How Does Polymarket Makes Money: Business Model Explained

Prediction markets have gained significant popularity as tools for gathering crowd-sourced insights about future events, including election outcomes and financial trends. One of the leading platforms in this space is Polymarket, which has introduced a novel prediction marketplace that allows users to bet on real-world questions in a decentralized and transparent manner.

The industry is projected to grow into the multi-billion-dollar range, driven by demand for alternative forecasting tools. Polymarket is tapping into this trend by focusing on liquidity, attracting market makers, and building valuable sentiment data resources it could monetize in the future through analytics, partnerships, or premium features.

The global prediction market industry is anticipated to grow rapidly, with a projected value of approximately $6 billion. This growth is expected as more individuals and organizations look for alternative ways to gain insights into world events. Polymarket is tapping into this demand by generating revenue through transaction fees and providing liquidity in specific markets.

This blog will analyze Polymarket’s business model, exploring the key revenue streams that enable its success and offering valuable insights into how prediction markets can transform participation into profit.

Key Market Takeaways of Prediction Market

The global predictive analytics market size was valued at USD 5.7 billion in 2018 and is expected to register a CAGR of 23.2% over the forecast period. Predictive analytics is a flexible analysis tool that helps organizations implement optimal solutions for growth and anticipate potential future scenarios.

Source: GrandViewResearch

The retail and e-commerce sector is expected to experience the highest growth in the global market. The increasing demand for personalized and customized shopping experiences is a key factor driving the need for predictive analytics in this segment. Additionally, advancements in technologies like AI, AR, and machine learning are anticipated to fuel market growth further. The widespread use of social media, greater internet access, and the growing reliance on data-driven platforms have also boosted the demand for predictive analytics solutions.

The Asia Pacific region is projected to experience the highest CAGR during the forecast period. The rising adoption and implementation of advanced predictive analytics solutions drive this rapid growth. The region’s significant market potential is also encouraging solution and service providers to expand their operations there. Additionally, the growing emphasis on and investment in emerging technologies like AI, IoT, and machine learning are expected to propel market growth in the Asia Pacific further.

Overview: Prediction Market Polymarket

Polymarket is a decentralized, blockchain-based prediction market platform where users can trade on the outcomes of real-world events from politics and economics to science and pop culture. Built on the Polygon blockchain, it operates without a central authority, using smart contracts to enable secure and transparent trading. Polymarket not only offers a platform for speculation but also generates valuable data on public sentiment and crowd-based forecasting.

Key Features of Polymarket

1. Decentralization & Transparency – Leveraging Polygon’s smart contract technology, Polymarket ensures transactions are trustless no intermediaries are requiredand all trade data is transparent and publicly verifiable.

2. Diverse Market Topics – Users can trade on a wide variety of events, including global news, financial markets, technology trends, sports, and public health making the platform appealing to a broad audience.

3. Ease of Use & Accessibility – Polymarket is designed with an intuitive interface, making it accessible to both newcomers and experienced traders. Markets are traded in USDC, a stablecoin pegged to the U.S. dollar, which protects against typical cryptocurrency volatility.

4. Reliable Outcome Resolution – Event outcomes are determined by clear, pre-defined resolution sources (often reputable news outlets) and resolved via a decentralized oracle system. Once an event concludes, the oracle reports the result, triggering fair payouts for winning shares.

How Does Polymarket Work?

Polymarket is a decentralized prediction market platform where users can trade on the outcomes of real-world events ranging from elections and sports to economics and pop culture. Instead of betting against the house, you’re trading against other users, and prices reflect the crowd’s collective probability estimate.

1. Event Markets

• Each event is represented as a market with possible outcomes (e.g., Yes / No).
• Shares in these outcomes are priced between $0 and $1, representing the market’s probability estimate.
  • For example, if YES is priced at $0.70, the market estimates a 70% chance of it happening.

2. Trading Outcome Shares

• Users buy shares in the outcome they believe will happen.
• If their prediction is correct, each share is worth $1 at resolution.
• If they’re wrong, the shares become worthless.
• Prices fluctuate as traders buy and sell, reflecting changing sentiment.

3. Settlement in USDC

• All trading is done using USDC (USD Coin), a stablecoin pegged to the U.S. dollar.
• This ensures stable pricing without crypto volatility affecting outcomes.

4. Zero Trading Fees

• Polymarket charges no fees on trades.
• Users only face natural bid–ask spreads (set by liquidity providers) and possible blockchain network fees for deposits/withdrawals.

