There’s always this thing that happens in the midst of change where those unable to dream or imagine the future decide to focus on the worst of any given topic or trend. It’s clear, to anyone with deep expertise and experience in capital markets, that the future of prediction markets is broad, a societal benefit, and EV positive to the collective. No one in involved in these companies, whether as operators, investors, or regulators believe that the current state of PMs is the end state. Everyone is actively working to build better market structure, better information distribution, and better opportunities for businesses to manage risk. This is where the world is going. Chair Selig has been incredibly innovative in his thinking on the future of markets. The investors are all focused on helping back truth machines. And the operators are working to make all areas of the economy more efficient. It’s so easy to be myopic when you view your role in life to simply be a critic. And negativity is always easier than positivity. But maybe stop and think about the future for a moment, look at the work that is being done, and try to imagine a world where most people are working to make it better than the one we live in today. And even among the sports markets, you might not like the proliferation of the financialization of sports, but it’s also undoubtedly clear these swaps are better for the consumer than the sportsbooks themselves. And I’ve seen real, large 9 figures trades among corporations hedging business risk using sports markets. There is little incentive for most people to do anything but focus on the most negative and most myopic perspectives, but when you zoom out you realize that the future is bright, and most people are working to make it brighter. And that’s the world I want to live in - one where the innovators are given the benefit of the doubt and the leeway to innovate.
Prediction Markets Are a Bad Bet Silicon Valley’s era-defining technologies often sit on a razor’s edge between utopian and dystopian. The sharing economy promised communal exchange at the tap of a smart phone — or risking it all by jumping in a stranger’s car, or trusting others to deliver. (It largely ended up being more banal: convenient, smartphone-enhanced regulatory arbitrage.) AI is giving everyone a genius at their fingertips — or creating a super-intelligence that will put us out of jobs and maybe destroy the world. Juul was a way for cigarette addicts to get off the hard stuff and do something safer — until it became clear it was instead another gateway to addiction, creating a generation of young vape fiends. Similarly, prediction markets seemed to promise opportunity and insight, a new way to see into the future thanks to the genius of the crowd. But quickly the reality has set in: Kalshi and Polymarket, which dominate the industry, are primarily places to gamble on sports. Some 80 percent of the trading volume on market leader Kalshi is sports betting. On top of that, a host of deeply problematic issues have arisen around wagering on events where motivated people can potentially game the results. As these companies raise more and more money — just this week, Kalshi was reported to be raising at a $40 billion valuation and Polymarket was said to be doing the same at $20 billion — Silicon Valley has to ask itself: if this is really the world that it wants to build? At a moment when there are so many genuinely revolutionary AI companies getting marked up at lightning speed, why spend energy getting young men to waste more and more of their time and money on gambling? There is a world in which Kalshi and Polymarket and the fleet of emerging rivals serve as truth machines for discerning the wisdom of crowds, and markets for hedging various sorts of risk. That is not our world. The reality is that the main business of prediction markets is deregulated sports betting, essentially a workaround to state gaming laws that mostly bar wagering by anyone under 21, and ban it entirely in 11 states. This is legal thanks to the efforts of Michael Selig, the crypto and prediction industry lawyer whom President Trump named to head the Commodity Futures Trading Commission (CFTC). Selig insists, implausibly but with the power of the government behind him, that the ability of American businesses to freely hedge their risks requires that Washington override all state regulation of sports betting. Selig this week invoked the CFTC’s emergency powers to block legal efforts by the state of New York to ban Kalshi for violating the state’s gambling laws, the latest skirmish in a nationwide fight. It’s hard to ignore the fact that the industry enjoying such sweetheart regulatory treatment features a highly unusual arrangement where Kalshi and Polymarket, otherwise fierce rivals, both count Donald Trump Jr. as a close advisor (and in the case of Polymarket, the president’s son is also an investor through his 1789 Capital fund). People have already taken hairdryers to thermometers to win prediction market wagers, which is funny-not-funny in the context of betting on military maneuvers, or wildfires, or flight cancellations. Insider trading of various sorts appears to be rampant on the platforms, despite belated clean-up efforts. As with crypto, prediction markets are fun sandboxes for experimenting with financial structures and trading strategies and theoretically could yield some social goods. Theoretically is the operative word here though. It’s hard to see how the current anything-goes national regulatory regime could survive a Democratic administration, or even a non-Trump Republican one. Regardless, let’s not wait for the horror stories about broke young families or people dying for someone’s parlay. There are plenty of reasons to think twice before joining the prediction market party. From me & @WeberWest in @NewcomerMedia
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