Forbes: The 26-year-old founder of Polymarket and the $1 billion prediction market centered around political gamesmanship

Authored by: Nina Bambysheva, Forbes

Compiled by Luffy, Foresight News.

What are the chances of Vice President Kamala Harris defeating former President Trump in November? On a prediction website called Polymarket, thousands of betting results show Harris has a 39% chance of winning, while Trump has a 59% chance, and Michelle Obama and Robert Kennedy have a 1% chance. Will Pence be replaced as Trump’s vice presidential candidate? If Pence withdraws, a $100 bet will yield a $1,000 return.

Welcome to the future of prediction markets, where almost anything can be wagered on, from the highest price of BTC in 2024 to the speed at which Trump and Biden climb stairs, to the gender of the unborn child of Hailey and Justin Bieber. Currently, around $446 million is wagered on the outcome of the November presidential election on Polymarket. However, in the United States, betting on election results is prohibited as the Commodity Futures Trading Commission considers it against the public interest. Polymarket, headquartered in New York City, is a phenomenon in the prediction market industry, largely due to the world’s interest in U.S. politics.

Shayne Coplan, Founder and CEO of Polymarket

According to data from Dune Analytics, Polymarket was launched in 2020 and its volume this year has exceeded $650 million, with a volume of nearly $300 million in July alone. The platform is expected to handle $1 billion in predicted bets by the end of the year. Campaign managers and political analysts are now turning to this non-traditional Oracle Machine to find clues in market prices of Fluctuation. Even former President Donald Trump boasts about his success on Polymarket on his social media app, TruthSocial.

Polymarket is based on a blockchain network called Polygon, which runs 24/7, with Money Laundering being only a small part of the ETH block. However, users who want to trade on Polymarket need to use the USD-based stablecoin USDC instead of USD. This situation is also changing. Last Wednesday, Polymarket announced that users can place bets using bank transfers and credit card payments through a partnership with MoonPay, based in Miami.

The prediction market’s soaring popularity attracted top-tier investors, including Peter Thiel’s Founders Fund and ETH Fang co-founder Vitalik Buterin, to provide a total of $74 million in funding for the startup. Currently, markets related to the United States election (more than 100) are the source of the majority of volume on Polymarket. While these markets are supposedly closed to United States residents, 25% of traffic to its website comes from the United States, according to web analytics platform Similarweb. Shayne Coplan, the 26-year-old founder of Polymarket, would not say much about his team’s efforts to stop users in United States from betting on elections, preferring to highlight the advantages of the new platform.

“Polymarket has turned an internet argument into a market, where those who predict correctly will be rewarded. We hope our predictions become ubiquitous and mainstream,” Coplan said in his luxury top-floor office in SoHo, New York City.

If you track the real-time betting on whether President Biden will withdraw from the election on Polymarket, you will find how the odds fall and rise before and after he appears in public and announces his withdrawal.

Coplan’s mother is a film professor at New York University, and Coplan grew up in Manhattan. He described himself as an internet enthusiast. At the age of 14, he attempted to build a CryptocurrencyMining device. In 2014, he participated in the ETH presale (when the price of ETH was about 30 cents). Coplan studied computer science at New York University, but dropped out in the second semester of 2017. Describing his life over the next three years, Coplan said, ‘I lived a secluded life, immersed in reading and trying new things.’

In 2020, as the world entered a period of uncertainty during the epidemic, Coplan began exploring the predecessor of Polymarket, such as the Ethereum-based prediction market Augur. Augur conducted an ICO in 2017 but never really gained follow. Eventually, Coplan started developing his own prediction platform. He recalled, ‘I wanted to know the likelihood of New York City reopening and whether the vaccine would be ready by then, and if restaurants would reopen. It’s very difficult to find signals in the noise, and that’s exactly what prediction markets are good at.’ The first prediction on Polymarket was about when New York City would reopen.

Months later, in October 2020, Coplan raised a $4 million seed funding round led by another Cryptocurrency luminary, Olaf-Carlson Wee, the founder of CryptocurrencyHedging fund Polychain Capital. Carlson-Wee commented at the time: ‘We’ve long been fascinated by the information market, but many solutions in this space have been plagued by user experience and Liquidity issues.’ ‘Shayne and his team have extensive experience in this area and have incorporated these experiences into their creative, user-centric approach to product development.’ Carlson-Wee declined to comment on this article.

