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Polymarket raid ⚖️ What's next?
The future is uncertain for prediction markets.
Happy Monday! Jo here.
The raid on the New York home of Polymarket CEO Shayne Coplan is just the beginning.
Prediction markets like Polymarket face an uncertain future, as regulators worry they’re primed for manipulation and a danger to Americans.
It’s the CFTC, you see
In 2020, when Polymarket was founded, the platform ran into trouble with the authorities almost from the start.
The Commodity Futures Trading Commission worried that Polymarket wasn’t registered with the regulator, but seemed to be offering gambling via derivatives called “events contracts” — another word for prediction markets.
In one 2020 email to then-CFTC Chair Brian Quintenz, a staffer complains about a Polymarket billboard erected in Manhattan.
“This flagrant, outrageous marketing and advertising of this illegal platform is disturbing and appears to be escalating,” they write in the email, which was obtained by DL News’ Ben Weiss in a public records request.
In 2022, Polymarket settled with the CFTC, paying $1.4 million in penalties and promising to bar US residents from betting on its platform.
Supercharged success
Fast-forward to 2024, and election betting has supercharged Polymarket, which is now hailed as a crypto success story.
Ahead of November, bets on presidential and Congressional races racked up $3.7 billion of volume on the platform.
Polymarket says it doesn’t allow Americans to bet on the exchange, and checks users to ensure they’re not using VPNs, a tool used to obfuscate users’ location.
However, some of Polymarket’s most prolific users are American. Take Las Vegas-based user Domer, for example, who made north of $700,00 on the platform before losing out in a bad election bet.
The Treasury Department is reportedly investigating Polymarket for accepting trades from US-based users.
The raid
That might have something to do with why Coplan’s home was raided last week.
Coplan framed the raid as “a last-ditch effort” by the current administration “to go after companies they deem to be associated with political opponents.” Polymarket bettors favoured Trump from the get-go.
Other crypto figureheads jumped in. Coinbase CEO Brian Armstrong retweeted Coplan, adding in a since-deleted post that the feds “just made Polymarket even more powerful.”
But context suggests the raid might be more about regulators’ fears of market manipulation on these platforms.
More than Biden
A Fortune report, for example, found that Polymarket is rife with fake “wash” trading.
In May, the CFTC proposed to ban prediction markets.
It said at the time that betting on the outcomes of events like terrorism or war is morally offensive.
And these markets could incentivise people to try to influence the outcome of events by throwing sports matches or even assassinating a president, the CFTC said.
The CFTC has also battled other event contract exchanges like Kalshi and PredictIt in court.
In France too, regulators are probing Polymarket.
So Polymarket’s issues are almost certainly more complex than regulatory overreach by the Biden administration.
Reach out to me at [email protected].
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