The Rise of Prediction Markets

This episode offers two looks at prediction markets. In the first half of the show, Kalshi CEO Tarek Mansour joins Motley Fool host Ricky Mulvey to discuss:

• What he learned about Kalshi from this past election.
• The difference between an events contract and gambling.
• How prediction markets could disrupt sports betting.

Then, New York Magazine features writer Jen Wieczner joins Motley Fool host Mary Long to discuss her reporting on the billion-dollar betting platform Polymarket, and its legal challenges in the United States.

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A full transcript is below.

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This video was recorded on April 26, 2025

Tarek Mansour: But the important thing here is that these prediction markets are not a crystal ball, they're not almighty. But they're as close as it gets. They're the best way to forecast the future because of this skin in the game aspect. People don't lie when their money is involved.

Ricky Mulvey: I'm Ricky Mulvey, and that's Kalshi CEO and co-founder Tarek Mansour. On today's show, we're taking two looks at prediction markets, one from a leader in the industry, and another from a journalist telling its story. In the first part, Mansour spoke with me about how prediction markets can differ from gambling, and his platform is a source of truth.

A basic question for you, but one that I think is important to your company and for our listeners understanding, Kalshi, what is the difference between an event contract and a bet?

Tarek Mansour: That's a great question. Obviously, we get asked this a lot, and it's one of the central questions around prediction markets. And the way I like to answer a question usually is in some ways, to outline that this question has been consistently asked whenever it came to taking new financial markets mainstream. People are not familiar with this, but when grain futures first came to the US, there was a question. There was actually a Supreme Court decision about whether these are gambling or not. Are these bets or are they not? The answer where the Supreme Court landed was, sure, there's a lot of people that are speculating on these markets, so speculation is a form of betting, it's similar in many ways. But these markets have economic utility beyond that speculative activity. That's what makes them extremely important and makes them a financial instrument rather than a bet.

A simpler way to even think about that is, and I like to think about this in that different frame, which is there are two types of risks, artificial risks and natural risk. Now, artificial risk is a risk that you create for the purpose of speculating on it. So it's like rolling a dice or doing a roulette spin. Speculating on that or betting on that doesn't have really any utility outside of that betting activity itself. But something like, will Brexit happen or not? That's a natural risk. That's going to happen and impacts people in many ways, beyond whether you have a bet or speculative activity on it or not. An event contract on Brexit would be something that would qualify as a financial instrument. That's a really different thing from obviously, speculating on a die roll.

Ricky Mulvey: Let's get into the sports because your platform now offers, March Madness is still going on at the time of this recording, not when it's being released. What is the economic utility of an event contracts for the outcome of a sporting event?

Tarek Mansour: Just to take a step back. We have Kalshi markets on a very broad range of things, so politics, economics, weather, COVID and health, science, and recently entered sports. Our entry to sports was due to massive customer demand, both retail and institutional customers are in Kalshi today. Obviously, there is an industry the sports books and other that offer markets where you go and trade or bet against the house. Our market is different, and the difference is here, for any of our other event contracts or prediction markets, it's like a financial market. It's like a stock market where people are buying and selling these shares where the event is happening or not. The types of events we focused on, so for example who's going to win the Super Bowl or these title events, these are big events that have massive economic ramifications, both economic and social ramifications to the teams, the things around the teams like the cities, the towns, localities around them. You've seen there's a bunch of reports that came out. The Eagles won. That has drastic economic impact on the city, on the teams, and so on and so forth.

You see, there's massive amounts of money that are being invested on these leagues and these games and sports these days. It's a massive industry. That's not just a game. Those people could basically be taking a position to increase our volatility or hedge their volatility against a bad outcome, which is their team losing. The other thing that's really important is that people care. One of the functions of financial markets, a bit like going back to the grain futures argument, was this notion of price basing or basically figuring out what the pricing or the forecast of something is. At the time farmers needed to know what the future price of grain was going to be. The beauty of our markets and prediction markets, they give you a price, which is a forecast of whether event is going to happen or not, which can enable people to make better decisions, figure out where they should invest, and rely on a market based forecast rather than pundits saying different things.

Ricky Mulvey: I am rooting for your platform to dramatically disrupt the sports betting market, and I think it will. I think it's an interesting case to be made, especially for economic utility. If let's say the Cincinnati Bengals win the Super Bowl next year, there's an economic impact on that city, and I think that argument is pretty strong. If you look at something happening this weekend, there's a UFC featherweight title fight that's also on your platform, Alex Volkanovski versus Diego Lopez. Volkanovski's from Australia, so if he wins, there's an economic impact for Australia when you have the title coming back to that country. When you think about the future of your platform, though, let's go deeper, do you see that going across all sports? Because I think that's a strong argument for a title fight. But the first fight on the preliminary card, is that something that you expect to see in the future for calls? Do you expect to see the wide range of sports betting options that one can find on DraftKings and FanDuel, you planning on sticking to those high impact events?

