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Crypto’s betting boom: Will you ride the wave or get wiped out?

cryptos-betting-boom-will-ride-the-wave
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Crypto’s betting boom: Will you ride the wave or get wiped out?

Can Polymarket’s prediction markets and Pump.fun’s meme coin mania offer you the golden ticket to crypto riches? Or will they lead you down a path of financial peril?

Making money in the crypto world has always been a gutsy game, constantly evolving with new trends and technologies. 

In the early days, it was all about mining Bitcoin (BTC) and holding onto it, hoping for a price surge. Then came the era of initial coin offerings (ICOs), where investors could buy into new projects before they launched, often seeing massive returns. 

Fast forward a few years, and the rise of decentralized finance (DeFi) introduced lending, borrowing, and yield farming as new ways to earn in the crypto space. And then came NFTs

But today, the spotlight is on speculation. Platforms like Polymarket and Pump.fun have made it incredibly easy for anyone to make money based on their predictions. 

Polymarket, launched in 2020, has transformed the betting arena. Unlike traditional betting markets, Polymarket allows users to bet on a wide range of topics, from sports and politics to economic events and even global conflicts.

In May 2024, Polymarket secured $70 million in Series B funding, with backing from big names like Peter Thiel’s Founders Fund and Ethereum (ETH) co-founder Vitalik Buterin, showing a strong vote of confidence in the platform’s future.

On the other hand, Pump.fun, a Solana (SOL) based platform, offers a unique way for users to create and trade custom digital tokens. Since its launch, it has generated over $58 million in fees and revenue in SOL, riding the wave of the meme coin explosion. 

The platform’s zero trading fees and features like token bonding curves and migration schedules have made it a hotbed for speculative investments.

With millions of dollars pouring into both Polymarket and Pump.fun, it’s clear that speculative money has become a major trend in the crypto world. But how exactly do these platforms work? And what can we expect in the coming days? 

Let’s dive deeper to understand the mechanics of these platforms and the future of speculation in the crypto market.

Gambling or predicting: the blurring lines

Polymarket is a platform that’s caught everyone’s attention by turning future events into financial opportunities. 

At its core, Polymarket operates on a simple yet fascinating principle: users can buy shares representing different outcomes of a future event. 

The price of these shares, known as Gnosis Conditional Tokens ERC-1155, fluctuates based on market demand, reflecting the collective prediction of the event’s likelihood. 

This means that as more people bet on a particular outcome, the price of those shares increases. 

Users can sell their shares before the event concludes to make a profit or hold onto them until the event is resolved. If they bet correctly, they receive a payout of 1 USDC per share.

Imagine you want to bet on whether it will snow in New York on Christmas Day. You visit Polymarket and find this specific prediction market. 

To participate, you use USDC, a stablecoin. You can buy shares representing “Yes, it will snow” or “No, it won’t snow.”

Let’s say you buy 10 shares of “Yes” for 0.70 USDC each because the market collectively believes there’s a 70% chance it will snow. This price fluctuates as more people place their bets. If more people start betting it won’t snow, the price for “Yes” might drop, and “No” might rise.

If you buy 10 shares of “Yes” at 0.70 USDC each and it snows, you get 10 USDC, yielding a profit of 3 USDC (10 USDC – 7 USDC), which is a 42.9% return on investment (ROI). If you sell the shares before the event at a higher price, say 0.90 USDC each, your ROI would be 28.6%. But, keep in mind if your prediction goes wrong, your entire investment becomes zero.

The impact of Polymarket can be seen in its rapid growth. As of recent data, approximately $500 million has been bet just on the US elections, with additional millions wagered on topics like crypto, Euro 2024, and the Middle East crisis.

Meanwhile, according to Dune Analytics, the number of transactions on Polymarket has also surged dramatically. 

Between January and April, daily transactions ranged between 1,000-2,000. However, since late May, this number has skyrocketed to between 7,000-15,000, peaking at over 22,000 on June 28, the day after the first presidential debate where Biden had a lackluster performance.

Crypto's betting boom: Will you ride the wave or get wiped out? - 1
Polymarket daily transactions | Source: Dune Analytics

Monthly volumes have shown a similar upward trend. From $39 million in April to $63 million in May, and then to a staggering $111 million in June, the growth has been remarkable. In the first ten days of July alone, volumes have already exceeded $57 million, indicating that July could surpass June’s figures.

Crypto's betting boom: Will you ride the wave or get wiped out? - 2
Polymarket monthly volume | Source: Dune Analytics

On average, users place bets of about 196 USDC, with thousands of contests worth millions of dollars live at any given moment, drawing more participants into the fray.

The allure of quick money and the thrill of making predictions have drawn people to these platforms, steering them away from traditional crypto trading, making speculation of real-life events the new king in the crypto world.

