By Marc Hochstein
At first blush, it looks redundant.
The weekend before the U.S. presidential election, crypto-based prediction market Polymarket spun up a contract betting on who will be inaugurated as the next leader of the free world.
As anyone who has paid the slightest bit of attention to crypto or election news coverage this year knows, Polymarket already had a heavily traded contract on which candidate will win the presidential race.
That contract has seen more than $3 billion in trading volume, according to Polymarket, with more than $200 million worth of open interest, or positions outstanding, according to a Dune Analytics dashboard prepared by the user mahdi0077.
There's a subtle difference between the "winner" contract, which Polymarket has listed since February, and the new "inauguration" one. That difference highlights a challenge facing prediction markets ahead of Tuesday's vote in a politically polarized, low-trust environment.
Namely: What if the election results aren't clear shortly after the polls close? Or, if they are clear to one side, what if the purportedly losing candidate disputes them, as Donald Trump did four years ago, leading to the Jan. 6, 2021 Capitol riot? Or if one candidate concedes but then withdraws the concession, as Democrat Albert Gore did in 2000, leading to a Supreme Court case?
There "could be a hornet's nest about this next week," Koleman Strumpf, an economics professor at Wake Forest University in North Carolina, told CoinDesk by email last week.
The rules for Polymarket's "winner" contract say it will resolve once all three of the Associated Press, Fox News and NBC call the race. However, if all three media outlets haven't done so for the same candidate by Inauguration Day (Jan. 20, 2025), the market will be resolved according to who is inaugurated.
By contrast, Polymarket's new "inauguration" contract doesn't bother with press sources, and will wait until Jan. 20 to resolve. If no one has been inaugurated by then, it kicks the can to Jan. 31. And if no one has been inaugurated by then, both the Trump and Harris "yes" shares will resolve to "no," and "no" holders for both candidates will collect payouts, which would be an unusual situation.
There are tradeoffs between the two approaches.
The first "has the benefit of potentially resolving sooner, at [a] time when agreement on the resolution is generally accepted — and this might make it more popular because of the time value of money," said Aaron Brogan, a lawyer who has studied prediction markets.
On the other hand, a media outlet could make a call and then reverse it, as the Chicago Daily Tribune did in 1948 following the infamous "Dewey Defeats Truman" headline.
"If the Polymarket contract resolves, and then one of the sources flips, it could be a big headache and a lot of litigation for everyone involved," Brogan said.
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