Tarek Mansour: The general answer to what you're asking me, do I expect this to look like a traditional sportsbook? The answer is no. It probably won't look like a traditional sportsbook because there are key differences. Some are regulatory and they're very critical and others are even in the business model. I'll start with the business model. You've seen so our market benefits from concentration. You need these big events that a lot of people care about or have economic or social impact toward that concentrates volume and liquidity. Our business gets better and better with more volume, more liquidity. The reason is because we don't take bets against the customers. That's not how we make money. So for us, we need large sums of volumes to make money based on our small transaction fees that we take. You might have seen some of the results for example, in March Madness, and I was looking at some of the reporting, our platform within two months of launch is actually one of the large players already in the industry in terms of volume traded through the platform. Our markets really benefit from volume.

As a rule of thumb, then it makes more sense for us to concentrate as a business rather than have all this long tale of different things that you can get exposed to or bet on traditional sportsbooks. Again, because we don't make money off of someone losing a bet to us. That's just not how it works. From a regulatory perspective, we need to focus on markets that they have to satisfy number of core principles are extremely heavily regulated. There's 23 core principles we have to abide by. But two that are very relevant here. One is around the markets have to have economic relevance. If a market is totally doesn't have any impact or people don't really care about it or whether it goes one way or the other, doesn't matter in any way, shape, or form to anybody, then it's harder for us to do and doesn't really fit in our model. Number 2 is they have to be not readily susceptible to manipulation, which is another really key thing that we think about. When you think about designing a marketplace that has market integrity and fairness, you have to put up things that are not easily manipulable, where, for example, a player decides to do something, even if the economic gain is very limited, they could still do it because it's very easy to do it. Those are the two things that we think about that make us really fundamentally different from what you would see in a traditional sportsbook.

Ricky Mulvey: We'll stay on manipulability, the ability to manipulate a market. Because I want to get to the visibility in your market in a second, which I think is incredibly important and groundbreaking, really, what you're doing for retail speculators. But the ability to manipulate things, one of the things you can bet on is whether or not someone will say a word. What Caroline Levitt will say at a Trump press conference, whether or not the CEO of Netflix will say gaming in the next earnings call, to me, that's the thing where I wonder if that can be manipulated. Let's say I'm an investment analyst who's going to be on the Netflix earnings call, and I place a bet on gaming. I don't hear it in the comments uptop, but I've got a bet on gaming, so that's going to inform what question I ask the CEO at the bottom. For manipulating in sports, that's one where we'll use the UFC example. There's consequences beyond the bet to manipulating a fight. If someone loses a fight, there are physical and career consequences for that. But if I'm an investment analyst and I'm just like I'm going to ask this question about gaming, that seems almost like a harmless manipulation outside of the prediction market. So how are you thinking about manipulation, especially with what word will someone say in a press conference?

Tarek Mansour: Totally. I think that's a great question. I will say it's a few things to think about here. One is, the rules around Kalshi and the way that it's structure is very similar to a traditional financial market. A very simple analogy is the stock market. If people trade based on insider information or you're trying to manipulate a stock for the purpose of gain, that is actually illegal and there's a whole suite of systems in the New York Stock change and NASDAQ and so on and so forth that have been built over the years to flag this type of activity, figure out who did it, and then you can prosecute these people appropriately. It's the same exact thing on Kalshi. We have developed over the years, and that was a big thing. You might know some of the history of the company. We spent three years getting regulated upfront so that we can be legal, and today, we're the only legal broad prediction market in the US, with the CFT to develop some of these systems to figure out how do we preserve market integrity and make sure that these types of activities are not happening. A few things.

