Forbes Investigates Polymarket: 26-Year-Old Founder and a $1 Billion Prediction Market

Original Title: Meet The 26-Year-Old Building A Billion Dollar Prediction Marketplace

Author: Nina Bambysheva, Forbes

Translation: Ismay, BlockBeats

What are the odds of U.S. Vice President Harris defeating former President Trump in November? On a blockchain platform called Polymarket, based on the opinions of thousands of bettors, Harris has a 39% chance of winning, while Trump has a 59% chance, with Michelle Obama and little Kennedy each at 1%. Will JD Vance replace Trump as the vice presidential candidate? If Vance drops out, a $100 bet would return $1,000.

Welcome to the future of betting markets, where almost anything can be wagered on, from Bitcoin's peak price in 2024 to the speed at which Trump and Biden climb stairs, even the gender of Hailey and Justin Bieber's newborn. Currently, about $446 million has been bet on the outcome of the November presidential election on the Polymarket platform. Although betting on election outcomes is prohibited in the U.S. under the Commodity Futures Trading Commission regulations, as it is considered not in the public interest, Polymarket, headquartered in New York City, has become a phenomenon in prediction markets due to global interest in U.S. politics.

According to data from Dune Analytics, Polymarket launched in 2020, and its trading volume has exceeded $650 million this year alone, with nearly $300 million traded in July. The platform is expected to handle $1 billion in betting predictions before the end of the year. Campaign managers and political analysts are now turning to this unconventional "oracle," hoping to find clues from the ever-changing market prices. Even former President Donald Trump has boasted about his odds on Polymarket on his social media app TruthSocial.

While blockchain technology is not necessary for such applications, Polymarket uses a network called Polygon, which runs on top of Ethereum, providing 24/7 service with transaction fees that are only a fraction of the normal Ethereum fees. However, customers trading on Polymarket use a dollar-pegged stablecoin, USDC, instead of dollars. This is also changing. Last Wednesday, Polymarket announced a partnership with Miami-based MoonPay to allow users to place bets using bank transfers and credit cards.

The immense popularity of prediction markets has attracted top investors, including Peter Thiel's Founders Fund and Ethereum co-founder Vitalik Buterin, who have provided a total of $74 million in funding to the startup. Currently, markets related to U.S. elections—over 100 of them—are driving most of Polymarket's trading volume. Although these markets are considered inaccessible to U.S. residents, data from web analytics platform Similarweb shows that 25% of the site's traffic comes from the U.S.

Shayne Coplan, the 26-year-old founder of Polymarket, is reluctant to discuss the team's efforts to prevent U.S. users from betting on elections, preferring to emphasize the platform's advantages.

"Polymarket effectively transforms debates that would otherwise exist on the internet into a market where the right people win. We want our predictions to become ubiquitous and mainstream," Coplan said from Polymarket's luxurious penthouse office in Soho, New York City.

Growing up in Manhattan, Shayne Coplan's mother was a film professor at New York University. Coplan describes himself as a "web nerd," having attempted to assemble cryptocurrency mining rigs at the age of 14 and participating in Ethereum's presale in 2014 (when Ethereum was priced at about 30 cents). Coplan studied computer science at New York University but dropped out in the second semester of 2017. He recalls, "I lived an isolated life during those three years, obsessively reading and trying new things."

During the pandemic lockdown in 2020, as the world fell into uncertainty, Coplan began exploring the precursor to Polymarket, a prediction market based on Ethereum called Augur. Augur conducted an ICO in 2015 but did not gain much attention. Eventually, he began developing his own prediction platform. Coplan recalled, "I wanted to know the likelihood of New York City reopening, whether vaccines would be ready by then, and if restaurants would reopen." He said, "Finding signals in the noise is very difficult, and that's exactly what information markets or prediction markets excel at." Polymarket's first event market was a small bet on when New York City would reopen.

Coplan's $4 million seed funding came in October 2020, led by another cryptocurrency whiz, Olaf Carlson-Wee, founder of the cryptocurrency hedge fund Polychain Capital. Carlson-Wee stated at the time, "We have been interested in information markets for a long time, but many solutions in this space have issues with user experience (UX) and liquidity. Shayne and his team have a deep understanding of this and have incorporated that experience into their innovative, user-centric product approach." Carlson-Wee declined to comment further for this article.