5. Market Resolution

• Each market is tied to a clear resolution source (e.g., official election results, reputable news outlets).
• Once the outcome is known, the market is resolved and winning shares are paid out at $1 each.

6. Liquidity & Price Discovery

• Liquidity providers ensure there’s always someone to trade with.
• They earn from small pricing spreads, helping keep the market active and competitive.
• Prices adjust dynamically based on real-time demand and supply.

Example:

• If Candidate X wins, you receive $100 USDC (100 × $1), making a $45 profit.
• A market asks: “Will Candidate X win the 2028 U.S. Presidential Election?”
• YES shares are trading at $0.55 and NO shares at $0.45.
• You buy 100 YES shares for $55 USDC.

Summary Table

Is Prediction Marketplace Like Polymarket Profitable?

As of November 2024, Polymarket has not disclosed specific revenue figures or a clear profitability status. However, the platform has raised substantial funding, including a recent $45 million Series B round led by Founders Fund in May 2024, which has brought its total funding to around $111 million. This level of investment suggests strong market confidence in the potential profitability of prediction marketplaces.

Polymarket’s primary revenue streams likely include transaction fees from trades, which are typically between 1% to 5%, and possibly liquidity fees from users providing stability to market events. If user engagement and trading volume are high, these fees could yield substantial income over time. Nevertheless, without clear data on costs, user retention, and operational expenses, it’s challenging to ascertain if Polymarket has reached or is close to profitability.

Prediction markets do hold strong profitability potential due to the high engagement and recurrent trading they generate, but profitability would depend heavily on user growth, retention, and market expansion.

Business Model of Polymarket

Polymarket is one of the fastest-growing decentralized prediction platforms, enabling users to bet on real-world events using cryptocurrency. Its standout feature? Zero trading fees for users. Despite this, the platform has built a sustainable ecosystem fueled by liquidity incentives, partnerships, and venture capital funding.

1. No Trading Fees for Users

Unlike many prediction platforms, Polymarket does not charge a fee on trades. Users can buy and sell shares in markets without the platform taking a cut. This zero-fee model has been a major growth driver, attracting both retail speculators and professional traders.

• Impact: Lower friction for traders, more frequent transactions, and higher liquidity.

2. Liquidity Provider Spreads

While there’s no direct fee, market makers (liquidity providers) earn from the bid–ask spread—the small difference between buy and sell prices. This spread is part of natural market dynamics and goes to liquidity providers, not Polymarket itself. In return, these liquidity providers help keep markets active and competitive.

3. Venture Capital Funding

Polymarket’s operations and user incentives are largely supported by venture capital. The company has raised significant funding from major backers such as Founders Fund, Polychain Capital, and other crypto investors. This capital allows the platform to run without charging trading fees while still offering robust infrastructure and incentives.

4. Data & Sentiment Value

Even though Polymarket does not currently monetize directly from trading, the aggregated market data it generates—covering politics, economics, sports, and more is extremely valuable. This real-time crowd-driven sentiment can be leveraged in partnerships with media outlets, research firms, and financial analysts in the future.

5. Potential Future Revenue Streams

Polymarket could eventually introduce revenue-generating features such as:

• Premium analytics tools for traders
• API access for institutional clients
• Sponsorships and branded markets
• Fee-based liquidity programs for advanced traders

Why This Model Works

Polymarket’s zero-fee approach lowers the barrier to entry, drives higher trading activity, and builds network effects. By prioritizing growth and liquidity first backed by VC capital it positions itself to monetize in the future without alienating its existing user base.

What You Don’t Pay

• No platform trading fees: Polymarket takes 0% from your trades.
• No deposit or withdrawal fees from Polymarket itself (though payment processors may charge).

What You Do Pay

1. Bid–Ask Spread
   • Because trades are matched through automated market makers (AMMs), you’ll almost always pay a small spread when buying or selling.
   • This goes to liquidity providers, not Polymarket.
2. Network (Gas) Fees
   • Transactions happen on the Polygon blockchain.
   • Gas fees are low compared to Ethereum, but they still exist especially for deposits, withdrawals, and on-chain settlements.
3. On-Ramp/Off-Ramp Fees
   • If you buy USDC via MoonPay, Coinbase, or another payment gateway, those services may charge a fee.

In short: Polymarket isn’t making money from your trades today. Instead, it’s playing the long game growing liquidity, building a loyal user base, and positioning itself for future monetization opportunities, all while being VC-funded.

How To Create A Price Prediction Model?

