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What is Polymarket?

Before diving into how PredMart works, it's important to understand Polymarket — the prediction market platform whose outcome shares serve as the foundation of PredMart's collateral system. This page provides a comprehensive introduction to prediction markets, how Polymarket works, what outcome shares are, and how they relate to PredMart's lending protocol.

If you are already an experienced Polymarket trader, you may want to skip ahead to the Getting Started guide.

Understanding Prediction Markets​

A prediction market is a type of marketplace where participants trade contracts whose payoff depends on the outcome of real-world events. Instead of trading stocks, commodities, or currencies, prediction market participants trade on the likelihood of future events — elections, sporting events, economic data releases, regulatory decisions, geopolitical developments, and much more.

The fundamental mechanism is straightforward:

  • Each event has one or more possible outcomes (e.g., "Will candidate X win the election?" has two outcomes: Yes and No).
  • For each outcome, there exists a tradeable token (called a share or outcome token).
  • If the outcome occurs, the share pays out $1.00. If it does not occur, the share pays out $0.00.
  • The market price of each share reflects the collective belief of all market participants about the probability of that outcome.

For example, if a "Yes" share for "Will it rain tomorrow in New York?" is trading at $0.70, the market collectively estimates a 70% probability that it will rain. If you believe the probability is higher than 70%, you would buy the share (expecting it to pay out $1.00). If you believe it's lower, you would sell or short the share.

This price-as-probability mechanism is what makes prediction markets uniquely powerful: they aggregate information from thousands of participants with different knowledge, incentives, and perspectives into a single, continuously updated probability estimate.

How Polymarket Works​

Polymarket is the world's largest prediction market platform, operating on the Polygon blockchain. It allows anyone with a crypto wallet to trade on the outcomes of real-world events using USDC (a stablecoin pegged to the US dollar).

Market Structure​

Each Polymarket market is built around a specific question — for example, "Will the Federal Reserve cut interest rates in March 2025?" Each market has two or more outcomes:

  • Binary markets have exactly two outcomes: Yes and No. The prices of Yes and No shares always sum to approximately $1.00 (minus the spread). If Yes is trading at $0.65, No is trading at approximately $0.35.

  • Multi-outcome markets (also called "groups" on Polymarket) have multiple possible outcomes. For example, "Who will win the Super Bowl?" might have 32 outcomes — one for each NFL team. In a multi-outcome market, the prices of all outcome shares sum to approximately $1.00.

The Conditional Token Framework (CTF)​

Under the hood, Polymarket shares are implemented using the Conditional Token Framework (CTF) — an ERC-1155 token standard developed by Gnosis. Each outcome in a Polymarket market corresponds to a unique token ID in the CTF contract.

Key properties of CTF tokens:

  • ERC-1155 standard: Unlike standard ERC-20 tokens (where each token is a separate contract), ERC-1155 allows multiple token types to exist within a single contract. Each Polymarket outcome share is a different token ID within the same CTF contract at address 0x4D97DCd97eC945f40cF65F87097ACe5EA0476045 on Polygon.

  • Fungibility within outcomes: All shares of the same outcome are identical and interchangeable. One "Yes" share of a particular market is exactly the same as any other "Yes" share of that market.

  • Settlement at $1.00 or $0.00: When a market resolves, winning shares can be redeemed for exactly $1.00 USDC each through the CTF contract. Losing shares become worthless.

  • Collateral-backed: CTF tokens are minted by depositing USDC into the CTF contract. For a binary market, depositing $1.00 mints one Yes share and one No share. These can be split, traded independently, and recombined.

The Central Limit Order Book (CLOB)​

Polymarket does not use an Automated Market Maker (AMM) like Uniswap. Instead, it operates a Central Limit Order Book (CLOB) — a traditional orderbook matching engine similar to what stock exchanges use. This provides several advantages:

  • Better pricing: Orderbooks offer tighter spreads and more accurate price discovery compared to AMMs.
  • Limit orders: Traders can place orders at specific prices and wait for them to be filled.
  • No impermanent loss: Unlike AMMs, CLOB liquidity providers don't suffer from impermanent loss.
  • Professional market making: The orderbook model attracts professional market makers who provide deep liquidity.

When you place an order on Polymarket, it is matched against existing orders on the CLOB. The midpoint price (the average of the best bid and best ask) is the most commonly referenced price for a given outcome and is what PredMart uses as the oracle price for collateral valuation.

Trading on Polymarket​

To trade on Polymarket, you need:

  1. A compatible crypto wallet (MetaMask, Coinbase Wallet, etc.)
  2. USDC on the Polygon network
  3. A Polymarket account (which involves deploying a Smart Wallet through their interface)

You can buy shares at the current market price (market order) or set a specific price you're willing to pay (limit order). When a market resolves, you claim your winnings directly from the Polymarket interface.

Polymarket Shares as Financial Assets​

From a financial perspective, Polymarket shares have some unique properties that are important to understand when using them as collateral on PredMart:

Price Range: $0.00 to $1.00​

Polymarket shares always trade between $0.00 and $1.00. A share cannot be worth more than $1.00 (since that's the maximum payout) and cannot be worth less than $0.00 (since the worst case is zero payout). This bounded price range is fundamentally different from stocks or cryptocurrencies, which have no theoretical upper limit.

This bounded range is what makes PredMart's dynamic LTV curve possible. The protocol can model the risk of each price level precisely because it knows the full range of possible values.

Binary Outcome​

Unlike traditional assets that fluctuate continuously, Polymarket shares have a binary terminal value: they will ultimately be worth either $1.00 (if the outcome occurs) or $0.00 (if it does not). There is no middle ground. This creates a unique risk profile:

  • A share trading at $0.80 will either gain $0.20 (outcome occurs) or lose $0.80 (outcome does not occur).
  • A share trading at $0.20 will either gain $0.80 (outcome occurs) or lose $0.20 (outcome does not occur).