Prediction markets follow a rather simple principle: if your prediction is correct, you will profit; if it is wrong, you will incur losses. In these markets, the price of ‘shares’ reflects the likelihood 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, indicating a market probability of 59% for his victory. If he wins in November, the return on this bet will be $1.00.

“Prediction market is a powerful force against misinformation,” said Marc Bhargava, Managing Director of General Catalyst, in a statement to Forbes. He is a seed round investor in Polymarket. “The power of prediction markets comes from those who take real action to support the most accurate viewpoints.”

As Polymarket is built on a Distributed Ledger, it claims to offer higher efficiency and transparency compared to centralized prediction markets like Kalshi and PredictIt, which are based in New York City and Wellington, New Zealand respectively. Polymarket relies on the Decentralization Oracle Machine UMA (Universal Market Access), a blockchain-based system that resolves disputes through token voting. Once the event is resolved, the Smart Contract automatically distributes rewards to the winners.

This blockchain-based application is not flawless. In June, Polymarket users bet more than $1 million on whether Donald · Trump’s 18-year-old son, Barron· Trump was involved in the issuance of the memecoin DJT (an acronym for former president), which has a Market Cap of about $80 million. Initially, it was thought that the winning rate of his participation was 60%, but the winning rate quickly decreased due to insufficient evidence. The result of the UMA vote was that Barron was not involved. But Polymarket eventually stepped in, challenging the results of the vote and eventually overturning the UMA ruling, saying that Barron · Trump was “somehow” involved in the issuance of the DJT token. Polymarket eventually refunds bettors on the “yes” side of the contract, but they have already lost their funds.

“Some people look down on prediction markets because of this,” said Nick Tomaino, investor of Polymarket and founder/partner of 1Confirmation, a cryptocurrency-focused investment firm, on the Unchained podcast. “I think that’s foolish because these things are still evolving.”

The surge in Polymarket volume is not just because of good timing. According to Art Malkov, the first CMO of Polymarket and co-founder of the internet celebrity marketing platform Lever.io, the company has invested a large amount of money in marketing, including collaborations with the Reddit channel WallStreetBets, which has helped Polymarket attract a large number of retail investors.

Coplan leads a team of about 30 people worldwide to sort through user suggestions and search the internet for hot topics that can be converted 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 Friedrich Hayek’s “The Use of Knowledge in Society” and the work of Robin Hanson, an economics professor at George Mason University, who is known for creating the concept of “futarchy”.

Polymarket does not charge any fees, and Coplan has not disclosed how the platform will generate revenue, but implies that fees will be charged soon. “We are now focusing on developing the market and providing the best user experience,” he said, “We will follow the issue of profitability later.”

Despite the lack of revenue and ongoing questions about the source of Polymarket volume, young Coplan remains a darling of Silicon Valley. Billionaire venture capitalist Tim Draper raved about him in a written comment to Forbes, calling him “energetic and talented.” Tom Schmidt, a general partner at Dragonfly, a venture capital firm focused on cryptocurrency, added:“Using the word ‘tenacious’ to describe a typical entrepreneur feels a bit overstated, but for Shayne, it’s 100% accurate. Building something like Polymarket, which has taken years, requires true courage, passion, and foresight… qualities that are necessary to build a once-in-a-century company.” Ethereum co-founder Vitalik Buterin has also invested in Polymarket and promoted it publicly on X.

“Shayne is an impatient young man, but he is eager to get things done,” said Chris Giancarlo, former CFTC chairman and chairman of the Polymarket advisory committee, which earlier this month brought on election forecasting expert Nate Silver. “There is a generational aspect to Polymarket’s success,” he added. “I think the older generation of Americans didn’t grow up in the kind of prediction market environment that was popular in Europe, and they may not understand the value proposition, but young people won’t give up on these markets because of their elders’ advice.”

The origins of the prediction market can be traced back to the 16th century, when Europeans sometimes bet on the successor of the pope. At the end of the 19th century, the Prediction Market flourished as a “speculative firm” where people bet on stock prices. Over time, these markets have evolved into more sophisticated platforms, especially with the rise of the internet. The University of Iowa’s Tippie School of Business began experimenting with the so-called political stock market through its Iowa electronic market in the late 1990s. The platform allows users to place small bets on political outcomes, economic indicators, and cultural events in the name of research.

The US government has always been cautious about gambling, so prediction markets face legal challenges. Because they are similar to futures contracts, these markets are regulated by the Commodity Futures Trading Commission (CFTC).

