Polymarket founder: How a 26-year-old dropout disrupted the 500-year-old forecasting industry

Original article | Forbes

Odaily Planet Daily에서 편집( @오데일리차이나 )

아즈마(Azuma) 번역 ( @아즈마_에스 )

What are the chances that Harris will beat Trump in November?   On Polymarket, a large number of users placed thousands of bets on this event, and the final combined probability was: Harris had a 39% chance of winning, Trump had a 59% chance, and Michelle Obama and RFK Jr. had only 1% each.

Will Trump choose another vice presidential candidate to replace JD Vance? Also on Polymarket, a $100 bet would earn $1,000 if Vance is replaced.

Welcome to the future of betting, where you can bet on almost anything, from the highest price of Bitcoin in 2024, to how fast Trump and Biden climb stairs, to the gender of Justin Bieber and Hailey’s newborn… On Polymarket, the prize pool for the November presidential election has accumulated to $446 million. Although the U.S. Commodity and Futures Trading Commission (CFTC) has stipulated that the country has banned gambling on predicting election results because it is considered to be against the public interest, New York-based Polymarket has become a phenomenal product in the prediction market track, and its rise is largely attributed to the market’s obsession with guessing the direction of American politics.

Polymarket was founded in 2020. According to Dune Analytics data, the platforms trading volume this year has exceeded $650 million, with nearly $300 million in July alone. It is expected that the platform will handle more than $1 billion worth of bets before the end of this year. At present, campaign experts and political analysts have noticed this unconventional spoiler and are closely watching the price fluctuations in the market. Trump himself even boasted about his odds on Polymarket on his social media app TruthSocial.

Although blockchain technology is not a rigid requirement for prediction markets, Polymarket chose to run on the Polygon blockchain, which relies on Ethereum, but the transaction costs are much lower than the Ethereum mainnet. When placing bets, Polymarket users cannot use US dollars directly for the time being, but need to use the stablecoin USDC. However, Polymarket has announced that it will cooperate with Miami-based payment service provider MoonPay to allow users to use bank cards or credit cards to pay for bets.

The rapid development of Polymarket has also attracted the attention of some top investors, including Peter Thiels Founders Fund and Ethereum co-founder Vitalik Buterin, who have all invested in it. Currently, Polymarkets total financing has reached 74 million US dollars.

Currently, there are hundreds of prediction markets related to the US election on the market, among which Polymarket has the largest trading volume. Although these markets are supposed to be closed to US residents, according to data from the web analytics platform Similarweb, 25% of the websites traffic comes from the United States. When talking about this issue, Polymarkets 26-year-old founder Shayne Coplan was reluctant to say how the team would block access from US users, preferring to emphasize the platform advantages of Polymarket.

Polymarket effectively turns the debate on the Internet into a betting market where the person with the right opinion wins, Coplan said from his luxurious penthouse office in New York Citys Soho. We hope that Polymarkets prediction service can be expanded to all fields and recognized by more users.

Coplan grew up in Manhattan, and her mother is a professor of film at New York University. Coplan said that he was an Internet nerd. At the age of 14, he began to try to build a cryptocurrency mining device and participated in the pre-sale of Ethereum in 2014 (the price of ETH was about $0.3 at the time). Coplan studied computer science at New York University, but dropped out in the second semester of 2017… When talking about the next three years, Coplan said: I lived an isolated life, obsessed with reading and trying new things.

During the 2020 lockdown, when the world was in great uncertainty, Coplan began exploring the prototype of Polymarket. He referred to Augur, an Ethereum-based prediction market, which conducted an initial coin offering (ICO) in 2015 but never really gained traction.

Eventually, Coplan began developing his own prediction platform, and the first bet on Polymarket was on when New York City would reopen. “I wanted to know the likelihood of New York City reopening, whether the vaccine would be ready by then, whether restaurants would open again… It’s very difficult to find the right signal in the noise, but that’s what prediction markets are capable of.”

A few months later, in October 2020, Coplan finally received a seed round of financing, which was led by another cryptocurrency wizard, Olaf Carlson-Wee, founder of the hedge fund Polychain Capital. Carlson-Wee commented on the investment at the time: We have been interested in prediction markets for some time, but many of the current solutions on the market have user experience and liquidity issues. Shayne and his team deeply understand this and can incorporate these learnings into the product.

We also tried to contact Carlson-Wee, but he declined to comment.

