Despite its questionable legality, hundreds of millions of dollars are betting on Polymarket.
By Nina Bambysheva, Forbes
Compiled by: Luffy, Foresight News
What are the chances that Vice President Kamala Harris will beat former President Trump in November? On a prediction website called Polymarket, thousands of bets give Harris a 39% chance of winning, while Trump has a 59% chance and Michelle Obama and Robert Kennedy have a 1% chance. Will Vance be replaced as Trump's vice presidential candidate? If Vance drops out, a $100 bet will pay off $1,000.
Welcome to the future of prediction markets, where you can bet on almost anything, from the peak price of Bitcoin in 2024 to how fast Trump and Biden will climb stairs to the gender of Hailey and Justin Bieber's unborn child. On Polymarket, about $446 million is currently betting on the outcome of the November presidential election. But in the United States, betting on election results is prohibited because the Commodity Futures Trading Commission considers it to be against the public interest. Based in New York City, Polymarket is a phenomenal prediction market, thanks in large part to the worldwide attention paid to American politics.
Shayne Coplan, Founder and CEO, Polymarket
Polymarket, which launched in 2020, has seen more than $650 million in trading volume this year, with nearly $300 million in July alone, according to Dune Analytics. The platform expects to process $1 billion in prediction bets by the end of the year. Campaign managers and political analysts are now turning to this unconventional oracle to find clues in volatile market prices. Even former President Donald Trump boasted about his odds on Polymarket on his social media app TruthSocial.
Polymarket is based on a blockchain network called Polygon, which runs 24/7 and has transaction fees that are only a fraction of Ethereum. However, users who want to trade on Polymarket need to use USDC, a dollar-based stablecoin, instead of US dollars. This is also changing. Last Wednesday, Polymarket announced that through a partnership with Miami-based MoonPay, users can use bank transfers and credit cards to pay for bets.
The prediction market’s soaring popularity has attracted top investors including Peter Thiel’s Founders Fund and Ethereum co-founder Vitalik Buterin to provide a total of $74 million in funding to the startup. Currently, markets related to the US election (more than 100 of them) are the source of most of the trading volume on Polymarket. Although these markets are reportedly closed to US residents, 25% of its website traffic comes from the United States, according to data from web analytics platform Similarweb. Polymarket’s 26-year-old founder Shayne Coplan is reluctant to reveal too much about his team’s efforts to prevent American users from betting on the election, preferring to emphasize the advantages of the new platform.
“Polymarket takes what was originally an internet squabble and turns it into a market where people who make the right predictions are rewarded. We want our predictions to become ubiquitous and mainstream,” Coplan says from his plush penthouse office in New York City’s Soho neighborhood.
If you track live betting on Polymarket on whether President Biden drops out of the race, you’ll see how the odds drop and rise around the time of his public appearances and announcements of his withdrawal from the race.
Coplan, whose mother is a film professor at New York University, grew up in Manhattan and says he was an internet geek. At 14, he tried to build a cryptocurrency mining rig, and in 2014, he participated in the Ethereum presale (when ETH was priced at about 30 cents). Coplan studied computer science at New York University but dropped out in the second semester of 2017. He describes the next three years as "a kind of isolated life, obsessed with reading and trying new things."
In 2020, as the world was in uncertainty during the pandemic, Coplan began exploring Polymarket’s predecessors, such as Augur, an Ethereum-based prediction market. Augur conducted an ICO in 2017 but never really gained traction. Eventually, Coplan began developing his own prediction platform. “I wanted to know what the likelihood was that New York City would reopen, whether a vaccine would be ready by then, whether restaurants would reopen,” he recalls. “It’s very difficult to find a signal in the noise, and that’s what prediction markets are best at.” The first prediction on Polymarket was when New York City would reopen.
A few months later, in October 2020, Coplan received $4 million in seed funding, led by another crypto wizard, Olaf-Carlson Wee, founder of crypto hedge fund Polychain Capital. “We have always been fascinated by information markets, but many solutions in this space suffer from user experience and liquidity issues,” Carlson-Wee said at the time. “Shayne and his team have extensive experience in this area and incorporate that experience into their creative, user-centric product approach.” Carlson-Wee declined to comment for this article.
