Polymarket founder: How a 26-year-old dropout subverts a 500-year-old prediction industry

Original | Forbes

Compilation | Odaily Planet Daily (@OdailyChina)

Translator | Azuma (@azuma_eth)

What are the chances of Harris defeating Trump in November? On Polymarket, a large number of users have placed thousands of bets on this event, resulting in a comprehensive probability: Harris has a 39% chance of winning, while Trump has a 59% chance. Michelle Obama and RFK Jr. both have only 1% chance.

Will Trump choose other vice presidential candidates to replace JD Vance? Also on Polymarket, if Vance is replaced, a bet of $100 can earn a profit of $1000.

Welcome to the future of betting markets. Here, you can bet on almost anything, from the highest price of BTC in 2024, to the speed of Trump and Biden climbing stairs, to the gender of Justin Bieber and Hailey’s newborn… On Polymarket, the prize pool for the November presidential election has accumulated to a scale of $446 million. Despite the US Commodity Futures Trading Commission (CFTC) ruling that the country has banned predicting election results through gambling because it is considered to be suspected of violating public interest, Polymarket, headquartered in New York, 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 platform’s volume has exceeded $650 million this year, with nearly $300 million in July alone. It is expected that the platform will process bets worth over $1 billion before the end of this year. Currently, campaign experts and political analysts have taken notice of this non-traditional ‘disruptor’ and are closely following the market’s price fluctuations. Even Trump himself has boasted about his odds on Polymarket on his own social media app, TruthSocial.

Although blockchain technology is not a necessity for prediction markets, Polymarket has chosen to operate on the Polygon blockchain, which relies on the Ethereum network but has much lower transaction costs than the Ethereum mainnet. When placing bets, Polymarket users can’t use US dollars directly, but instead need to use the stablecoin USDC. However, Polymarket has announced a partnership with Miami-based payment provider MoonPay, allowing users to place bets using bank cards or credit cards.

Polymarket’s rapid development has also attracted the attention of top investors, including Peter Thiel’s Founders Fund and Ethereum co-founder Vitalik Buterin, among others, who have invested in it. Currently, Polymarket’s total funding has reached $74 million.

Currently, there are hundreds of prediction markets related to the US election on the market, with Polymarket having the largest volume. Although these markets should be restricted to US residents, according to Similarweb, a web analytics platform, 25% of the website’s traffic comes from the US. When asked about this issue, Shayne Coplan, the 26-year-old founder of Polymarket, did not elaborate on how the team will prevent US users from accessing the platform, but instead emphasized the platform’s advantages.

In Coplan’s luxurious office on the top floor of Soho in New York City, he said, “Polymarket effectively turns online debates into a game market, where those with the correct views will win. We hope Polymarket’s prediction services will expand into all fields and gain more user recognition.”

Coplan grew up in Manhattan, where her mother is a professor in the film direction department at New York University. Coplan describes herself as an “internet homebody.” At the age of 14, she began to experiment with building CryptocurrencyMining rigs and participated in the presale of Ethereum in 2014 (when ETH was priced at around 0.3 USD). 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 led a solitary life, indulging in reading and trying new things.”

During the 2020 pandemic lockdown, the world was plunged into great uncertainty, and it was during this time that Coplan began to explore the prototype of Polymarket. He drew inspiration from Augur, a prediction market based on Ethereum, which conducted its first Tokenissuance (ICO) in 2015, but never truly gained follow.

Ultimately, Coplan began developing its own prediction platform, with the first betting topic on Polymarket being when New York City will reopen — “I want to know the likelihood of New York City reopening, whether the vaccine will be ready by then, whether restaurants will reopen… It’s very difficult to find the right signal in the noise, but that’s exactly where the ability of the prediction market lies.”

Several months later, in October 2020, Coplan finally secured seed round financing, led by another Cryptocurrency genius and the founder of Hedging fund Polychain Capital, Olaf Carlson-Wee. At the time, Carlson-Wee praised the investment, saying, “We have been interested in the prediction market for some time, but many solutions on the market currently suffer from user experience and Liquidity issues. Shayne and his team deeply understand this and can incorporate these insights into the product.”

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

The operation of the prediction market is based on a rather simple ‘all-or-nothing’ model - if the prediction is correct, you can share all the bonuses with other correct users; if it is incorrect, you will lose all the principal. In such markets, the price of ‘shares’ reflects the probability of the corresponding event occurring, ranging from $0.00 to $1.00. For example, the current price of ‘shares’ for Trump winning the presidential election on Polymarket is $0.59, which means the market believes his winning probability is 59% - if he wins in November, a unit of ‘share’ will receive a return of $1.00, representing the ‘shares’ prices of other predictions will be zero.