First, we KYC everybody so we know who's trading on the product, we know everything about them. Second, all the trades go through our surveillance systems that flag any unusual patterns or patterns of erratic or statistically weird behaviors. Then those go to our investigation team that runs investigations, and these are happening every hour every day. We have a whole team that basically does these. If we flag someone doing something like this, they can be prosecuted from a fine all the way to criminal prosecution. These are same as typical what'd see in traditional financial markets. My answer to this at a high level is, this is pretty much on par with that investment analyst trying to manipulate a stock by asking a certain question or saying something on that earnings call. So that person, if they did that, they wouldn't be allowed to take a trade. Even if they tried to come up with some smart scheme, if the money is sizable enough if it matters, we're probably going to find it, and they're going to be prosecuted. That would be a crime. Different markets have different susceptibility to manipulation, but earnings calls have quite stringent rules around them. Same with the Fed, people ask about the Fed a lot. What Powell will say in a speech, that moves trillions of dollars in the economy. If he's slightly more hawkers than expected or more, that's why the Powell script is very well scripted beforehand, and there's rules around it because if someone leaks it before to the bond market or other, you're not going to have drastic move before the speech. I think it's very similar.

Ricky Mulvey: One of the things I really appreciate about your market is the visibility into what's going on. You can see trading volume for stocks if you go on Schwab, that kind of thing. But especially on the speculation side, for something like a March Madness game, DraftKings is not listing the betting volume for each game, whereas your platform, it does. Your platform also, you can see what people are betting on, you can see the live trade order flow, which is also something for stock markets. That's something that is not available to retail participants. I'll ask you some hard questions. I'll throw you some flowers. What's your philosophy on making these markets visible to the retail participants? Why is it important to you to make basically all of your markets visible to everybody on your platform?

Tarek Mansour: Absolutely. One comment on the hard questions, please keep them coming, I love the hard questions in some ways. A new type of financial innovation should and needs to be met with some degree of healthy skepticism, and that healthy skepticism is the thing that pushes us to improve over time. There's this nice feedback loop that improves these financial markets to get to the study state they should get to. I've always been a fan of these types of debates, and hopefully you'll throw more at me. This is a great point. Transparency has been a very core piece of the mission and the vision for prediction markets. That's the whole point. We want a market based mechanism to price the future. We don't want the pricing to be a book. We don't want the pricing to be an analyst or a pundit or one single market maker or so on and so forth. We want it to be this wisdom of the crowds aspect. We bring a variety of people with diverse opinions. Some of them may be from Wall Street, but actually on Kalshi, a lot of them are not the top hedge fund manager, and the topper's retail individuals that love reading the news, know a lot about politics and feel like they don't have an edge in traditional financial markets because the large hedge funds have all the edge and all the asymmetric information. Whereas on Kalshi, information is equal.

That's a very big part of this. We want everything to be out there. The price at any point in time, how the price comes to be, who's trading where? If you open Kalshi right now on the masters or on our economic or any of our markets, you see the live trades, as you mentioned. Who's trading what? What is the size that's going on either side? We don't want anyone to pay for that. That's open source. It's free. You can access, even if you're not a member of the product. This is really in vain with creating a level playing field where anyone can beat anyone else, if they're looking to do research to get smart about the future and be better. It will give you one anecdote about this. This is something that really makes us really happy at the company, these types of anecdotes about our customers, which is I always tell people, Kalshi has been the most accurate forecast for politics. We saw it at the election, economic inflation and so on and so forth. I've been asking people, guess who has been the best inflation forecaster, who has the best ROI, return on investment on our inflation markets in the last 2-3 years. People come and guess, and we have some hedge funds on the product and market makers and really institutional players.

They usually gets some of those typical players. But actually, the answer is it's a random dude from Kansas, never traded financial markets before, doesn't trade options. This person is an avid news reader, reads the news every day, likes to be engaged with what's going on with the economy, what's going on with geopolitics, what's going on with a variety of different things. They ended up being pretty sharp where the economy is heading. Those are types of people that are making real money. Now it's their full time job on Kalshi. If we weren't transparent, if there wasn't extreme transparency to the platform or you're trading against other people and you can see everything out in the open, it'd be harder for these people to beat the books or the traditional hedge funds, which is counter to what we're trying to build.

Ricky Mulvey: If this gentleman in Kansas is available for podcasts, our email is podcasts@fool.com. Hope he has an external microphone. We'd be very curious to talk to him about the macro economy if he's truly the best on your platform. There was a fundamental event for Kalshi and that was the presidential election. That was where you got the most attention on your platform, and it was groundbreaking where you were the first legal market in the United States where people could bet on the election. Now that we're a few months past that, even though it feels like a lifetime ago, what did you learn about your market in speculative behavior from the 2024 presidential election?