Prediction markets operate on a fairly simple principle: if your prediction is correct, you make a profit; if your prediction is wrong, you lose money. In these markets, the price of a "share" reflects the probability of an event occurring, ranging from $0.00 to $1.00. Currently, on Polymarket, the share price for Donald Trump winning the presidential election is 59 cents, meaning the market gives him a 59% chance of winning. If he wins in November, the payoff for this bet is $1.00.
“Prediction markets are a powerful force in the fight against misinformation,” said Marc Bhargava, managing director of General Catalyst and a seed investor in Polymarket, in a statement to Forbes. “Prediction markets are fueled by those who back up the most accurate views with real action.”
Because Polymarket is built on a distributed ledger, it claims to offer greater efficiency and transparency than centralized prediction markets such as Kalshi and PredictIt, which are based in New York City and Wellington, New Zealand, respectively. Polymarket relies on a decentralized oracle called UMA (Universal Market Access), a blockchain-based system that resolves disputes through token voting. Once an event is resolved, a smart contract automatically distributes rewards to the winner.
The blockchain-based application is not without its flaws. In June, Polymarket users bet more than $1 million on whether Donald Trump’s 18-year-old son, Barron Trump, was involved in the launch of the memecoin DJT (the former president’s initials), which has a market value of about $80 million. Initially, the odds that he was involved were 60%, but the odds quickly fell due to insufficient evidence. The UMA voted that Barron was not involved. But Polymarket eventually stepped in, questioned the vote, and ultimately overturned the UMA’s ruling, saying that Barron Trump was “somehow” involved in the launch of the DJT token. Polymarket ultimately refunded bettors on the “yes” side of the contract, but they had already lost their funds.
“Some people are dismissive of prediction markets because of this,” Nick Tomaino, founder and general partner of 1Confirmation, a Polymarket investor and cryptocurrency-focused investment firm, said on the Unchained podcast. “I think that’s silly because these things are still being worked out.”
Polymarket’s surge in trading volume wasn’t just due to good timing. According to Art Malkov, Polymarket’s first CMO and co-founder of influencer marketing platform Lever.io, the company invested heavily in marketing, including a promotion with the Reddit channel WallStreetBets, which helped Polymarket gain a large number of retail investors.
Coplan leads a team of about 30 people around the world who collate user suggestions and search the internet for hot topics that can be turned into prediction markets. Polymarket currently has more than 300 markets divided into seven categories: politics, Olympics, cryptocurrency, pop culture, sports, business and science. All employees are required to read "The Use of Knowledge in Society" by Austrian economist Friedrich Hayek and the works of Robin Hanson, a professor of economics at George Mason University, who is famous for creating the concept of "future currency".
Polymarket does not charge fees, and Coplan did not reveal how the platform will generate revenue, but hinted that fees are coming soon. "We are focused on growing the market and providing the best user experience right now," he said. "We will focus on monetization later."
Despite the lack of revenue and questions about the source of Polymarket’s trading volume, the young Coplan remains a darling of Silicon Valley. Billionaire venture capitalist Tim Draper gushed over his “dynamic and brilliant” in a written comment to Forbes. Tom Schmidt, general partner at cryptocurrency-focused venture capital firm Dragonfly, added: “The word ‘gritty’ feels a bit over the top to describe the average entrepreneur, but for Shayne, it’s 100% true. It takes real grit, passion, and vision to build Polymarket like Shayne has for years…These qualities are exactly what you need to build a once-in-a-century company.” Ethereum co-founder Vitalik Buterin has also invested in Polymarket and promoted it publicly and at X.
“Shayne is an impatient young man, but he’s impatient to get things done,” said Chris Giancarlo, a former CFTC chairman and chairman of the Polymarket advisory board, which added election forecasting expert Nate Silver earlier this month. “There are generational reasons for Polymarket’s success,” he added. “I think the older generation of Americans who didn’t grow up in the same environment in Europe where prediction markets are popular may not understand the value proposition as well, but young people are not going to abandon these markets because of the advice of their elders.”
The origins of prediction markets date back to the 16th century, when Europeans sometimes bet on the successor to the pope. In the late 19th century, prediction markets flourished as "bucket shops," where people bet on stock prices. Over time, these markets evolved into more sophisticated platforms, especially with the rise of the internet. The University of Iowa's Tippie College of Business began experimenting with so-called political stock markets in the late 1990s through its Iowa Electronic Markets. The platform allows users to place small bets on political outcomes, economic indicators, and cultural events in the name of research.
