From The New York Times, I'm Natalie Kitchoff.
This is The Daily.
Seemingly overnight, America has seen an explosion of new betting platforms that have radically expanded the universe of gambling.
They're called prediction markets.
They let you bet on all kinds of things, like will the U.S. attack Iran?
What specific words will the president say?
And who will be at Taylor Swift's wedding?
Today, my colleague, David Yaffe-Bellini, explains how these platforms became so widespread so fast and how betting on everything could change the way we live.
It's Wednesday, February 4th.
David, it's wonderful to have you here in studio.
Thanks so much for having me.
So we are coming to you because you cover crypto, which can often lead you to the nichest corners of the Internet.
I kind of think of you as having a fringe capitalism beat.
Is that fair?
That sounds about right.
Okay.
And you've been looking into these prediction markets, which I have a million questions about.
But before we get into those questions, I want you to first just lay out, for people who don't know, these things
What are they?
What are these markets?
At a really high level.
A prediction market is a platform where you can bet on pretty much everything.
Most people are familiar with sports betting, even the sort of advanced sports betting that we get these days, where you're betting on whether a player will make a free throw.
Prediction markets expand that idea into all corners of politics and culture.
You can bet on whether Trump will win the election.
You can bet on the date of Taylor Swift's wedding.
You can even bet on whether the supreme leader of Iran will make it to the end of the month.
What it's done is sort of expanded that kind of gambling mentality to all sorts of parts of our daily existence.
The idea is betting on everything, everywhere, all at once.
Exactly.
And now you've got people, especially young people, logging onto their phones the same way they might use TikTok or Instagram and placing bets on elections, on pop culture, really on everything.
These platforms have the potential to really change the way that people interact with the world, the way they think about the world.
Everything now has a price.
Everything can be communicated in terms of the odds that it will happen or it won't happen.
And I think we're already seeing signs that that's sort of altering reality for people.
Right.
And it does feel that this stuff has kind of come out of nowhere.
Am I right to think that these markets went from being quite marginal to suddenly being at the forefront of a lot of cultural and political events?
To some extent, that's right.
Go back even two or three years ago, and no one was really talking about prediction markets.
But if you zoom out a little further, what's happening now is really the culmination of a trend that started back in 2018.
Hmm.
A U.S.
Supreme Court ruling today has opened the door to a dramatic expansion of legal sports betting.
That's when the Supreme Court overturned a US law that had effectively banned most sports betting in the US.
Once that law was ruled unconstitutional, we saw a sort of avalanche of gambling.
The gaming industry is calling this a groundbreaking decision that will revolutionize the gambling business.
Right, this was a huge moment.
Yeah, it was enormous.
DraftKings announcing that it will enter the legal betting atmosphere throughout states that choose to legalize it.
Sports gambling companies across the country went state by state, getting permission to offer their services.
And suddenly people could gamble from their phones.
And this was a huge transformation in the U.S.
I mean, in other countries there's sort of always been this type of gambling, but it wasn't really possible in the US.
It was something you had to do in a clandestine way.
And suddenly it was all happening out in the open and the marketing was enormous.
You couldn't avoid it.
Okay, so that SCOTUS decision mostly affected sports betting, it sounds like.
What did it mean then for prediction markets?
On some level.
It's not directly related because legally this decision didn't have anything to do with prediction markets.
But it created this cultural moment where suddenly gambling betting was totally accepted in the US.
It had sort of injected itself into the American consciousness in a way that had never happened before.
And it was in that context that a young entrepreneur named Shane Copeland started a company called Polymarket, which has become one of the leaders in this area.
Okay, so tell me the story of Copeland founding this company.
What's his idea for it in the beginning?
Copeland's this young entrepreneur.
He spends one semester at NYU before dropping out.
And he has this super techie background.
He was really interested in cryptocurrencies.
He had kind of a nerdy fascination with markets from a pretty young age.
And the idea he had for Polymarket was actually quite high-minded.
It came in 2020, just a few months into the COVID pandemic.
What really was the tipping point was during coronavirus.
There was so many different opinions and so many forecasts that said entirely different things.
