ICE invests $2 billion, valuing Polymarket at $8 billion. How does Polymarket justify this valuation?

Source: Galaxy; Compiled by Jinse Finance

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

In addition to this huge investment, ICE also stated its plan to “become the global distributor of Polymarket event-driven data, providing customers with sentiment indicators related to market themes.” ICE indicated that the two companies will also collaborate on tokenized projects. Meanwhile, Polymarket founder and CEO Shayne Coplan hinted that the launch of the POLY token might be in preparation, while MetaMask also announced a plan to integrate Polymarket into its wallet (as well as perpetual futures trading).

Galaxy's perspective:

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

However, during the Trump administration, the federal government dropped 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 Jr.'s company was involved in the early funding, and he joined Polymarket as an advisor.

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

ICE may believe that it can package Polymarket's data in a way that adds value for TradFi clients, possibly delivering it in formats commonly used by these institutions directly to the trading screens they are already using. If this is the case, and ICE charges for this service and shares revenue with Polymarket, it may help address the latter's long-standing challenge of finding a sustainable revenue model, as it does not charge transaction fees.

From a macro perspective, some may argue that the true product of prediction market platforms is not the bets themselves, but the information signals generated by these markets. If a platform can find a way to monetize these signals, it can be imagined that it could earn money without charging commissions. Prediction markets aggregate dispersed 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 probability predictions—essentially a continuously updated collective expectation model. From an economic standpoint, bets are inputs, not outputs. The valuable output is the information generated from these betting interactions. From this perspective, it is not difficult to imagine the unmentioned advantage of Polymarket being its potential to capture and standardize this data on a large scale, thereby creating high-frequency feedback on real-world sentiment 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 probabilities. 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 and 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 that Polymarket's positioning is no longer as a gambling platform, but rather as an information infrastructure provider. The market is a mechanism for its crowdsourced predictions; in this case, the business is to commercialize these predictions. The natural customers for such products may include financial institutions, hedge funds, news agencies, and AI developers seeking real-time market indicators of future events.

At the same time, Coplan revealed that the POLY token (depending on its design) may address another major challenge facing Polymarket: maintaining trust in its contract solutions. Over a year ago, the tech news site The Information cited anonymous sources saying that Polymarket was considering issuing its own token “so that users can verify the outcomes of real-world events.” For those who understand the implications, this sounds like a warning directed at 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 to resolve market issues in a way that profits them, regardless of the actual outcome.

Polymarket has taken steps this year to reduce its reliance on UMA, utilizing Chainlink to address market issues related to asset price volatility. When the two parties announced their collaboration, they stated that they “are exploring various ways to expand the application of Chainlink to address prediction market issues involving more subjective questions, thereby reducing reliance on social voting mechanisms and further lowering resolution risks.” Therefore, Polymarket may still be considering integrating POLY as part of its solution.

Finally, we are curious about the efforts of ICE and Polymarket to tokenize together. As Coplan pointed out in a brief interview on the TBPN podcast, Polymarket has extensive experience in this area—each “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.