Prediction markets have faced legal challenges as the U.S. government has been wary of gambling. Because they are similar to futures contracts, these markets are regulated by the Commodity Futures Trading Commission (CFTC).
In January 2022, the CFTC required Polymarket to pay a $1.4 million civil penalty for operating in the U.S. without registration. As part of the settlement, the company pledged to phase out its services in the U.S. while continuing to operate overseas.
Technically, U.S. users are not allowed to place bets on the Polymarket website, but 25% of Polymarket's website visitors come from the United States. According to data from Similarweb, the next four most visited countries are: Canada 6.3%, the Netherlands 6%, Vietnam 5.9%, and Mexico 5%. Before the CFTC settlement, the U.S. market share was between 34% and 54%. Coplan did not comment on Polymarket's geo-blocking measures, but an unnamed former employee told Forbes that the company "does everything it can to fend off users who shouldn't be trading on the platform." Despite this, users can use Polymarket through workarounds such as virtual private networks (VPNs).
Polymarket’s competitor, PredictIt, has been operating in the US since 2014. The CFTC gave it a no-action letter because it was part of a partnership with Victoria University of Wellington in New Zealand, where PredictIt was allowed to serve as a “data collection tool for academic researchers.” PredictIt also allows betting on the US election. It currently puts Trump’s odds at 52% and Kamala Harris’s at 49%. It charges a 10% fee on users’ eventual betting profits and limits investments in any single contract to a maximum of $850, so its trading volume is much lower than Polymarket: $31 million in bets on the election outcome, compared to $446 million for Polymarket. In August 2022, the CFTC withdrew its no-action letter and ordered PredictIt to cease operations; the company remains in operation while challenging the CFTC’s decision in court. “We have been operating legally in the U.S. for 10 years with no-action relief, and we expect to continue operating for another 10 years or more,” said John Aristotle Phillips, founder and CEO of PredictIt.
Another competitor, Kalshi, which is regulated by the CFTC, cannot offer election betting, but does offer bets on government-related events, such as the Federal Reserve's interest rate decisions. The platform charges a small fee for orders based on the maximum potential payoff of the contract and the implied probability of obtaining those payoffs. "Kalshi is focused on building a legal and regulated prediction market in the United States," CEO Tarek Mansour told Forbes.
There may be more restrictions to come. In May, the CFTC proposed a ban on predictions related to political campaigns, award ceremonies, or sporting events, deeming them "contrary to the public interest." In response to a request for comment from Forbes, the CFTC pointed to its settlement with Polymarket and said the comment period for the proposed rule will end on August 8.
However, on June 28, in Loper Bright Enterprises v. Raimondo, the Supreme Court ruled that a federal agency’s regulation on fishing vessels was invalid, effectively overturning the so-called “Chevron deference” principle, which allows federal agencies to enforce regulations based on their own interpretations of sometimes vague laws. As a result, agencies such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) will now face challenges. This may bring a turnaround to prediction markets such as Polymarket that have been under pressure from the CFTC.
“I think the long-term trend is that the prediction market will be accepted,” Giancarlo said.
One big question hanging over Polymarket’s future is how it will sustain volume and growth after the election in November 2024. Coplan and his backers don’t seem worried. “It’s true that volume is often driven by events like elections, but there are always big events in the future, and in an increasingly volatile world, the impact may be greater. Another driver of continued growth is the growing desire of more people to participate in predictions and see what others really believe; this is a challenge for traditional social media, and even more so for genAI, as there is no penalty for creating a lot of inaccurate content,” said General Catalyst’s Bhargava.
Competition will be another big challenge for Polymarket, given the low barriers to entry for cryptocurrencies. Memecoins such as DJT have become proxies for prediction markets. The industry has also attracted brokers such as billionaire Thomas Peterffy's Interactive Brokers, which recently announced the launch of ForecastEx prediction markets, offering forecast contracts based on the release of important economic data, such as the U.S. federal funds target rate and the U.S. consumer price index. In April, billionaire Jeff Yass's trading firm Susquehanna International set up a dedicated team to make markets for Polymarket's competitor Kalshi.
Despite the competition from traditional finance, Dragonfly’s Schmidt is bullish on Coplan’s chances in the race to build the long-term prediction market. “Ultimately, Polymarket’s secret sauce is its ability to enable the creator ecosystem to create new markets that traditional financial competitors can’t easily replicate,” he said. “Think YouTube, not TV.”