What explains the strength of Polymarket and what does this mean for Brazil?

Source: PortaldoBitcoin Original Title: What Explains Polymarket’s Strength and What It Means for Brazil Original Link: In less than a year, the financial world has been shaken twice by the same phenomenon: the rise of predictive markets. In November 2024, while traditional institutions pointed to a close race between Donald Trump and Kamala Harris, Polymarket comfortably predicted the Republican’s victory—which was later confirmed at the polls.

Now, in October of this year, Polymarket founder Shayne Coplan became the youngest self-made billionaire, reaching billionaire status at the age of 27. The leap in wealth came after Intercontinental Exchange (ICE), parent company of the New York Stock Exchange (NYSE), invested $2 billion in the platform.

These two examples show how Polymarket has become one of the giants of the global financial market. But more than that, it is at the forefront of a phenomenon that hints at deep and global-scale reach: the “predictization” of the world, where all measurable phenomena, natural or social, become the subject of bets.

In Brazil, this phenomenon still seems overshadowed by the omnipresence of “bets”, the betting houses that mainly focus on sporting events. But this clear Brazilian predilection for betting and the scenario for next year are elements that suggest it’s only a matter of (a little) time before Polymarket and its competitors become widespread in the country.

One who closely follows this trend is Felipe Sant Ana, founder of Paradigma Education, who has studied the crypto universe for years and, more recently, has deeply analyzed the rise of predictive markets. For him, the impact here tends to be even greater.

“I think the effect here in Brazil will be even more dramatic. Because Brazilians love to bet, love the chance to earn money for being right, and because next year there will be an election and a World Cup. Those are the two events we most like to speculate about informally,” he says.

Sant Ana notes that one of the reasons Polymarket has been more accurate than research institutes in some scenarios is the fact that the predictive market has its finger on the immediate pulse of events, which doesn’t happen with traditional methodologies.

“No matter how good the methodology, the sampling, and the process of an electoral poll, here in Brazil this process is regulated and not free. To publish results, you need to register the poll and follow a series of rules, which prevents large-volume daily polling. Predictive markets, on the other hand, operate 24 hours a day, reacting to all new information as it comes in. This mechanism proves to be more sensitive, up-to-date, and often more accurate,” he explains.

He adds that, for this reason, these platforms already act as “oracles of our time,” with even greater value in situations where the flow of information is restricted—such as in the case of electoral intentions, which can influence a country’s history.

Observation Affects the Phenomenon

There are some fields of physics that study a puzzle: when the mere act of observing a phenomenon changes it, making pure measurement impossible. The same happens in predictive markets, because when millions of dollars are at stake in a bet, agents who can manipulate the outcome will tend to do so.

Sant Ana details how predictive markets influence the events on which bets are placed. According to him, the very formalization of prices and probabilities already changes the dynamics of the results. “One example was the last earnings call of a crypto platform, with a mentions market, where people bet on which words would be said in the speech. The CEO ended up reading the bets while presenting the results, and many people complained that he had manipulated the market. In my view, it wasn’t he who manipulated it, it was the market that influenced his behavior,” he explains.

He adds that, more broadly, the existence of explicit rewards speeds up the emergence of certain results. “Today, for example, there is a Bitcoin prize for whoever first builds a relevant quantum computer. This prize accelerated the evolution of the technology, which was previously slower. Predictive markets work in a similar way: they bring to light information that was previously restricted or hidden, surfacing probabilities more quickly.”

For Sant Ana, although these mechanisms are positive for society, there are practical limits: “Markets that depend on the free will of a single person, such as mentions markets, tend to disappear not because of regulation, but because bettors realize they are investing in outcomes that someone controls. Over time, they learn which markets really have value and which do not.”

Predictive Markets and Bets

Predictive markets and betting houses may seem very similar—and in many ways, they are. Both involve putting money at risk to try to anticipate a future outcome, and both can operate in entertainment and sports categories. But according to expert Felipe Sant Ana, there are important distinctions in how these markets work. He explains that predictive markets are mainly structured around events where there is competition for information and constant updates, such as elections or political decisions.

“Until recently in Brazil, to have an updated poll of voting intentions, you had to wait days or weeks, and only a few companies controlled the information flow. Now, with predictive markets, anyone can track a candidate’s chances daily,” he says.

The discussion takes on weight when considering the growing impact of bets on the Brazilian economy. A recent study estimates that gambling and online betting cause annual social losses of R$ 38.8 billion—which includes costs related to debt, health problems, work leave, unemployment, and even suicides. To put this in perspective, that amount would equal 26% of last year’s Minha Casa, Minha Vida budget or a 23% increase in the Bolsa Família for 2024.