The Anatomy of Polymarket: Evidence from the 2024 Presidential Election

2026-03-03

AI Summary

This study addresses the misestimation of trading volume in blockchain-based prediction markets arising from heterogeneous transaction mechanisms—such as share minting, burning, and traditional exchange-style trades coexisting within the same market. Leveraging comprehensive on-chain data from the Polygon network, we conduct a fine-grained analysis of trading activity on Polymarket during the 2024 U.S. presidential election market. We propose a volume decomposition methodology and construct a multidimensional metric framework encompassing exchange-equivalent volume, net inflows, and total market activity to accurately capture genuine market dynamics. Integrating financial econometric models (e.g., Kyle’s λ) with event study techniques, we identify three pivotal events—Biden’s withdrawal, the September debate, and the October whale entry—and demonstrate that heightened trading activity correlates with narrowing arbitrage deviations, enhanced market efficiency, and greater participant diversity, thereby confirming the market’s progressive maturation.

Technology Category

• Game Theory and Economic Paradigms: Auctions and Market-Based Systems
• Multiagent Systems: Mechanism Design
• Natural Language Processing: Discourse, Pragmatics & Argument Mining

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Web Mining and Content Analysis: Models for Web evolution
• Security and Privacy: Cryptocurrency and smart contracts

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.

Problem

• blockchain prediction markets
• trading volume
• on-chain data
• market activity
• heterogeneous trade mechanisms

Innovation

• volume decomposition
• blockchain-based prediction markets
• on-chain transaction analysis
• market microstructure
• Polymarket