What are the chances that Vice President Kamala Harris will defeat former President Trump in November? On a prediction website called Polymarket, thousands of betting results show Harris’ odds at 39%, Trump at 59%, and Michelle Obama and Robert Kennedy each at 1%. Will Vance be replaced as Trump’s VP candidate?
If Vance drops out, a $100 bet will yield a $1,000 return.
Welcome to the future of prediction markets, where almost anything can be bet on, from the highest price of Bitcoin in 2024 to the speed of Trump and Biden climbing stairs, to the gender of Hailey and Justin Bieber’s unborn child.
On Polymarket, about $446 million is currently bet on the outcome of the November presidential election. However, betting on election outcomes is prohibited in the U.S., as the Commodity Futures Trading Commission (CFTC) deems it against public interest. Based in New York City, Polymarket is a phenomenal prediction market, largely thanks to the world’s focus on U.S. politics.
What is Polymarket?
According to Dune Analytics, Polymarket launched in 2020 and has exceeded $650 million in trading volume this year alone, with nearly $300 million traded in July. The platform expects to handle $1 billion in prediction bets by the end of the year.
Campaign managers and political analysts now turn to this unconventional oracle, seeking clues in the volatile market prices. Even former President Donald Trump boasts about his win rate on Polymarket on his social media app, TruthSocial.
Polymarket operates on a blockchain network called Polygon, which runs 24/7 with transaction fees a fraction of those on Ethereum. However, users need to trade on Polymarket using the dollar-based stablecoin USDC instead of the dollar itself. This is changing as well; last Wednesday, Polymarket announced a partnership with Miami-based MoonPay, allowing users to bet using bank transfers and credit cards.
The soaring popularity of this prediction market has attracted top investors, including Peter Thiel’s Founders Fund and Ethereum co-founder Vitalik Buterin, who have collectively provided $74 million in funding. Markets related to the U.S. elections (over 100) account for the majority of Polymarket’s trading volume.
According to web analytics platform Similarweb, although these markets are allegedly not open to U.S. residents, 25% of the site’s traffic comes from the U.S. Polymarket’s 26-year-old founder Shayne Coplan prefers to emphasize the new platform’s advantages rather than elaborate on efforts to prevent U.S. users from betting on elections.
“Polymarket turns what would otherwise be an internet argument into a market where those who make correct predictions are rewarded. We want our predictions to become ubiquitous, mainstream,” Coplan said from his luxurious penthouse office in SoHo, New York City.
If you track real-time bets on Polymarket regarding whether President Biden will drop out of the race, you will see how the odds fluctuate before and after he makes public appearances and announcements.
The Genius Founder of Polymarket: Shayne Coplan
Coplan’s mother is a film professor at NYU, and Coplan, who grew up in Manhattan, describes himself as an internet enthusiast. At 14, he attempted to build a cryptocurrency mining rig, and in 2014, he participated in Ethereum’s pre-sale when ETH was about 30 cents.
Coplan studied computer science at NYU but dropped out in the second semester of 2017. Reflecting on the next three years, Coplan says, “I lived a somewhat reclusive life, engrossed in reading and experimenting with new things.”
In 2020, as the world plunged into uncertainty during the pandemic, Coplan began exploring predecessors to Polymarket, such as the Ethereum-based prediction market Augur. Augur conducted an ICO in 2017 but never really gained traction.
Eventually, Coplan started developing his own prediction platform. He recalls, “I wondered about the likelihood of New York City reopening, whether vaccines would be ready by then, and if restaurants would reopen.
Finding a signal amidst the noise was very challenging, and that’s exactly what prediction markets excel at.” The first prediction on Polymarket was about when New York City would reopen.
A few months later, in October 2020, Coplan secured $4 million in seed funding, led by another cryptocurrency prodigy, Olaf Carlson-Wee, founder of the crypto hedge fund Polychain Capital. Carlson-Wee said at the time, “We have always been fascinated by information markets, but many solutions in this field suffer from user experience and liquidity issues.”
“Shayne and his team have extensive experience in this area and have incorporated that 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 profit; if it 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 estimates his winning probability at 59%. If he wins in November, this bet will return $1.00.