It was a time when a lot of information was swirling around.
There was fluctuating case numbers, emerging variants of the virus.
And a lot of people felt like it was hard to make sense of the confusing swirl of statistics.
And effectively when you've got lots of conflicting viewpoints and information and opinions.
A market is a way to distill that information into one accurate fact or indicator or signal.
So in Copeland's mind, prediction markets could help clarify this confusion.
It's not just a way for people to gamble on everything.
To him, polymarket is about creating a new source of information in the world.
We are missionaries for the concepts of market-based journalism and helping people make better decisions by leveraging markets.
It's all based on an idea that has long been studied in academia, discussed in financial circles that crowdsourcing information could produce more accurate projections about the future than what any individual expert might come up with.
The idea here is that the source of truth and knowledge that prediction markets are offering could actually become a complement or even a replacement for things like traditional media.
You have this public good.
That's like a mecca of real-time, unbiased information, where you go on Polymarket and you can just see oh, this is what you know.
The odds of this happening are in the future.
Interesting.
It sounds like he's thinking that these could be more accurate sources of information than traditional media, in part because it's crowdsourcing.
It's crowdsourcing and it's also a financial market.
So people have skin in the game.
People can debate each other and be like, oh, you're wrong, this, this, that.
But the way that that really dissipates is when you let people put their money where their mouth is.
And the idea is that when people have money on the line, they tell the truth or they're incentivized to research their opinions as thoroughly as possible.
And if you can pull all of that together then you've got a kind of amazing new source of information.
So Copeland is not just thinking of turning the whole world into some kind of virtual casino here.
He's imagining this as a tool for revealing things about the world, for gathering and disseminating information.
Absolutely.
OK, at this point, I feel like we need to understand exactly how this market works, how the betting works.
Can you walk me through that?
Yeah, this is a good question.
A lot of people don't fully understand it.
Prediction markets are essentially a series of yes or no questions.
So if you log on to the Polymarket website, you will see questions like will the Iranian regime fall before 2027?
And if you want to bet on that, you buy what's known as an event contract.
An event contract.
Yeah.
And that's the yes option or the no option on any of these questions.
Okay.
And the cost of those contracts, of a yes or of a no, always fluctuates between $0 and $1.
And that price is essentially a reflection of what the market of bettors out there think is going to happen.
So if the yes option on the Iranian regime falling is going for 20 cents, then that means there's about a 20 percent likelihood of the regime falling.
It's relatively cheap to buy that contract because the universe of bettors thinks it's relatively unlikely that this will happen.
Exactly.
And then the payout arrives when the event either definitively happens or doesn't happen.
So if the regime does fall and you bought that yes contract at 20 cents and you correctly predicted what would happen, then the contract rises in value to 1 and you get your payout.
And because this resembles a kind of financial market, it falls under a different type of regulation than traditional sports books.
Sportsbooks are regulated by the states, their state laws governing gambling and the prediction markets instead, are regulated at the federal level by a financial agency called the Commodity Futures Trading Commission, the CFTC.
And the idea here is that the CFTC should be protecting against abuses in the realm of prediction markets.
Insider trading is an easy example of that or market manipulation, things that could threaten the integrity of a financial market.
But Copeland didn't go down that path.
Initially, he didn't register polymarket with the CFTC.
And that's sort of in line with the kind of move fast and break things ethos of the tech industry.
Right.
The ask for forgiveness, not permission style of operating.
Exactly.
And Copeland was taking a similar approach.
But ultimately, that got him into a lot of trouble.
In 2022, the CFTC fined PolyMarket $1.4 million.
And as part of that legal settlement, Copeland had to agree that PolyMarket wouldn't operate in the United States.
It's only open to foreign users.
And why does Copeland agree to that?
I mean, that sounds like a potential death knell for a company like this.
Well, the legal landscape in the U.S. was complicated.
And so on some level it might have seemed actually less risky to sort of try its luck outside of the US.
But the other element to this is that there was a workaround.
If someone really wanted to use Polymarket from inside the United States, they could download a VPN, a virtual private network, and essentially trick the website into thinking that they were logging on from another country.