The mechanics of prediction markets are relatively simple: if your prediction is correct, you profit; if not, you lose your stake. In these markets, the price of "shares" 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, indicating that the market assigns him a 59% chance of winning. If he wins in November, this bet will return $1.00.

"Prediction markets are a powerful force against misinformation," General Catalyst Managing Director Marc Bhargava wrote in a statement to Forbes. Bhargava personally invested in Polymarket's seed round, and General Catalyst also led Polymarket's Series A funding. "Their momentum comes from people putting their money behind the most accurate viewpoints."

Because Polymarket is based on a distributed ledger, it claims to offer greater efficiency and transparency than centralized competitors like Kalshi in New York City and PredictIt in Wellington, New Zealand. The application relies on a decentralized oracle called UMA (Universal Market Access), a blockchain system that resolves disputes through token voting. Once an event is resolved, smart contracts automatically distribute the winnings to the winning shareholders.

Blockchain-based applications are not without their flaws. In June of this year, Polymarket bettors wagered over $1 million on whether former President Donald Trump's 18-year-old son Barron Trump was involved in the launch of the memecoin DJT (which stands for the former president's initials), with the coin's self-reported market cap around $80 million. Initially, the market assigned a 60% chance of Barron's involvement, but as evidence was lacking, that probability quickly dropped.

Ultimately, UMA's voters determined that the market supported those who believed Barron was not involved. Nevertheless, Polymarket intervened and challenged the voting results, ultimately overturning UMA's decision, claiming that Barron Trump was "somehow" involved in the event. The site eventually refunded the money lost on the "yes" side contracts.

"Some people dismiss prediction markets because of such events," said Nick Tomaimo, an investor in Polymarket and founder and general partner of crypto investment firm 1Confirmation, on the Unchained podcast. "I think that idea is foolish because these issues are still being worked out."

The surge in trading volume related to elections on Polymarket is not merely a matter of timing. According to Art Malkov, Polymarket's Chief Marketing Officer and co-founder of influencer marketing platform Lever.io, the company has invested heavily in influencer marketing, including collaborations with the Reddit channel WallStreetBets, which has helped Polymarket gain traction among retail investors.

Coplan leads a team of about 30 people who gather user suggestions globally and search the internet for trending topics that can be converted into betting markets. Currently, there are over 300 markets on Polymarket, divided into 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 George Mason University economics professor Robin Hanson, who is known for proposing the concept of "futarchy," a form of governance based on decision-making through betting markets.

Polymarket does not charge fees, and Coplan remains vague about how the platform will generate revenue, hinting that fees may be introduced in the future. He said, "We are currently focused on scaling the market and providing the best user experience. We will look at profitability later."

Despite the lack of revenue, there are still some issues with Polymarket's trading volume sources, but young Shayne Coplan has become a darling of Silicon Valley. Billionaire venture capitalist Tim Draper described him in written comments to Forbes as "dynamic and talented." Tom Schmidt, a general partner at crypto investment firm Dragonfly, added, "Using 'tenacious' to describe an entrepreneur feels a bit outdated, but for Shayne, it's completely true. It takes real courage, passion, and vision to spend years building Polymarket like Shayne has… but those qualities are exactly what it takes to create a great company of a generation." Ethereum co-founder Vitalik Buterin has also personally invested in and publicly promoted Polymarket on social media.

"Shayne is a young man eager to get things done, but he is eager to do them right," said Chris Giancarlo, former CFTC chairman and chair of Polymarket's advisory board. The advisory board recently added election prediction expert Nate Silver. Giancarlo also noted, "There is a generational factor in Polymarket's success story. The older generation in America has not seen such event markets in Europe, and I think they may not fully understand this value proposition, but younger people are not deterred from participating in these markets by the advice of the older generation."

The history of prediction markets dates back to the 16th century when Europeans sometimes bet on the successors of popes. In the late 19th century, prediction markets thrived as "speculation houses" where people bet on stock prices. Over time, with the rise of the internet, these markets evolved into more complex platforms. In the late 1980s, the Tippie College of Business at the University of Iowa began experimenting with political stock markets through its Iowa Electronic Markets. The platform allowed users to make 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, and prediction markets have thus faced legal challenges. Because they resemble futures contracts, these markets are regulated by the Commodity Futures Trading Commission (CFTC). In January 2022, the CFTC ordered Polymarket to pay a $1.4 million civil penalty for operating without registration in the U.S. As part of the settlement, the company agreed to cease operations in the U.S. while continuing to operate abroad.