“Prediction markets are a powerful force against misinformation,” said Marc Bhargava, Managing Director at General Catalyst, a seed investor in Polymarket, in a statement to Forbes. “The power of prediction markets comes from those who back 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 like Kalshi and PredictIt, 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, smart contracts automatically distribute rewards to the winners.
Challenges Faced by Polymarket
This blockchain-based application is not without flaws. In June, Polymarket users bet over $1 million on whether Donald Trump’s 18-year-old son, Barron Trump, was involved in issuing the memecoin DJT (an abbreviation of the former president’s initials), with a market cap of about $80 million.
Initially, the likelihood was deemed to be 60%, but it quickly dropped due to a lack of evidence. UMA’s vote concluded that Barron was not involved. However, Polymarket intervened, questioned the voting results, and ultimately overturned UMA’s decision, stating that Barron Trump was “involved in some way” in issuing the DJT token.
Polymarket eventually refunded the bettors who had bet on the “yes” side of the contract, but they had already incurred losses.
“Some people dismiss prediction markets because of this,” Polymarket investor and founder and General Partner of crypto-focused investment firm 1Confirmation, Nick Tomaino, said on the Unchained podcast. “I think that’s silly because these things are still being worked out.”
The surge in Polymarket’s trading volume is not just due to good timing. According to Art Malkov, Polymarket’s first CMO and co-founder of influencer marketing platform Lever.io, the company has invested heavily in marketing, including promotions in collaboration with the Reddit channel WallStreetBets, which has helped Polymarket attract a large number of retail investors.
Coplan leads a global team of about 30 people who collect user suggestions and scour the internet for trending topics that can be turned into prediction markets. Polymarket currently has over 300 markets, categorized into seven major areas: politics, Olympics, cryptocurrency, pop culture, sports, business, and science.
All employees are required to read Austrian economist Friedrich Hayek’s “The Use of Knowledge in Society” and works by George Mason University economics professor Robin Hanson, known for creating the concept of “futarchy.”
Polymarket’s Financial State
Polymarket does not charge fees, and Coplan has not disclosed how the platform will generate revenue but hinted at future fees. “We’re focused on growing the market and providing the best user experience right now,” he said. “We’ll address profitability later.”
Despite the lack of revenue and ongoing questions about the source of Polymarket’s trading volume, the young Coplan remains a darling of Silicon Valley. Billionaire venture capitalist Tim Draper praised him as “vibrant and talented” in written comments to Forbes.
Tom Schmidt, General Partner at crypto-focused venture capital firm Dragonfly, added, “Using the word ‘tenacious’ to describe the typical entrepreneur feels a bit over the top, but for Shayne, it’s 100% accurate.
It takes real courage, passion, and vision to spend years building Polymarket…qualities essential for establishing a once-in-a-century company.” Ethereum co-founder Vitalik Buterin has also invested in Polymarket and promoted it publicly and on X.
“Shayne is an impatient young man, but he is eager to get things right,” said former CFTC Chairman and Polymarket Advisory Board Chair Chris Giancarlo, who this month added election prediction expert Nate Silver to the board.
“Polymarket’s success has generational reasons,” he added. “I think older Americans haven’t grown up in an environment where prediction markets are popular in Europe, and they may not understand the value proposition, but young people won’t abandon these markets because of their elders’ advice.”
The History and Legal Issues of Prediction Markets
Prediction markets date back to the 16th century when Europeans sometimes bet on the next 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 complex platforms, especially with the advent of the internet.
In the late 1990s, the University of Iowa’s Tippie College of Business began experimenting with a political stock market through its Iowa Electronic Markets. This platform allowed users to place small bets on political outcomes, economic indicators, and cultural events in the name of research.
The U.S. government has always been cautious about gambling, so prediction markets face legal challenges. Because they resemble futures contracts, these markets are regulated by the Commodity Futures Trading Commission (CFTC).
In January 2022, the CFTC fined Polymarket $1.4 million for operating in the U.S. without registration. As part of the settlement, the company agreed to gradually cease its services in the U.S. while continuing to operate overseas.