And this was extremely easy to do.
I've spoken to many people who did it.
I've spoken to at least one former polymarket employee who told me that it was sort of an open secret in the office that people were doing this.
And it meant that this U.S. ban was largely theoretical.
And at this point, do we know who's actually using this thing?
At this point it's still primarily a base of tech-savvy people who are really interested in these things in kind of a nerdy way.
Got it.
To use Polymarket, you had to use cryptocurrencies.
So you're already limiting yourself to a pool of people who are comfortable transacting in crypto.
In your world.
In my world, yeah.
And if you wanted to use it in the US, you had to know how to use a VPN.
So it's not as if this was freely available to anyone who might potentially be interested.
And are people using it in the way that Copeland imagined they would, to kind of create new sources of information to illuminate things that maybe weren't clear before?
There was the potential to bet on them?
They are starting to do that.
It's gaining popularity.
It's growing.
It's getting more attention in the media.
And it really comes to a head in 2024 as the presidential election is heating up.
And it starts that summer, after Joe Biden's disastrous debate performance, when there's all kinds of speculation about whether Biden will drop out of the race.
And suddenly users of Polly Market start betting on that.
At the time, many Democratic talking heads pundits, the Biden administration and, of course, Biden himself were saying he's not going to drop out.
But the betting market projected that he would drop out.
So when Biden eventually did, it felt like a moment of vindication for polymarket and a sort of a preview of what it might offer to the world.
Right.
Because I can imagine Copeland sees this as proof of concept.
Here you can come and get what I presume Copeland views as an objective sense of the odds.
Right.
And of course it's not like this was some question nobody was considering, or that there wasn't punditry about it or people predicting that it would happen.
But Polly Market was a place where all of that was sort of consolidated into one number.
And you could kind of get a sense of the way the wind was blowing.
And that moment, that question of whether Biden will drop out, then sets Polly Market up for the next big question of the 2024 race which, of course, is who's going to win the election?
Will it be Harris or will it be Trump?
And it feels like a really long time ago now, but A tied race, dead heat among likely voters 47 Harris, 47 Trump.
It obviously doesn't get closer to that than Back then, it was a close race.
The polls showed that the two candidates were essentially neck and neck.
But the projections on polymarket started to shift heavily in Trump's favor.
And obviously, Trump did win.
Big night for prediction markets and calling President Trump elect as the winner at the polls.
And it was another moment of vindication for Copeland's site.
Another example, for him at least, of it being a more reliable predictor than traditional media sources, traditional polls.
Exactly.
As the saying of free markets goes, a diverse group of market participants, like you see on Polymarket, is more accurate than any given expert.
And what was especially fascinating about this example is that we got kind of a peek under the hood at how these projections came about.
Now remember that these projections are the result of a financial market, and a few large trades can shift a financial market significantly.
And in this case, a wealthy trader in France came forward and said that he had made 30 million in bets that Trump would win the election, and that this was based on his own careful research.
He'd actually commissioned his own poll because he thought the traditional US polling was misleading, and that just out of that conviction, he put all of this money on Trump, which effectively shifted the polymarket odds in Trump's favor.
And it was a profitable play.
This guy made more than $85 million in profits when Trump won the election.
People started calling him the French whale.
Okay, so obviously a huge payout for this one guy.
What do you make of this moment for the markets themselves?
It had a huge impact.
Suddenly these markets that had sort of operated on the margins of the financial system getting some notice, but not a ton.
Suddenly everyone stands up and says wow, huge amounts of money are changing hands on these things.
We really have to take them seriously.
And of course, Copeland is taking a victory lap.
But soon we learned that this entire time, as the company has been blowing up, becoming a big mainstream phenomenon, they've been under a federal criminal investigation.
Whoa.
In fact, shortly after the election, the FBI raids Copeland's home in New York City.
They take his phone.
And it's all part of an investigation into whether PolyMarket is legally allowing US users to access the platform.
So at the same time, you've got this moment of public vindication.
You also have this really fraught legal moment where it's not clear whether the platform can survive in the United States.
