, fluctuates as players determine the true odds. However, true odds are more easily discovered in highly liquid markets with many participants. 

For some bets and markets, the token price can be manipulated or moved due to wash trading. Betting pairs can also get a temporary boost to their trading volumes, as in the case of the winner of the US elections. The market grew in the days just before the election, reaching peak open interest. 

Open interest for Polymarket fluctuates, depending on which bets were closed. More than 339M in open interest settled as of November 7, after closing the biggest political betting markets. 

Most Polymarket bets come from small-scale players

Every betting market on Polygon has its own user profile. The hottest pair of the winner of the US elections showed the market was skewed toward large-scale whales for Trump’s ‘yes’ token. On the other side of the bet was a larger number of positions, but coming from smaller wallets. 

The biggest number of bets on Polymarket comes from wallets with under $100 in trading volume. 

However, close to 8,500 wallets have volumes above $50K, including some of the whales entering the largest available positions. More than 100K wallets limit their participation to 1-5 bets, and another 95K wallets carry 20-50 trades. The smallest elite group of wallets carries more than 50 trades on average. 

Multi-wallet usage is not unusual, as players try to enter positions without causing outsized changes in prices. In that scenario, a single whale could sway a betting market, creating more volatility as the bets normalize. 

What comes after Trump’s victory?

For Polymarket, the US elections were a ticket to mainstream recognition. The platform expanded beyond mainstream betting markets, surprising analysts that its token-based betting was all settled on the Polygon chain. Polymarket also managed to predict the electoral map with total accuracy, creating a reputation of a tool for discovering trend outcomes. 

The platform already carries its next batch of bets, this time tied to expectations of Trump’s presidency. Bets are open on policies, actions, and cabinet positions. 

Polymarket is also closely tied to the world of social media. Some of the polls tap social media creators, which can generate further interest in the markets. Special interest groups and experts continue to post their latest fields of study, going to the market for a resolution. 

When it comes to liquidity, some expect the free funds from betting would move to other assets. Max Kordek, founder of Lisk, suggested the liquidity from Polymarket may flow back into Ethereum. Since Polymarket uses USDC on Polygon, the tokens will still need to be moved to another ecosystem, or remain for usage on Polygon’s markets and apps. 

The immediate challenge for Polymarket is to recover its trading volume. After the US election settled, Polymarket handled more than 371M in volumes. A day later, the platform carried only around 37M in volumes, through settling smaller bets.