Technically, U.S. users are not permitted to place bets on the Polymarket website, but 25% of the site’s visitors are from the U.S., according to Similarweb. The next four countries with the most visitors are Canada (6.3%), the Netherlands (6%), Vietnam (5.9%), and Mexico (5%).
Before the CFTC settlement, the U.S. market share ranged between 34% and 54%. Coplan did not comment on Polymarket’s geoblocking measures, but a former employee, who wished to remain anonymous, revealed to Forbes that the company “does everything it can to block users who shouldn’t be trading on the platform.” Despite these efforts, users can access Polymarket through workarounds like virtual private networks (VPNs).
Polymarket’s competitor, PredictIt, has been operating in the U.S. since 2014. The CFTC issued it a no-action letter because it operates in collaboration with Victoria University of Wellington in New Zealand, allowing PredictIt to function as a “data collection tool for academic researchers.” PredictIt also allows betting on U.S. elections.
Currently, it assesses Trump’s odds at 52% and Kamala Harris’ at 49%. PredictIt charges a 10% fee on users’ final betting profits and limits investments in any single contract to $850, resulting in much lower trading volume than Polymarket: $31 million in bets on election outcomes compared to Polymarket’s $446 million.
In August 2022, the CFTC withdrew its no-action letter and ordered PredictIt to cease operations; the company continues to operate while challenging the CFTC’s decision in court. PredictIt founder and CEO John Aristotle Phillips stated, “We have operated legally in the U.S. for 10 years under a no-action relief policy and expect to continue operating for another 10 years or longer.”
Another competitor, CFTC-regulated Kalshi, cannot offer election bets but provides betting on government-related events such as Federal Reserve interest rate decisions. The platform charges small fees based on the maximum potential gain from a contract and the implied probability of obtaining those gains.
“Kalshi focuses on establishing a legal and regulated prediction market in the U.S.,” CEO Tarek Mansour told Forbes.
More restrictions may be on the horizon. In May of this year, the CFTC proposed banning predictions related to political campaigns, awards ceremonies, or sporting events, deeming them “against the public interest.” Responding to Forbes’ request for comment, the CFTC referenced its settlement with Polymarket and stated that the comment period for the rule proposal would end on August 8.
However, on June 28, in the case of Loper Bright Enterprises v. Raimondo, the Supreme Court invalidated a federal agency’s regulation concerning fishing vessels, effectively overturning the so-called “Chevron deference” principle, which allowed federal agencies to enforce regulations based on their interpretations of sometimes ambiguous laws.
Consequently, agencies like the Securities and Exchange Commission (SEC) and the CFTC will now face challenges. This could provide a turning point for prediction markets like Polymarket, which are under CFTC pressure.
Giancarlo commented, “I believe the long-term trend is for prediction markets to gain acceptance.”
Conclusion
A significant question hanging over Polymarket’s future is how it will maintain its trading volume and growth momentum after the November 2024 election. Coplan and his supporters don’t seem worried. “Indeed, trading volume is often driven by events like elections, but there will always be major events in the future, and in an increasingly turbulent world, this impact may be even greater.
Another driver of continuous growth is the growing desire of people to participate in predictions and see what others truly believe; this is a challenge for traditional social media, and even more so for genAI, because creating a lot of inaccurate content is not punished,” said General Catalyst’s Bhargava.
Given the low barriers to entry for cryptocurrency, competition will be another major challenge for Polymarket. Memecoins like DJT have already become proxies for prediction markets. The industry has also attracted brokers like billionaire Thomas Peterffy’s Interactive Brokers, which recently announced the launch of ForecastEx prediction market, offering forecast contracts based on key economic data releases such as the U.S. federal funds target rate and the U.S. consumer price index.
In April, trading company Susquehanna International, owned by billionaire Jeff Yass, formed a dedicated team to make markets for Polymarket’s competitor Kalshi.
Despite competition from traditional finance, Dragonfly’s Schmidt remains optimistic about Coplan’s chances of building a lasting prediction market. “Ultimately, Polymarket’s ability to allow creators to create new markets is its secret weapon, which traditional financial competitors cannot easily replicate,” he said. “Think of YouTube, not television.”
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