But there's a light at the end of the tunnel for Copeland, which is that soon Trump is going to take office.
And as soon as he's in power, everything changes.
We'll be right back.
Okay, so tell me what exactly changes for these markets when Trump comes to office.
Since Trump's taken over, there's been a complete change in attitude toward these platforms.
Copeland, whose house had only just been raided by the FBI, was invited to a summit for tech executives at the White House.
Donald Trump Jr. became a formal advisor to PolyMarket.
And, most importantly, the Justice Department under Trump officially dropped this investigation into Copeland.
And this is all happening in the context of a legal battle involving one of PolyMarket's competitors, a company called Kalshi that also offers its own prediction market which, around the time of the election, had won a big legal dispute with the CFTC.
So suddenly all these legal troubles that had been hovering over the company and the markets in general, they kind of seem to disappear.
Yeah, they vanish.
So you've got this culmination of a bunch of things, a kind of pro-business attitude brought by the Trump administration, this legal victory secured by Kelshi.
And so, while it didn't happen overnight, what that meant is that US-based users were now allowed to use these platforms without a VPN.
They become easily available to almost anyone.
I just found out about Polymarket.
I started with $10, and I'm up like $100-something.
And that feeds into this larger cultural shift.
I'm a full-time Polymarket trader and a lot of people don't understand how you can make a full-time living on Polymarket.
But let me explain.
People are using these platforms more and more.
They're more available in the United States.
The NHL just became the first major US pro league to strike licensing deals with prediction market platforms Kalshi and Polymarket.
Polymarket is going to become the official prediction market partner for the UFC.
Kalshi just announced a new partnership this week with Coinbase.
With every passing week comes some new major partnership that brings them more and more into the mainstream.
Dow Jones is teaming up with Polymarket.
This is an exclusive partnership and it'll make Polymarket's real-time prediction data available across Dow Jones platforms, including the Wall Street Journal.
Big media organizations like CNN CNBC, The Wall Street Journal have formal partnerships with CalSheet and PolyMarket to use data from the sites in their news reports.
Wow.
Good evening and welcome to the 83rd Golden Globes.
The Golden Globes featured PolyMarket odds on the live broadcast.
Here are the nominees for best podcast.
Roll the tape.
Right before the best podcast award was announced, polymarket odds were projected on the screen.
And so it's been this huge kind of cultural awakening toward these things.
It is kind of wild, David, to just consider the trajectory that you've laid out for us here.
A year ago about.
These markets were operating as a kind of niche illegal backwater on the Internet, where you had to pay in crypto and have a VPN to use them.
And now they're like fully in the mainstream.
Yeah, the scale is enormous.
There was about $12 billion in trading volume on Polymarket and Kalshi in December.
That's a 400% increase from the year before.
And look, granted, that's still a smaller user base than bets on traditional sportsbooks.
But the level of growth is pretty impressive.
So one recent example that got a lot of attention is a betting market on Polymarket about whether the president of Venezuela, Nicolas Maduro, would be removed from power.
Right, I saw that.
And some of the betting on that Maduro question actually raised new concerns about how these platforms operate.
Shortly before the US operation in Venezuela to remove Maduro, an anonymous better on Polymarket placed a large bet that Maduro would be removed from power, and then of course he was, and that trader made a big profit.
But the timing of that bet was so good that it convinced a lot of people that this trader must have had some sort of advanced knowledge about the operation, that this must have been some kind of insider trading based on a government leak or somebody in government improperly using the site.
Right.
I remember when that happened because I was following the Maduro news very closely.
People saw that bet and just did assume that this person who made it was potentially close to the White House and knew in advance it was going to happen.
Yeah, to be clear, there was no evidence of that.
It was never proven.
But I think what we're seeing here is something that we've already seen in the realm of sports, which is, when betting becomes super mainstream, there's an aura of suspicion that develops around everything.
People become convinced that things are rigged, that somebody's cheating to try to make money.
And now we're seeing that aura extend to all sorts of other things in the real world outside of sports.
And that's even bled into how the newsmakers themselves are operating.