“Prediction market is a powerful tool to combat misinformation,” said Marc Bhargava, Managing Director of General Catalyst. “It can provide a relatively accurate prediction based on viewpoints supported by real money.” Bhargava personally participated in Polymarket’s seed round, and General Catalyst also led Polymarket’s Series A funding round.

Due to the fact that Polymarket is built on the on-chain Block, the platform claims to be more efficient and transparent than some other centralized platforms, such as Kalshi in New York and PredictIt in New Zealand. Polymarket relies on the Decentralization Oracle Machine UMA for result determination in prediction markets, which is also a blockchain-based system that resolves disputes through token-based voting. Once the outcome of an event is confirmed, the Smart Contract automatically distributes the winnings to the winning party.

However, this determination is not flawless. In June, Polymarket users collectively invested over $1 million to judge whether Donald Trump’s 18-year-old son Barron Trump participated in the release of meme Token DJT, which at one point had a market value of about $80 million. Initially, the odds of Barron’s involvement reached as high as 60%, but due to a lack of sufficient evidence, this probability quickly declined, and UMA voters also voted that Barron did not participate. However, Polymarket later chose to intervene and questioned the vote, ultimately overturning UMA’s decision, claiming that Barron did participate to some extent. Polymarket also compensated the users who chose ‘yes’ and suffered losses.

Nick Tomaino, founder of 1Confirmation, a Cryptocurrency investment institution and investor in Polymarket, mentioned in the Unchained podcast that “Some people will ignore the development of prediction markets because of events like this, which I think is foolish because these issues are being addressed.”

The surge in volume of bets related to elections on Polymarket is not only attributed to good timing. Art Malkov, the first Chief Marketing Officer (CMO) of Polymarket and co-founder of the influencer marketing platform Lever.io, said that the company has invested a lot of money in marketing, including collaborative promotion with the Reddit channel WallStreetBets, which has helped Polymarket gain a wide following among retail investors.

Coplan’s team has about 30 people, with employees located worldwide. They will gather user suggestions and search for hot topics on the Internet, and then translate them into prediction markets. Currently, there are over 300 prediction markets on Polymarket, covering seven categories including politics, Olympics, Cryptocurrency, popular culture, sports, business, and science. All employees must read Friedrich Hayek’s “The Use of Knowledge in Society” and the works of Robin Hanson, an economics professor at George Mason University. Hanson’s most famous proposition is the concept of “Futarchy,” a form of governance based on betting markets for decision-making.

Polymarket does not charge any fees, and Coplan has not disclosed how the platform will generate revenue, but hinted at adding fees in the future: “We are now focusing on expanding the market and providing the best user experience, and will focus on profitability later.”

Despite the lack of revenue for now and some questions about the source of Polymarket volume, 26-year-old Coplan is still a darling in Silicon Valley. Billionaire and venture capitalist Tim Draper praised Coplan as “energetic and intelligent”; Tom Schmidt, General Partner at Dragonfly, mentioned, “Describing an entrepreneur as tenacious may seem exaggerated, but it’s 100% applicable to Coplan… It takes true courage, passion, and vision to spend years building Polymarket, and these are the qualities necessary to create a once-in-a-century company.”

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

Polymarket Advisory Board (which has just welcomed election prediction expert Nate Silver) chairman, former CFTC chairman Chris Giancarlo said: “Shayne is an impatient young man, but he is eager to do things well……The success of Polymarket has the characteristics of a new generation, the older generation of Americans did not grow up in the environment where prediction markets were prevalent in Europe, and may not understand these values, but young people will not avoid these opportunities because of the admonition of their elders.”

**The prediction market can be traced back to the 16th century when Europeans would sometimes bet on who would become the next Pope. By the late 19th century, with the rise of prediction markets known as ‘bucket shops,’ people began betting on stock prices. Over time, these markets gradually evolved into more complex platforms, especially with the rise of the internet. In the late 1980s, the Tippie College of Business at the University of Iowa began experimenting with so-called ‘political stock markets’ through its Iowa Electronic Markets, allowing users to make 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 have always faced legal challenges. As prediction markets operate similarly to futures contracts, these markets fall under the jurisdiction of the CFTC.

In January 2022, the CFTC ordered Polymarket to pay a civil fine of $1.4 million for operating in the United States without registration. As part of the settlement, the company agreed to gradually cease services in the United States while continuing to operate overseas. Technically, U.S. users are not allowed to place bets on the website, but 25% of Polymarket’s website traffic still comes from the United States.