Prediction markets operate on a fairly simple all-or-nothing model – if your prediction is correct, you can share all the prize money with other correct users; if it is incorrect, you will lose all your principal. In such markets, the price of a share reflects the probability of the corresponding event occurring, ranging from $0.00 to $1.00. For example, the current price of a share of Trump winning the presidential election on Polymarket is $0.59, which means that the market believes that his chances of winning are 59% – if he wins in November, then the unit share can get a profit of $1.00, and the price of shares representing other predicted results will be zero.

“Prediction markets are a powerful tool to combat misinformation by relying on people to back their opinions with real money to make a relatively accurate guess,” Marc Bhargava, managing director of General Catalyst, told us. Bhargava personally invested in Polymarket’s seed round, and General Catalyst also led Polymarket’s Series A round.

Because Polymarket is built on the blockchain, the platform claims that it is more efficient and transparent than some other centralized platforms, such as New York-based Kalshi and New Zealand-based PredictIt. Polymarket relies on decentralized oracle UMA for prediction results, which is also a blockchain-based system that can resolve disputes through token-based voting. Once the result of an event is confirmed, the smart contract automatically distributes the proceeds to the winning party.

However, the pattern of this outcome is not impeccable. In June, Polymarket users collectively invested more than $1 million to determine whether Trumps 18-year-old son Barron Trump participated in the launch of the meme token DJT, which once had a market value of about $80 million. Initially, the odds that Barron participated were as high as 60%, but due to lack of sufficient evidence, this probability quickly dropped, and UMA voters also voted to determine that Barron did not participate. However, Polymarket later chose to intervene and questioned the vote, and ultimately overturned UMAs decision, claiming that Barron was indeed involved to some extent. Polymarket eventually compensated users who chose yes and lost money.

Nick Tomaino, an investor at Polymarket and founder of cryptocurrency investment firm 1Confirmation, mentioned this on the Unchained podcast: “Some people will ignore the development of prediction markets because of events like this, and I think that’s stupid because these problems are being solved.”

Polymarket’s surge in election-related bets can be attributed to more than just good timing. Art Malkov, Polymarket’s first chief marketing officer and co-founder of influencer marketing platform Lever.io, said the company invested heavily in marketing, including a partnership with Reddit channel WallStreetBets, which helped Polymarket gain widespread attention among retail investors.

Coplan’s team of about 30 people, with employees around the world, sort through user suggestions and search for hot topics on the Internet, and then turn them into betting markets. Currently, there are more than 300 prediction markets on Polymarket, covering seven categories: 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 the works of Robin Hanson, a professor of economics at George Mason University, who is best known for his concept of “future politics,” a form of governance that makes decisions based on betting markets.

Polymarket does not charge fees, and Coplan did not reveal how the platform will generate revenue, but hinted at adding fees in the future: “We are focused on growing the market and providing the best user experience right now, and will focus on profitability later.”

Despite the lack of revenue and some questions about the source of Polymarkets trading volume, the 26-year-old Coplan is still a darling of Silicon Valley. Billionaire venture capitalist Tim Draper praised Coplan as energetic and smart; Dragonfly general partner Tom Schmidt mentioned: It feels a bit exaggerated to describe entrepreneurs as tenacious, but it is 100% applicable to Coplan… It takes real courage, passion and vision to build Polymarket like he did for many years, which is exactly the quality required to build a once-in-a-century company.

Vitalik Buterin, the co-founder of Ethereum, not only participated in the investment of Polymarket, but also promoted the platform many times in public and on the X platform.

Chris Giancarlo, chairman of the Polymarket Advisory Committee (which just welcomed election prediction guru Nate Silver to join), and former CFTC chairman, said: Shayne is a young man who is eager to succeed, but he is eager to get things done… Polymarkets success has the characteristics of a new generation. The older generation of Americans did not grow up in the European environment where prediction markets are prevalent and may not understand these value propositions, but young people will not avoid these opportunities because of the warnings of their elders.

Prediction markets date back to the 16th century, when Europeans sometimes bet on who would become the next pope; in the late 19th century, people began betting on stock prices with the rise of prediction markets known as “bucket shops”; over time, these markets evolved into more sophisticated platforms, especially after the rise of the internet. In the late 1980s, the University of Iowa’s Tippie College of Business began experimenting with so-called “political stock markets” through its Iowa Electronic Markets, which allowed 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 always been wary of gambling. Because they operate similarly to futures contracts, such markets fall under the purview of the CFTC.