There was an incident last fall where Brian Armstrong, the chief executive of Coinbase, which is the largest crypto company in the US, was doing an earnings call.
And at the same time there was a betting market on both Kelshi and Polymarket, on what words he would utter during that earnings call.
Could I just pause and say how amazing it is that there were bets being made on what words he would use in an earnings call.
Maybe someday there'll be bets on what you'll say on the daily.
I mean, who knows?
It's all sort of fair game at this point.
Anyway, at the end of this earnings call.
Yeah.
I hope we answered your question on that.
I was a little distracted because I was tracking the prediction market about what Coinbase will say on their next earnings call.
And I just want to Armstrong says, oh, I've actually been looking at the prediction markets.
I just want to add here the words Bitcoin Ethereum, blockchain staking and Web3 to make sure we get those in before the end of the call.
And then he just reels off a list of the words that people were betting on.
You know, influencing the market directly.
Now, Armstrong has said that he personally wasn't betting on this market.
He didn't have a stake in what he was going to say.
But it's an illustration of how easily these markets could be manipulated.
Right.
The CEO says this didn't benefit him, but it's pretty easy to imagine a situation in which someone does actually have a stake in an outcome that they can influence and colludes with people to make a lot of money manipulating it.
Yeah, it could happen.
And we've obviously seen that in sports betting, players colluding with bettors to change the outcome of games or of things that happen within the games.
In sports betting cases, those lead often to criminal charges.
But in this case, is this kind of cheating actually punished?
So the CFTC does have a rule against insider trading, but this is such a new area that it hasn't really been tested.
So it remains kind of a big question mark.
Kalshi, which is Polymarket's biggest competitor, has taken the position that insider trading is bad and that there are protections in place on the platform to prevent it and to report it.
But there are other people in the prediction market sphere who actually think insider trading is a good thing.
And that goes back to that kind of high-minded goal behind some of these products that they could become a source of truth in the world.
Wait, tell me how cheating is part of the high-mindedness?
Sure.
If what you want to do is produce the best possible projection about what will happen to Nicolas Maduro, then if someone who has insider information about that is placing bets and moving the market, you end up with a much better projection.
Hmm.
But isn't there a case David, for these companies that operate these markets to be worried about the business implications of cheating?
Like?
Wouldn't a Shane Copeland, for example, be concerned that people wouldn't want to participate in polymarket if they know that they may be taking a sucker's bet on some of these big events, where the person on the other side actually has good information and they're just making a guess?
Yeah, absolutely.
And these companies have taken a big reputational hit from some of these incidents over the past few months.
But look, I've covered these sorts of strange financial instruments for a long time.
And it's pretty amazing what people will throw their money into.
You know, I've seen people buy useless meme coins that are clearly part of a pump and dump scheme, but they do it anyway.
People aren't always rational with their money.
You're always convinced that you're the one person who has the inside scoop and can figure out how to make money from something that everybody else is losing money on.
Right.
You're not the sucker.
Exactly.
David, you made it clear that these platforms have persuaded regulators that what they're doing is not facilitating gambling.
They obviously call themselves prediction markets, not betting apps.
Right.
But the reality is the way they work as you've described.
It is much more like gambling than the stock market right.
These are quick fix kind of beths.
Look, as I've started reporting on these platforms, I've also started using them with a small amount of the New York Times' money.
Oh, wow.
How much?
$20.
Oh, wow.
Generous.
And any profits would go to charity, so it was a real philanthropic opportunity for me.
How'd you do?
I've already blown it.
I'm down to $10.
Okay.
You're no French whale.
Exactly.
But one thing I learned from playing around with these platforms a little bit is that it does feel like gambling.
You know, these platforms are designed to kind of suck you in.
You know they've got bright colors and you know you see numbers going up and down and it's exciting.
And when you're just playing around with a few dollars of your company's money, that's totally fine.
But when you're potentially vulnerable to addiction and you're spending money that you need for other things on these platforms, there's a real risk.
And one thing we know about this type of betting is that it's especially popular among young people, especially young men.
It's kind of their vice of choice these days.
And so, whatever the long term consequences of this are, it's probably going to be felt by that demographic young people.
