Polymarket’s VP debate winner market shows why it’s so important to read prediction market settlement terms.
The vice presidential debate between Tim Walz and J.D. Vance was on Oct. 1. According to the market’s settlement terms, the winner will be decided by the result of the first relevant Ipsos poll released after the debate. If an Ipsos poll isn’t released by Oct. 8, 11:59 p.m. ET, then Polymarket will use a YouGov poll.
At about 10:30 a.m. ET on Oct. 7, YouGov released its poll finding that Vance won the debate 41% to 32%. Vance went from a 79/21 leader on Polymarket to a 94/6 lead over Walz. That sharp price movement happened within about half an hour.
However, the YouGov poll can’t be used for settlement for about 26 hours. Traders have new expectations about the Ipsos poll, and they know the outcome of the backup poll.
Settlement terms can be flawed from the beginning
Prediction markets require concrete settlement terms to decide which contracts pay out and which don’t. Verifying outcomes can take time as occurs in the real world. That’s what makes reading settlement terms in prediction markets so important. Customers aren’t just trading on the event the market is based on. They’re also trading on how the settlement criteria will resolve.
Polymarket has faced several settlement disputes because of unclear settlement criteria. For example, Polymarket offered a market on whether Israel would invade Lebanon by the end of September. On Sept. 30, Israel began a ground invasion into Lebanon. The price of an invasion went from 8 cents to 87 cents within an hour.
However, Polymarket’s terms were unclear. Its settlement terms stated that the “market will resolve to ‘Yes’ if Israel commences a military offensive intended to establish control over any portion of Lebanon.” That may sound like commonsense language at a glance, but it doesn’t leave room for a concrete settlement that goes beyond any reasonable doubt. On Oct. 7, the market resolved to “No” through a vote, although some commenters pointed out that the largest holders had more weight in the vote.
