ICE invests 2 billion, valuation at 8 billion dollars. How does Polymarket justify this value?

Source: Galaxy; Compiled by Jinse Finance

The parent company of the New York Stock Exchange, Intercontinental Exchange (ICE), announced on Tuesday that it has agreed to invest up to $2 billion in Polymarket. According to Messari, this transaction is the seventh largest equity investment in a cryptocurrency company and the largest private investment by a traditional Wall Street firm. The deal values the blockchain-based prediction market platform at $8 billion. This is almost 7 times the valuation of Polymarket's latest funding round this year and 22 times higher than the valuation of the funding round before the November 2024 election.

In addition to this massive investment, ICE also stated that it plans to "become the global distributor of Polymarket event-driven data, providing clients with sentiment indicators related to market-relevant topics." ICE mentioned that the two companies would also collaborate on tokenization projects. Meanwhile, Polymarket founder and CEO Shayne Coplan hinted that the launch of the POLY token may be in preparation, while MetaMask also announced a plan to integrate Polymarket into its wallet (as well as perpetual futures trading).

Galaxy's view:

The investment and recognition from iconic Wall Street institutions are part of the turnaround for Polymarket and its 27-year-old founder Shayne Coplan.

Bloomberg reports that Coplan is the youngest self-made billionaire in the world. About a year ago, in the last days of the Biden administration, the FBI raided Coplan's residence to investigate whether Polymarket allowed U.S. users to access the platform, thus violating a settlement agreement reached with the Commodity Futures Trading Commission.

However, during the Trump administration, the federal government abandoned the investigation, and Polymarket acquired the CFTC-authorized exchange QCX, paving the way for Polymarket's return to the U.S. market. Coplan is no longer a pariah; he was invited to the White House industry roundtable and SEC-CFTC joint events. Donald Trump's son’s company participated in the early funding, and he joined Polymarket as an advisor.

In addition to the astonishing valuation and Coplan's return, we wonder how ICE intends to handle Polymarket's data. This information has been made publicly available on-chain, with odds published on Polymarket's website and (obviously) updated in real-time. On the other hand, market data services are ICE's main business line, which generated approximately $1.84 billion in revenue last year, accounting for about 15% of the company's total revenue.

ICE may believe that it can package Polymarket's data as a way to add value for TradFi clients, perhaps delivering it in formats commonly used by these institutions to the trading screens they are already using. If that is the case, and ICE charges for this service while giving Polymarket a share, it may help address the long-standing challenge faced by the latter (which does not charge trading commissions): finding a sustainable revenue model.

From a macro perspective, one might argue that the true product of a prediction market platform is not the bets themselves, but rather the information signals generated by these markets. If the platform can find a way to monetize these signals, it can be imagined that it would be able to make money without charging commissions. Prediction markets aggregate decentralized information into price signals. Each contract price can be interpreted as the crowd's implied probability of a certain outcome. In many markets, over time, this creates a dataset of probabilistic predictions—essentially a continuously updated model of collective expectations. From an economic standpoint, betting is an input, not an output. The valuable output is the information generated from these betting interactions. From this perspective, it is not difficult to imagine that the unmentioned advantage of Polymarket lies in its potential to capture and standardize this data on a large scale, thereby creating high-frequency feedback on real-world sentiments and predictions.

Traditional exchanges monetize trading activities through fees, but these fees introduce friction and distort price formation. Participants adjust buy and sell prices based on costs, which means market prices may slightly deviate from the "true" collective probability. If Polymarket can find a way to monetize the data layer, it can continue to avoid this friction. A zero-commission structure should lead to a more efficient market, resulting in cleaner, higher-quality information products. The improvement in data quality is precisely because users do not have to pay to provide data.

Therefore, we can envision Polymarket's positioning not as a gambling platform, but as an information infrastructure provider. The market is its crowdsourced prediction mechanism; in this case, the business is to commercialize these predictions. Natural customers for such products may include financial institutions, hedge funds, news agencies, and AI developers seeking real-time market indicators for future events.

At the same time, the POLY token revealed by Coplan (depending on its design) may be able to address another major challenge faced by Polymarket: maintaining trust in its contract solutions. More than a year ago, the tech news site The Information cited anonymous sources saying that Polymarket was considering issuing its own token "to allow users to verify the outcomes of real-world events." For those who understand the implications, this sounds like a warning issued to the UMA protocol. The UMA protocol is the oracle service that Polymarket uses to resolve market issues and adjudicate disputes through community voting. A common complaint about UMA is that large token holders may collude in some way to resolve market issues, allowing themselves to profit regardless of the actual outcome.

Polymarket has taken measures this year to reduce its reliance on UMA, utilizing Chainlink to address market issues related to asset price volatility. When announcing their collaboration, both parties stated that they "are exploring various ways to expand the application of Chainlink to address prediction market issues that involve more subjective matters, thereby reducing reliance on social voting mechanisms and further lowering resolution risks." Therefore, Polymarket may still be considering using POLY as part of its solution.

Finally, we are curious about the efforts of ICE and Polymarket to collaborate on tokenization. As Coplan pointed out in a brief interview on the TBPN podcast, Polymarket has extensive experience in this regard—every "yes" or "no" share traded on the platform is a blockchain token linked to real-world outcomes. Therefore, seeking their assistance to tokenize real-world assets listed on the ICE exchange does not seem to be a difficult task.