Something interesting – perhaps even profound – has been brewing in a corner of the crypto universe and will soon pop into public view. It is as old as civilisation, and it satisfies our insatiable appetite to predict future events. It is now happening on the blockchain, and that changes everything.
It is called prediction markets.
In its simplest form, a prediction market is a venue where strangers can make predictions on future events – and bet on them. They’ve been around for hundreds of years (if you lived in 16th-century Italy, you could have wagered on who would be the next pope). But blockchain-based prediction markets started appearing about five years ago, and the biggest of them by far is called Polymarket, where you can place a bet on just about anything.
Since launching in 2020, Polymarket has grown from nothing to about $1bn in monthly volume and boasts roughly 300,000 active traders – or gamblers, if you like. Therein lies a regulatory battlefield.
On October 7, ICE (the parent company of the New York Stock Exchange) said it would invest up to $2bn in Polymarket, the largest blockchain-based prediction market. The deal reportedly values the company at about $8bn-$9bn. Let that settle for a moment – we’ll come back to this startling announcement later.
Let’s start with how it works. Anyone can “create” a bet on anything imaginable: that Apple’s share price will rise 15% before Christmas; that Taylor Swift will enter rehab before next winter; that the Ukraine-Russia conflict will end by February; that Trump will die before his term is up; that someone will use a nuclear weapon next year.
Punters who are so moved then commit funds – in this case, stablecoins, because this is the cryptoverse – and wait for others to enter the bet, either agreeing with the original prediction or taking the other side. The smart contract holds funds securely, adjusts odds automatically in real time, and pays winnings into wallets instantly when the event is resolved.
How does the blockchain help?
First, the custody of funds is 100% secure – that’s what blockchains do. The way odds are calculated is open source for anyone to inspect. The bet is lodged in milliseconds. There are no brokers to extract fees. The interface is simple and idiot proof. And there are no forms to fill in – just connect your wallet and bet. No-one knows who you are.
Crucially, this anonymity has allowed Polymarket (so far) to avoid regulation altogether, largely by excluding the US and its citizens, where know-your-customer laws are strict.
Two things quickly emerged from these technologically driven prediction markets.
The first is an enormous untapped appetite for bets not easily found elsewhere – like Taylor Swift’s engagement date, which racked up $1m in wagers on Polymarket. These celebrity bets are probably great opportunities for insiders with privileged knowledge, but this is unregulated territory – and there’s no-one to sue if Taylor’s mother profited because she knew the date (there’s no indication that this happened).
The second is that predictions in some categories exceeded those of experts, delighting the “wisdom-of-crowds” camp. Most notably, Polymarket called the Trump election nine hours earlier than traditional news outlets. The theory is that “wisdom” is dispersed across large, anonymous crowds, making their aggregated view as good as, or sometimes better than, traditional expertise.
And so we return to the ICE deal – the acquisition of Polymarket by the NYSE’s parent, a tightly regulated US entity. Sadly for some, the deal will likely defang Polymarket’s most entertaining categories. Why? Because it will bring Polymarket under regulatory scrutiny, which won’t allow trading on politics, elections, disasters, cultural memes, assassinations, deaths, celebrity trials or criminal cases. Talk about a killjoy.
So what’s left?
Sports. There’s now a way for sports betting to be made kosher for regulators – and this market is both vast and growing fast. In the US alone, it has expanded from $5bn to $140bn in bets placed in just seven years – a 60% compound annual growth rate, with double-digit growth expected to continue through 2030.
That’s not all ICE is getting. It also acquires the data streams, analytics and probability engines that can be resold to a wide range of clients. In essence, it’s buying a gambling company, stripping out the betting part, and pivoting the underlying intellectual property to new markets – not to mention dipping its toes into the world of blockchains and tokenisation.
This leaves a gaping hole in the unregulated crypto prediction market, to be filled by competitors such as Augur and Gnosis, both of which have been around for years, with mature and battle-tested platforms.
So, if you want to bet on the first AI-composed Grammy award winner – or take a punt on the date of The Rapture – you’ll still find plenty of places to do it.
Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg and a partner at Bridge Capital.
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