According to Similarweb data, the four countries following the United States in terms of traffic sources are Canada (6.3%), the Netherlands (6%), Vietnam (5.9%), and Mexico (5%). Before reaching a settlement with the CFTC, the United States’ traffic share was between 34% and 54%. Coplan did not comment on Polymarket’s geographic blocking measures, but an anonymous former employee told us that the company has done everything possible to prevent users who should not be trading on the platform. However, workarounds such as using VPNs (which can hide a user’s geographic location) may still be why there is some US traffic on Polymarket.

PredictIt’s competitor, Polymarket, has been operating in the United States since 2014. The CFTC has agreed not to take action against the platform because it is part of a collaboration with Victoria University of Wellington in New Zealand, allowing the institution to operate within the United States as a “data collection tool for academic researchers.” PredictIt also allows users to place bets on the US presidential election. Currently, the platform gives Trump a 52% chance of winning and Harris a 49% chance. PredictIt charges users a 10% fee on profits and limits investment in any single contract to a maximum of $850, resulting in significantly lower volume compared to Polymarket —— the election-related betting volume is $31 million, while Polymarket’s betting volume is $4.46 billion.

In August 2022, the CFTC withdrew a letter of no-action for PredictIt and ordered PredictIt to cease operations. However, the platform is currently seeking to continue its operations through legal means, and during this period, the platform is still operational. PredictIt’s founder and CEO, John Aristotle Phillips, stated, “We have legally operated in the United States for 10 years under the no-action relief policy, and we expect to operate for another 10 years or longer.”

Another major competitor of Polymarket is Kalshi, which is regulated by the CFTC. Although this platform does not support betting on elections, it offers predictions on other government-related events, such as the Intrerest Rate decisions of the Federal Reserve. The platform charges a small fee based on the maximum potential earnings of the contract and the expected probability of achieving these earnings. Tarek Mansour, CEO of Kalshi, said in an interview with us, ‘Kalshi is committed to building a legal and regulated prediction market in the United States.’

More restrictive policies may be introduced one after another. In May of this year, the CFTC proposed to ban betting contracts related to political campaigns, awards ceremonies, or sports events, believing that they “are not in the public interest.” The CFTC responded to our request for comment, mentioning a settlement with Polymarket and stating that the public comment period for this proposal will end on August 8th.

However, in the case of Loper Bright Enterprises v. Raimondo on June 28, the Supreme Court ruled against a federal agency’s regulations on fishing vessels, essentially breaking the so-called “Chevron deference” principle, which allows federal agencies to enforce regulations based on their sometimes ambiguous interpretations of the law. Consequently, agencies such as the SEC and CFTC will now be less proactive, which may provide some relief to prediction markets like Polymarket, which have been under immense regulatory pressure from the CFTC.

Giancarlo (former CFTC chairman) said, “I believe that in the long run, prediction markets will be gradually accepted.”

Another major question about Polymarket’s future is how it will maintain its volume and growth momentum after the end of the U.S. presidential election in November 2024. Coplan and its investors don’t seem too worried about this.

General Catalyst’s Bhargava said, “Indeed, the volume of Polymarket is currently mainly driven by events such as elections, but there are always major events happening in the world, especially in an increasingly unstable world. Another driving force for the continuous rise of Polymarket is the constantly rising user base, who are eager to make predictions and understand the true thoughts of others. This is a challenge for traditional social media and even more so for generative AI, as these platforms can generate a large amount of inaccurate content without consequences.”

Given the low entry barrier for Cryptocurrency, competition will be another major challenge for Polymarket. Meme Tokens like DJT can already be seen as alternatives to prediction markets to some extent; The Cryptocurrency industry has also attracted brokers like billionaire Thomas Peterffy’s Interactive Brokers, which recently announced the launch of ForecastEx, a market that provides prediction contracts based on important economic data releases, such as the US federal fund target Intrerest Rate and the US Consumer Price Index, etc.; In April, billionaire Jeff Yass’s trading company Susquehanna International also set up a professional team to make markets on Polymarket’s competitor, Kalshi.

Despite competition from the TradFi sector, Schmidt of Dragonfly remains optimistic about Coplan’s chances in the prediction market competition: 'Polymarket’s ultimate secret weapon is that the platform will allow ecosystem participants to create new bets on their own, a model that is difficult for competitors in the TradFi sector to replicate. It’s like YouTube to TV.’