Pump and dump with Pump.fun

Pump.fun has quickly become the go-to platform for launching and trading custom digital tokens, capitalizing on the speculative frenzy in the crypto market. 

The platform allows developers to launch tokens with minimal upfront costs, charging around $2 in fees. It earns revenue through a 1% swap fee on all token transactions and takes 2 SOL for tokens that achieve enough liquidity to be listed on the decentralized exchange Raydium.

Despite its innovative approach, Pump.fun is not without controversy. The platform’s closed-source nature and closed APIs have raised eyebrows. 

Moreover, while Pump.fun claims to prevent rug pulls—where founders abandon projects and run off with investor funds—by enforcing a no-presale, no-insider allocation policy, this hasn’t entirely protected traders from losses. 

As it seems, developers can still buy large allocations of their tokens before other traders get involved. If a token gains interest, these developers can dump their supply, crash the price, and make a quick profit, often at the expense of other investors.

The allure of Pump.fun lies in its ability to list tokens on Raydium once they hit a market cap of $69,000. This milestone has become a rallying cry for users: “Let’s send this coin to Raydium!” However, even this doesn’t guarantee safety, as developers can still take the liquidity and disappear.

Celebrities have added to the platform’s hype. Notable figures like rapper Iggy Azalea and media personality Caitlyn Jenner have launched their own tokens, driving further interest in Solana-based meme coins. These celebrity-endorsed tokens and other meme coins on Pump.fun see daily trading volumes in the millions of dollars.

The platform’s activity levels are staggering. On average, Pump.fun witnesses over 10,000 transactions per day, with peaks reaching 20,000 transactions, with total transactions till date reaching almost 1.3 million, generating between $500,000 to $2 million in daily revenue and fees. 

Crypto's betting boom: Will you ride the wave or get wiped out? - 3
Pump.fun daily and total transactions | Source: Dune Analytics
Crypto's betting boom: Will you ride the wave or get wiped out? - 4
Pump.fun daily and total revenue | Source: Dune Analytics

Since its inception in January, the platform has seen over 1.325 million tokens launched, averaging more than 5,000 new tokens per day.

Crypto's betting boom: Will you ride the wave or get wiped out? - 5
Pump.fun cumulative tokens launched | Source: Dune Analytics

Two of the most popular tokens as of July 10 are Billy (BILLY) and Daddy Tate (DADDY), each boasting a market cap of over $150 million and listings on major platforms like CoinMarketCap, and have no real utility beyond hype and speculation. 

The constant activity on Pump.fun is palpable — new coins appear every few seconds, generating immediate traction and trading volumes. The community’s enthusiasm is evident in the rapid engagement and comments that follow each new launch.

It seems like a changed era, where people traditionally used to flock to casinos, betting their luck on cards or slot machines, the new craze is all about picking trendy coins on platforms like Pump.fun and hoping for substantial returns. 

The future of speculative frenzy: caution ahead

As excitement around platforms like Polymarket and Pump.fun grows, it’s crucial to examine how sustainable this trend is and what potential risks lie ahead. 

A tweet from one user highlights how the facade of exclusivity is driving the hype. The tweet states that only those who engage with the tweet will get access to a new token drop. 

This kind of marketing taps into the fear of missing out (FOMO), compelling people to jump in without fully understanding the risks. The quick replies of “count me in” and “let’s go” show how easily people get swept up in the promise of quick gains.

Meanwhile, another user has expressed frustration with the market’s saturation, stating that they are officially done with meme coin trading due to the dilution caused by platforms like Pump.fun. 

As more tokens flood the market, the chances of finding a genuinely profitable investment diminish. Many traders end up holding worthless tokens, having lost both time and money. The reality is that while some make substantial gains, many more experience losses.

Simultaneously, another tweet has remarked on Polymarket, calling it “intellectualized gambling.” This remark is spot-on. 

While Polymarket offers a sophisticated way to place bets on future events, it doesn’t change the fundamental nature of what users are doing: gambling. 

The platform may appeal to those who feel they are making informed predictions, but at the end of the day, the outcome is still uncertain, and the risk of losing money remains high.

The hype surrounding these platforms isn’t unprecedented. Consider the example of Friends.tech. When it first launched, it was the talk of the town, dominating headlines. Yet, over time, the excitement faded, and it became just another platform in the crowded crypto space, as transactions and users declined by 90%.

This pattern is likely to repeat with many speculative platforms: they rise quickly in popularity, create a lot of noise, and then gradually lose their luster as traders move on to the next big thing.

So, what should you keep in mind if you’re diving into this speculative craze? Speculative platforms are high-risk investments. The potential for high rewards comes with a very high chance of loss. Don’t invest money you can’t afford to lose. 

Be critical of the hype and make decisions based on data and analysis, not emotions. The speculative frenzy can be tempting, but it’s essential to approach it with caution, critical thinking, and a clear understanding of the potential pitfalls.