A US Recession through the lens of Polymarket
In this report we will explore the probability of a US recession based on on-chain Polymarket data identifying some dislocations between on-chain and traditional finance markets.
Introduction
Prediction markets such as Polymarket, gained considerable traction during the run up to the US election in November 2024. Allowing users to buy and sell tokens that represent their view on the future outcomes of a particular event, onchain prediction markets act as a useful tool for gauging the real-time sentiment of the probability of each outcome. We first covered Polymarket through the lens of the US election here.
In this report we will explore the probability of a US recession based on on-chain Polymarket data. We will then also identify some differences in the probabilities between several related Polymarket markets that track the path of monetary policy by the Fed, and compare them to similar measures in traditional finance markets. Our goal is to highlight the discrepancies in sentiment based on data from on-chain and off-chain markets and identify some dislocations between markets. However we do note that many of these dislocations in price cannot be meaningfully taken advantage of in sizable positions. That’s because of the low levels of liquidity (often close to $1,000) in many of these markets despite the reported high volumes.