In January 2022, the CFTC ordered Polymarket to pay a $1.4 million civil penalty for operating in the U.S. without registration. As part of the settlement, the company promised to phase out its services in the U.S. while continuing to operate abroad. U.S. users are technically not allowed to place bets on the site, but 25% of Polymarkets website traffic still comes from the U.S.

According to Similarweb data, the next four sources of traffic after the United States are Canada (6.3%), the Netherlands (6%), Vietnam (5.9%), and Mexico (5%). Before the settlement with the CFTC, the United States share of traffic was between 34% and 54%. Coplan did not comment on Polymarkets geo-blocking efforts, but an anonymous former employee told us that the company did everything possible to block users who should not be trading on the platform. Still, workarounds including the use of VPNs (which can mask a users geographic location) may still be the reason why there is some U.S. traffic on Polymarket.

Polymarkets competitor PredictIt has been operating in the US since 2014, and the CFTC has agreed not to take action against the platform because it is part of a partnership with Victoria University of Wellington in New Zealand, so the agency can operate in the US as a data collection tool for academic researchers. PredictIt also allows users to bet on the US election, and the platform currently gives Trump a 52% chance of winning and Harris a 49% chance of winning. PredictIt charges a 10% fee on users profits and limits investments in any single contract to a maximum of $850, so the platforms trading volume is much lower than Polymarkets – the scale of election-related bets is $31 million, while Polymarkets bets are $446 million.

In August 2022, the CFTC withdrew its no-action letter and ordered PredictIt to cease operations, but the platform is currently pursuing a legal license to operate, during which time it remains in operation. We have been operating lawfully in the United States for 10 years under a no-action waiver and expect to continue operating for another 10 years or more, said John Aristotle Phillips, founder and CEO of PredictIt.

Another major competitor of Polymarket is Kalshi, which is regulated by the CFTC. Although the platform does not support election-related bets, it does provide predictions on other government-related events, such as the Federal Reserves interest rate decisions. The platform charges a small fee based on the maximum potential return of the contract and the expected probability of achieving those returns. Kalshi is committed to continuing to build a legal and regulated prediction market in the United States, said Tarek Mansour, CEO of Kalshi, in an interview with us.

More restrictions may be on the way. In May, the CFTC proposed a ban on betting contracts related to political campaigns, award ceremonies, or sporting events, deeming them “not in the public interest.” In response to our request for comment, the CFTC mentioned the settlement with Polymarket and said the public comment period for the proposal will end on August 8.

However, in the June 28 case of Loper Bright Enterprises v. Raimondo, the Supreme Court ruled against a federal agency’s regulation of fishing vessels, essentially breaking 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 like the SEC and CFTC will now be less proactive, which may give a breather to prediction markets such as Polymarket, which are under tremendous regulatory pressure from the CFTC.

“I think in the long run, prediction markets will gain acceptance,” said Giancarlo (former CFTC chairman).

Another big question about Polymarket’s future is how it will continue to maintain its volume and growth after the U.S. election in November 2024. Coplan and his investors don’t seem too worried about that.

“It’s true that Polymarket’s volume is currently driven primarily by events like the election, but there are always big events happening in the world, especially in an increasingly unstable one,” said General Catalyst’s Bhargava. “Another driver of Polymarket’s continued growth is its growing user base that is eager to make predictions and understand what other people are really thinking. This is a challenge for traditional social media, and even more so for generative AI, as these platforms can generate a lot of inaccurate content without consequences.”

Competition will be another major challenge for Polymarket, given the low barrier to entry for cryptocurrencies. Meme tokens like DJT have served as an alternative to prediction markets in a sense; the cryptocurrency industry has also attracted brokers like billionaire Thomas Peterffys Interactive Brokers, which recently announced the launch of ForecastEx, a market that offers forecast contracts based on the release of important economic data, such as the US Federal Funds Target Rate and the US Consumer Price Index; in April, billionaire Jeff Yasss trading firm Susquehanna International also set up a professional team to make markets on Polymarkets competitor Kalshi.

Despite facing competition from traditional finance, Dragonfly’s Schmidt is bullish on Coplan’s chances of winning the prediction market race: “Polymarket’s ultimate secret weapon is that the platform will allow ecosystem participants to autonomously create new bets, which will be difficult for competitors in traditional finance to replicate. It’s like YouTube to television.”

This article is sourced from the internet: Polymarket founder: How a 26-year-old dropout disrupted the 500-year-old forecasting industry

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