Technically, U.S. users are not allowed to bet on the site, but according to Similarweb data, 25% of Polymarket's website visitors come from the U.S. Following the U.S. are Canada at 6.3%, the Netherlands at 6%, Vietnam at 5.9%, and Mexico at 5%. Before reaching a settlement with the CFTC, the U.S. traffic share ranged from 34% to 54%. Coplan did not comment on Polymarket's geographic blocking measures, although a former employee who requested anonymity told Forbes that the company "does everything possible to deter users who should not be trading on the platform." However, workaround methods, including the use of virtual private networks (VPNs), may explain some U.S. users' activity on Polymarket.

Competitor PredictIt has been operating in the U.S. since 2014, collaborating with Victoria University in Wellington, New Zealand, and operating under the CFTC's "no-action" letter, allowing it to exist as a "data collection tool for academic researchers." PredictIt also allows betting on U.S. elections, currently assigning Trump a 52% chance of winning and Kamala Harris a 49% chance. It charges a 10% fee on profits and limits the investment amount in any single contract to a maximum of $850, resulting in trading volumes far below Polymarket: currently, $31 million is bet on election outcomes, while Polymarket has $446 million. In August 2022, the CFTC withdrew the "no-action" letter and ordered PredictIt to cease operations; the market continues to operate and is challenging this decision in court. Its clearinghouse, Aristotle, is also seeking to register a fully regulated venue. PredictIt's founder and CEO John Aristotle Phillips stated, "We have operated legally in the U.S. for 10 years under no-action and expect to continue for another 10 years or more."

Another competitor is Kalshi, which is regulated by the CFTC and cannot offer election betting but provides betting on government-related events, such as Federal Reserve interest rate decisions. The platform charges small fees based on the maximum potential payout of contracts and the implied probability of achieving those payouts. Kalshi's CEO Tarek Mansour stated in comments to Forbes, "Kalshi is focused on continuing to build a legitimate and regulated prediction market in the U.S."

More restrictions may be on the horizon. In May, the Commodity Futures Trading Commission (CFTC) proposed banning contracts related to political contests, award shows, or sporting events, arguing that they "contravene the public interest." In response to a request for comment from Forbes, the CFTC referenced its settlement agreement with Polymarket and stated that the comment period for the rule proposal would end on August 8.

However, on June 28, the Supreme Court ruled against federal agency regulations regarding fishing vessels in the case of Loper Bright Enterprises v. Raimondo, effectively overturning the so-called "Chevron deference" principle. This principle had allowed federal agencies to enforce regulations based on their own interpretations of sometimes ambiguous laws. As a result, the authority of agencies like the SEC and CFTC will face challenges. This could provide a significant boost to prediction markets like Polymarket that are under pressure from the CFTC.

Giancarlo stated, "I believe that, in the long run, event markets will trend toward acceptance."

A major question for Polymarket's future is how to maintain its trading volume and momentum after November 2024. Coplan and his supporters seem unconcerned about this. Bhargava of General Catalyst wrote, "Indeed, trading volume is often driven by events like elections, but there are always significant events occurring, and in an increasingly turbulent world, that may be even more so. Another driver of sustained growth is a group of people eager to predict and observe the genuine thoughts of others, which is a challenge on traditional social media and even more so in generative AI, where a large amount of inaccurate content is produced without consequences."

Given the low barriers to entry in cryptocurrency, competition will be another significant challenge for Polymarket. Memecoins like DJT have already emerged as alternatives to prediction markets. This space has also attracted brokers, such as billionaire Thomas Peterffy's Interactive Brokers, which recently announced the launch of ForecastEx, a prediction market based on significant economic data releases, offering contracts on things like the U.S. federal funds target rate and the U.S. consumer price index. In April, billionaire Jeff Yass's trading firm Susquehanna International established a dedicated team to build markets on Polymarket's competitor Kalshi.

Despite facing competition from traditional finance, Dragonfly's Schmidt is confident in Coplan's ability to build a lasting prediction market. He said, "Ultimately, Polymarket's ability to allow a creator ecosystem to create new markets is its secret weapon, something traditional financial competitors cannot easily replicate. Think of YouTube, not television."