Logo
ScienceStack
Table of Contents
Fetching ...
Sign In

The Anatomy of Polymarket: Evidence from the 2024 Presidential Election

Kwok Ping Tsang, Zichao Yang

Abstract

This paper provides a comprehensive transaction-level analysis of Polymarket's 2024 U.S. Presidential Election market using complete on-chain data from the Polygon blockchain. Because blockchain-based prediction markets involve heterogeneous trade mechanisms: share minting, burning, and conversion alongside conventional exchange, naive aggregation of on-chain flows can misrepresent actual trading volume. To address this, we develop a volume decomposition that yields three complementary measures of market activity: exchange-equivalent trading volume, net inflow, and gross market activity. Applying this framework, we document three key episodes that shaped the market: Biden's withdrawal, the September presidential debate, and the emergence of whale traders in October. As trading volume grew, arbitrage deviations narrowed, Kyle's $λ$ declined by more than an order of magnitude, and cross-market participation broadened, painting a consistent picture of a market that matured over its ten-month life.

The Anatomy of Polymarket: Evidence from the 2024 Presidential Election

Abstract

This paper provides a comprehensive transaction-level analysis of Polymarket's 2024 U.S. Presidential Election market using complete on-chain data from the Polygon blockchain. Because blockchain-based prediction markets involve heterogeneous trade mechanisms: share minting, burning, and conversion alongside conventional exchange, naive aggregation of on-chain flows can misrepresent actual trading volume. To address this, we develop a volume decomposition that yields three complementary measures of market activity: exchange-equivalent trading volume, net inflow, and gross market activity. Applying this framework, we document three key episodes that shaped the market: Biden's withdrawal, the September presidential debate, and the emergence of whale traders in October. As trading volume grew, arbitrage deviations narrowed, Kyle's declined by more than an order of magnitude, and cross-market participation broadened, painting a consistent picture of a market that matured over its ten-month life.
Paper Structure (24 sections, 14 equations, 8 figures, 4 tables, 1 algorithm)

This paper contains 24 sections, 14 equations, 8 figures, 4 tables, 1 algorithm.

Table of Contents

  1. Introduction
  2. Related Literature
  3. Prediction markets and information aggregation.
  4. Disagreement, capital flows, and trading volume.
  5. Market microstructure and price impact.
  6. Election prediction markets, manipulation, and blockchain observability.
  7. Polymarket
  8. P2P Trading
  9. Position Split, Merge and Conversion
  10. Position Split
  11. Position Merge
  12. Position Conversion
  13. Trading Volume Measurement
  14. Heterogeneity of trade mechanisms
  15. Transaction-level volume decomposition
  16. ...and 9 more sections

Figures (8)

  • Figure 1: Daily Trading Volume and Net Inflow of YES and NO Shares
  • Figure 2: Rolling Correlation Between Trump and Democrat Prediction Markets
  • Figure 3: Price Deviation and Transaction Volume of Different Prediction Markets
  • Figure 4: Hourly Number of Active Traders in Different Quarters
  • Figure 5: Hourly Number of Top 10% Active Traders in Quarter 4
  • ...and 3 more figures