This asymmetric risk profile is why PredMart assigns different LTV ratios at different price levels.

Time-Limited​

Every Polymarket market has an end date — the date by which the outcome will be determined. This means all Polymarket shares have a finite lifespan. After resolution, the shares are either redeemed for $1.00 or become worthless. PredMart handles both scenarios automatically through its market resolution system.

Liquidity Varies​

Not all Polymarket markets are equally liquid. High-profile markets (like US presidential elections) may have millions of dollars in orderbook depth, while niche markets may have only a few thousand dollars. This liquidity variation is why PredMart implements its depth gate system — to ensure that borrowing against a token is proportional to the market's ability to absorb liquidations.

How Polymarket Shares Connect to PredMart​

PredMart accepts Polymarket outcome shares (CTF tokens) as collateral for USDC loans. Here's how the connection works:

Depositing Shares as Collateral​

When you deposit Polymarket shares into PredMart, you are transferring your ERC-1155 CTF tokens from your wallet to PredMart's lending pool smart contract. The shares remain in the contract until you withdraw them (after repaying any outstanding debt) or until they are seized in a liquidation event.

To deposit, you must first approve PredMart's contract to transfer your CTF tokens. This is done through a standard ERC-1155 setApprovalForAll transaction.

Valuation​

PredMart values your collateral using the midpoint price from Polymarket's CLOB. This price is fetched in real-time by PredMart's backend oracle, cryptographically signed, and submitted to the smart contract alongside your borrow transaction. The contract verifies that the price signature is valid, that it was signed by the authorized oracle, and that it is no more than 10 seconds old.

The value of your collateral position is simply:

Collateral Value = Number of Shares × Midpoint Price

For example, if you deposit 10,000 shares and the current midpoint price is $0.65, your collateral value is $6,500.

Borrowing Power​

Your maximum borrowable amount depends on the LTV ratio assigned to your collateral's current price:

Maximum Borrow = Collateral Value × LTV(price)

Using the default LTV curve, if your collateral price is $0.65, the interpolated LTV is approximately 0.56 (56%). So with $6,500 in collateral value, you could borrow up to approximately $3,640 in USDC.

Resolution and Redemption​

When the underlying Polymarket market resolves:

  • If your collateral is the winning outcome: Your shares are redeemable for $1.00 each. PredMart can redeem them on your behalf, use the proceeds to repay your debt, and send you the surplus.
  • If your collateral is the losing outcome: Your shares become worthless ($0.00). Any remaining debt on your position becomes bad debt, which is absorbed by the lending pool.

Key Polymarket Concepts for PredMart Users​

Token ID​

Every outcome on Polymarket has a unique token ID — a large number that identifies the specific outcome share within the CTF contract. When interacting with PredMart, positions are tracked by token ID. You may see this referenced in API responses, transaction data, and the PredMart interface.

Condition ID and Index Set​

These are lower-level identifiers used by the CTF contract for share redemption. The condition ID identifies the market question, and the index set identifies which outcome within that question the share represents. PredMart handles these internally when processing market resolutions — you don't need to interact with them directly.

USDC on Polygon​

Both Polymarket and PredMart operate on the Polygon (previously Matic) network and use USDC.e (bridged USDC) as the base currency. The USDC contract address on Polygon is 0x2791Bca1f2de4661ED88A30C99A7a9449Aa84174. Make sure your USDC is on the Polygon network before interacting with PredMart.

Safe Wallet (Smart Wallet)​

Polymarket uses Gnosis Safe smart contract wallets for trading. When you first connect to Polymarket, it deploys a Safe wallet for you. PredMart also supports Safe wallet deployment for non-custodial order execution. If you are setting up through PredMart, the platform will guide you through the Safe deployment process.

Example Scenario​

To illustrate how Polymarket shares and PredMart work together, consider the following scenario:

Market: "Will Company X announce earnings above expectations in Q2 2025?"

  1. Alice believes the answer is Yes and buys 5,000 Yes shares at $0.60 each on Polymarket, spending $3,000 USDC.

  2. Alice wants to increase her position but has used all her available USDC. She deposits her 5,000 shares into PredMart as collateral.

  3. At the current price of $0.60, PredMart values her collateral at $3,000. The LTV at $0.60 is approximately 52.5%. Alice can borrow up to $1,575 USDC.

  4. Alice borrows $1,500 USDC from PredMart and uses it to buy an additional 2,500 shares at $0.60 on Polymarket.

  5. Alice now has exposure to 7,500 shares (5,000 in PredMart + 2,500 in her wallet) while only having spent $3,000 of her own money — a leverage of approximately 1.5x.

  6. If the market resolves Yes: Alice's 5,000 deposited shares are worth $5,000. PredMart repays her debt ($1,500 + interest) and sends her the surplus ($3,450). Plus, she holds 2,500 shares in her wallet worth $2,500. Her total return: ~$5,950 from a $3,000 investment.

  7. If the market resolves No: Alice's 5,000 deposited shares become worthless. Her debt (~$1,500) becomes bad debt absorbed by the pool. She also loses the 2,500 shares in her wallet. Her total loss: $3,000 (her original investment).

This example demonstrates the power and risk of leveraged trading through PredMart. For more details on leverage strategies, see Leveraged Trading.

Next Steps​

Now that you understand what Polymarket is and how its shares work as collateral, proceed to:

  • Getting Started — Set up your wallet and connect to PredMart
  • Borrowing — Learn how to deposit collateral and borrow USDC
  • Risk Parameters — Understand how PredMart manages risk for prediction market collateral