Right.
If you have a gambling addiction, like you said.
There's all these reasons why you're compelled to keep betting.
And if you're just someone who finds them fun, you're looking for entertainment.
You're looking for this kind of world that's been created by these markets which, as you've described it to me, kind of turns reality into something like a video game.
Yeah, and the consequences of that are starting to become clear.
It's changing the stakes of reality for people, changing the way they relate to things that are happening in the world, even things that are really important and have human consequences.
I mean, we have seen prediction markets betting on the LA wildfires, on how quickly they would be contained.
There was betting on the war in Gaza, whether that situation would be classified as a famine.
And all those things are devastating for the real people in those situations.
But now you have a class of internet speculator who's engaging with them as potentially profit-making opportunities.
Yeah, I have to say it's pretty dark to imagine people putting money behind the notion, for example, that Gaza would be declared a famine or that the fires in LA wouldn't be put out, and then potentially having a rooting interest in that outcome.
Like just to put a fine point on it.
It means presumably you have people hoping that these terrible things will happen because they'll make money on it.
A lot of people have that reaction, and it's totally a real concern.
I'll just turn it around and try to kind of capture what the companies would say to this.
Specifically on that example of the LA wildfire, people have a real interest in knowing when the fires would be contained.
They're making decisions that affect their lives based on that.
And so if you have a crowd-sourced verdict on that question, that could potentially be really helpful.
So on some of these markets you can still make a version of that high-minded argument that Copeland came into this industry with.
But on some of the others, it's definitely a lot tougher to justify.
And I guess then, even if you buy the premise that there's utility in these bets, I think it's worth asking what the cost of that is.
Like what it does to us as a society to suddenly be relating to the real world, and sometimes to real world suffering in this kind of gamified way.
Yeah, it has a sort of distancing effect.
Suddenly these things become kind of abstract.
The same way the price of a stock is sort of abstract to people.
And what the long-term consequences of that will be, it's hard to say.
But it's clear that this is a future that these companies want.
One of the co-founders of Kalshi says that he wants to financialize everything, to turn every difference in opinion into a tradable asset.
It's the idea that any event in the real world could be communicated in financial terms as odds of this happening, odds of that happening, even if it's something as simple as the weather.
And to their founders, that's really exciting.
But to a lot of other people, a world in which everything is reduced to dollars and cents is sort of depressing.
To a lot of people, it sounds like dystopia.
What's clear is that we're at the beginning of this.
The legal landscape is still taking shape.
There are some challenges to prediction markets happening in the states right now.
Still, as someone who's covered this sort of fringe financial stuff for a long time, I can feel momentum behind these markets.
There's a real appetite for them culturally.
And I don't see that changing.
People want to bet on everything.
Well, David, thanks for coming on the show.
Thanks so much for having me.
We'll be right back.
President Trump signed a bill that ended the partial government shutdown on Tuesday, hours after it passed the House.
The legislation funds much of the government for the rest of the year, except for the Department of Homeland Security, which was only funded until the end of next week.
Democrats are insisting on new restrictions for federal immigration agents before extending that funding.
And Trump now has 10 days to strike a deal with them before it expires.
And House Republicans canceled a vote to hold Bill and Hillary Clinton in criminal contempt of Congress.
The move came after the Clintons agreed to testify on camera in the Jeffrey Epstein investigation and requested to be deposed at public hearings.
The agreement marked an end to a months-long standoff between Republicans and the Clintons, who had resisted testifying and accused the GOP of carrying out a political vendetta against them.
I think it's a shame, to be honest.
I always liked him.
When asked about the developments, Trump expressed empathy for the Clintons.
I hate to see it in many ways.
I hate to see it, man.
They will appear on February 26th and 27th for depositions.
Today's episode was produced by Ricky Nowetzki, Nina Feldman, Claire Tennisgetter and Rochelle Banja.
It was edited by Chris Haxel and Devin Taylor.
Contains music by Rowan Nemisto and Alishaba Etube.
And was engineered by Chris Wood.
That's it for The Daily.
I'm Natalie Ketroweth.
See you tomorrow.