Creating a price prediction model begins with defining the problem and collecting relevant data. Depending on the asset, use historical price data, market sentiment, and external factors that influence prices. You can source this data from APIs like Yahoo Finance or Quandl. After gathering the data, preprocessing is essential, which includes cleaning the data, handling missing values, and normalizing the dataset. Additionally, feature engineering plays a key role, where you create indicators like moving averages or volatility metrics. You can use time series models like ARIMA or machine learning models like Neural Networks to predict future prices.

1. Pick Clear, Well-Defined Events

Your market should have questions with unambiguous outcomes — e.g., “Will Candidate X win the 2028 election?” This prevents disputes and ensures smooth payouts.

2. Use Prices as Probabilities

In prediction markets, the price of a YES share is the implied probability. Example: $0.72 = 72% chance. This works because winning shares pay $1 if the event happens.

3. Choose a Pricing Method (Orderbook or AMM)

• Orderbook (Polymarket’s approach): Price is based on the best bid/ask midpoint or last trade.
• Automated Market Maker (AMM): Uses a formula (like LMSR) to adjust prices instantly based on trades.

4. Represent Outcomes with Tokens

For each market, issue two tokens YES and NO that together represent one full payout. 1 YES + 1 NO = $1 collateral. When a trade happens, one is bought and the other is sold.

5. Handle Collateral and Settlement

Lock funds (usually stablecoins like USDC) in a smart contract or secure custody. At resolution, winning tokens can be redeemed for $1, losing ones expire worthless.

6. Update Prices Based on Trades

When traders buy YES shares, the price goes up (probability increases). When they sell, it goes down. In AMMs, this happens automatically via a formula; in orderbooks, it’s set by trader orders.

7. Calibrate and Display Probabilities Clearly

Make sure your displayed odds reflect real market activity. Smooth out extreme moves with average pricing or filters to prevent sudden spikes from low-volume trades.

8. Use Trusted Oracles for Resolution

An “oracle” is the data source that confirms the event outcome e.g., official sports websites, government election results, or verified news agencies. This ensures results are accurate and final.

9. Manage Risk and Fairness

Set rules to prevent manipulation (e.g., wash trades, fake markets, or insider trading). Have limits on bet sizes or exposure to protect liquidity providers.

10. Build a Transparent and Easy-to-Use Interface

The success of your platform depends on trust and usability. Show live prices, historical charts, and clear market rules. Let users easily buy/sell shares and track their positions in real time.

Conclusion

In my opinion, the business model showcases how Polymarket makes money with the profitability and sustainability of a well-designed prediction market platform. By strategically leveraging transaction fees, market creation fees, and data monetization, Polymarket has built a diverse set of revenue streams that capitalize on user activity and engagement. The platform’s DeFi integrations further enhance user participation, offering liquidity options that increase trading volumes while incentives ensure a loyal and active user base.

Together, these components create a scalable business model that benefits both users and the platform. For entrepreneurs interested in prediction markets, Polymarket’s approach highlights how thoughtful design and diverse revenue strategies can lead to a profitable venture.

Want to make a platform like Polymarket?

At Idea Usher, we are dedicated to transforming your ideas into reality, not just building apps. With more than 500,000 hours of coding experience, our team has developed the expertise to create decentralized prediction marketplaces like Polymarket.

We are excited to apply our knowledge to design a platform that meets your specific requirements, incorporating strong smart contract integration, secure transactions, and user-friendly features.

We recognize the potential of prediction markets and are dedicated to helping you create a standout platform. Let us help you build a scalable, profitable solution and support you every step of the way.

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FAQs

What are market creation fees, and why are they important?

Market creation fees are charges imposed on users who create new prediction markets on the platform. These fees encourage quality-relevant market creation and prevent spammy or low-value markets. They also serve as a revenue source and help offset operational costs, ensuring the platform remains sustainable and well-managed.

How does data monetization work in prediction markets?

Businesses and researchers can purchase anonymized, aggregated trading data for trend forecasting and market analysis through data monetization. This creates an additional revenue stream that leverages user activity without infringing on privacy.

How do incentives affect the profitability of prediction markets?

Incentives such as bonuses or rewards for accurate predictions encourage user engagement and increase trading activity. More trades lead to higher transaction fees, driving sustained growth in users and revenue for the platform. Engaging users effectively ensures a positive cycle of activity and profitability.

What industries benefit from prediction market data?

Industries such as finance, marketing, political analysis, and even healthcare can benefit from the insights provided by prediction markets. By analyzing crowd behavior and forecasting trends, businesses and researchers can make more informed decisions and develop better strategies for their respective markets.