Free Money? Polymarket Bet Pays 8% if China Doesn’t Invade Taiwan

Turns out it’s the prediction market contract.

If China does not invade Taiwan by the end of the year, investors in “No” shares on Polymarket will receive a profit of 8%. The current price of these shares is 92 cents.

In comparison, a two-year bond from its central bank is paying just over 1.26%.

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Government bonds have historically been a bet on the future prospects of a country.

The unpredictability of political situations, economic hardships, and potential conflicts are typical features of countries still in development. These risks call for greater returns from investors. El Salvador’s bonds have previously carried a larger return compared to developed nations like Canada due to the perceived higher risk of crisis. However, things are shifting as the country’s President’s experimental adoption of bitcoin and aggressive approach towards organized crime seem to be bearing fruit.

In simpler terms, Taiwan’s administration is steadfast, and the economy is advanced with consistent surpluses. Investors are reassured by the country’s unwavering commitment to repaying debts, leading to minimal additional returns sought in the bond market.

An invasion could certainly cause major chaos, but it’s unlikely to happen judging by the bond market’s current assessment. Some people argue that prediction markets are inflating the chances of this occurrence, leading to an opportunity for higher returns compared to the country’s own government bonds.

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A word of caution and caveat: sometimes competitive Polymarket contracts get settled by how its oracle, Uma, interprets the fine print. The name Taiwan is often used as a synecdoche for the government of the Republic of China (ROC), which administers Taiwan, and roughly a dozen outlying islands, some of which, like Kinmen, are less than three kilometers away from the coast of the People’s Republic of China.

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A attack on Kinmen is considered an attack on the Republic of China (ROC), but it does not equate to an attack on Taiwan. However, from a betting perspective in the financial markets, the determination lies with Uma.

Cooler heads

Over the weekend, the launching of missiles and drones from Iran towards Israel triggered a frenzy of safety measures in the cryptocurrency market. Bitcoin experienced a dip while the tokenized form of gold saw a rally.

The increase in geopolitical conflicts in this area seemed temporary for the markets based on the swift rebound of crypto prices following news about potential approval of spot Bitcoin ETFs in Hong Kong.

Nor did it really shift the political landscape in a meaningful way for bettors on Polymarket.

In simpler terms, a betting contract regarding the 2024 Presidential election with an unprecedented stake of over $110.8 million in crypto predictive markets witnessed a small change. The value of “yes” bets for Biden’s victory rose by one cent to 45 cents, while the value of “yes” bets for Trump’s victory declined by one penny, also settling at 45 cents. Essentially, each bet holds a potential payout of $1 if correct, indicating an equal probability, or 45%, for both candidates to win the election.

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Although these actions don’t involve physical changes, they contradict some statements made on X (previously known as Twitter), which, in its constant state of alarm, believed a larger conflict in the region was imminent.

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With respect to this situation, the market is showing some signs of hesitation. A forecast indicating a 14% probability that Israel will respond to Iranian actions with a counter-strike exists.