In January 2022, the CFTC ordered Polymarket to pay a civil penalty of $1.4 million for operating in the United States without registration. As part of the settlement protocol, the company has committed to gradually cease its services in the United States while continuing to operate overseas.

Technically, US users do not have the right to place bets on the Polymarket website, but 25% of Polymarket’s website visitors come from the US. According to Similarweb data, the next four countries with the most visits are: Canada 6.3%, Netherlands 6%, Vietnam 5.9%, Mexico 5%. Before the settlement with the CFTC, the US market share ranged from 34% to 54%. Coplan did not comment on Polymarket’s geographical blocking measures, but a former employee who wished to remain anonymous told Forbes that the company “does its best to resist users who should not be trading on the platform.” Nevertheless, users can still use Polymarket through alternative methods such as virtual private networks (VPNs).

PredictIt’s competitor, Polymarket, has been operating in the United States since 2014. The CFTC has issued it a no-action letter because it is part of a collaboration with Victoria University of Wellington in New Zealand, allowing PredictIt to serve as a “data collection tool for academic researchers.” PredictIt also allows betting on the U.S. elections. Currently, it sees a 52% chance of Trump winning and a 49% chance for Kamala Harris. It charges a 10% fee on users’ final betting profits and limits investments in any single contract to a maximum of $850, resulting in volume far lower than Polymarket: $31 million in bets on the election outcome, compared to Polymarket’s $446 million. In August 2022, the CFTC withdrew its no-action letter and ordered PredictIt to cease operations; the company is still operating and challenging the CFTC’s decision in court. PredictIt’s founder and CEO, John Aristotle Phillips, stated: “We have legally operated in the U.S. for 10 years, enjoying a no-action policy, and expect to continue for another 10 years or longer.”

Another competitor, Kalshi, regulated by the CFTC, cannot offer election betting but provides betting on government-related events such as the Intrerest Rate decision of the Federal Reserve. The platform charges a small fee for orders based on the maximum potential return of the contract and the implied probability of achieving these returns. ‘Kalshi focuses on building a legal and regulated prediction market in the United States,’ CEO Tarek Mansour said in an interview with Forbes.

More restrictions are likely to be introduced in the future. In May, the CFTC proposed banning predictions related to political campaigns, award ceremonies or sporting events, arguing that they are “contrary to the public interest.” In response to Forbes’ request for comment, the CFTC referred to its settlement protocol with Polymarket and said that the comment period for the proposed rule will end on August 8.

However, on June 28, in the case of Loper Bright Enterprises v. Raimondo, the Supreme Court ruled that a federal agency’s regulation regarding fishing vessels is invalid, effectively overturning the so-called ‘Chevron deference’ principle that allows federal agencies to enforce regulations based on their own interpretation of sometimes ambiguous laws. As a result, agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in the United States will now face challenges. This could bring opportunities for prediction markets like Polymarket, which are under pressure from the CFTC.

Giancarlo said, “I believe that the long-term trend is that the prediction market will be accepted.”

A major question hanging over Polymarket’s future is how it will sustain its volume and rise momentum after the conclusion of the November 2024 election. Coplan and his supporters seem unconcerned. ‘Indeed, volume is often driven by events such as elections, but there will always be significant events in the future, and in an increasingly turbulent world, this impact may be even greater. Another driving force for continuous rise is the growing desire of more and more people to participate in forecasting and see what others truly believe; this is a challenge for traditional social media and even more so for genAI, as creating a large amount of inaccurate content will not be punished,’ said Bhargava of General Catalyst.

Given the low barriers to entry for Cryptocurrency, competition will be another major challenge for Polymarket. Memecoins like DJT have already become proxies for the prediction market. The industry has also attracted billionaires like Thomas Peterffy’s Interactive Brokers, which recently announced the launch of ForecastEx prediction market, offering prediction contracts based on important economic data releases, such as the US Federal Fund’s target Interest Rate and the US Consumer Price Index. In April, billionaire Jeff Yass’s trading firm Susquehanna International formed a dedicated team to make markets for Polymarket’s competitor, Kalshi.

Despite the competition from TradFi, Dragonfly’s Schmidt still sees opportunities for Coplan in building a long-lasting prediction market. “Ultimately, Polymarket enables the creator ecosystem to create new markets, which is its secret weapon that competitors in TradFi cannot easily replicate,” he said. “Think YouTube, not TV.”