Tarek Mansour: A few things that led us to the election. The history of Kalshi is we first spent three years upfront getting regulated by the federal government to get a license from the Commodity Futures Trading Commission to operate the first derivatives exchange that can list prediction markets legally in the US. Then we operated for a while. We wanted to list the election market, but our regulator believe that we should not list it and blocked us from listing it. We sued our regulator and took them to federal court over this election market, and we won that lawsuit a few weeks before the presidential election last year. Once we won that lawsuit, we legalized election markets, and really a broad suite of prediction markets event contracts in the United States. For reference, election markets have been illegal since the Great Depression, and so we've opened up the ability to trade on the election based on our lawsuit. Once we won that lawsuit, we have grown at an unprecedented rate. It was truly incredible, and I'll give some stats.

We did $2 billion of volume in the span of a month, month and a half after we won, we were Number 1 on the app store overtaking Kalshi, Instagram, TikTok, and a number of other apps. On election day, we were the largest out of all prediction markets by quite a bit, and we got around 500 million unique people visiting our site. That's a substantial chunk of people in the world. What we've seen is, like, first of all, the entire planet really cares about US elections. This might be obvious, but I think now we have real data to prove that. Number 2, there was a period in time around the end of the day where our number of site visits overtook CNN and Fox. That was a sign where people did not know where to look, because if you looked at CNN, they were saying one Candida is winning, Harris, and if you looked at Fox, they were saying that Trump is winning, and people didn't know where to look. They came to us the prediction markets where people have their money where their mouth is to figure out who's winning and what was going on. That was really incredible. It was amazing because it worked. I don't know if you saw the announcement. We announced Don Jr. joining as an advisor in January, and a big part of why ended up being rallied about the mission, and he tweeted about this was how in Mar-a-Lago, they were using the app and the site and they were looking at the odds for figuring out who was going to win.

We've come a long way, this was a niche Internet thing to now being totally mainstream and people are using it normally. But it worked and people were saying that these markets were biased or manipulated, and so on. But actually, you saw that the polls were all at 50/50, and Kalshi and other prediction markets were at 62, 63%. The prediction markets were right. I think now there's this moment where people realize, like, we should embrace this technology. It's working. It's being used, and I've talked about this, like Doge and Elon Musk uses our markets to inform how much they're going to be cutting in federal spending. Fed and others are pulling our market data to figure out how to influence economic and government policy over time, same with institutions and businesses. But the important thing here is that these prediction markets are not a crystalbll. They're not Almighty. But they're as close as it gets. They're the best way to forecast the future because of this skin in the game aspect. The people don't lie when their money is involved.

Ricky Mulvey: I don't begrudge any financial institution for lobbying or trying to get close to politics. You mentioned Donald Trump Jr. as a strategic advisor. What strategy is he advising you on? What are those conversations like right now?

Tarek Mansour: I think people always mention things like lobbying and other, look, we're not a partisan company. Like, that's very important to understand. We have Democrats and Republicans involved with the company, both at the board level and obviously in the company itself. What we are is we're believers in the mission that we're focused on. Anyone that agrees with that mission, I think we would welcome them and we'd hope for them to come and help us. That's true for both sides of the aisle. I think it specifically when it comes to Don Jr., it's Don and actually, the Trump family for a decade now have been big fans of going direct. Talking to people directly. Twitter is obviously a big part of it, Truth Social, and so on. Part of it is like generally, the media has been pretty adverse to Trump. The intermediaries didn't really work out for them, so they had to go direct and talk directly to the people. X was a big vehicle for that. I think of prediction markets are being very complimentary to that, which is being directly involved with the people and the wisdom of the crowd or decentralization of news. Like, you go on X to get news from people, not from an authority or an institution, like a newspaper.

You go to prediction markets to get news about the future from people, from markets. I think these two gel very well together. Don has been pretty big fan for prediction markets. Obviously, they went mainstream at the end of the year that's heightened the interest, advising us all things go to market. We're expanding to new jurisdiction, the new types of markets that may be actually useful and may help us educate. This is going very mainstream. Now we have millions of customers. Like, how do we take it to the next 100 million customer? I think he's been very helpful with that over the last few months.

Ricky Mulvey: You talked about going direct to market. I think your platform is incredibly useful for things like odds of a recession. People have to put their money where their mouth is. It's not just opinions from an economist. We talked about the election. There's stories that can be told within your platform. Right now, Kamala Harris and Stephen A. Smith have the same percent chance on your market of being the 2028 Democratic nominee. I know you've talked about the TikTok ban before. When you look at the chart of that on your platform, up and down the volatility in that, even the Jeff Epstein files getting released, you can see people's belief wavering going up and down. Is there a story from your market that you find yourself thinking about a lot?

Tarek Mansour: There's so much interest around a variety of different things, and each market, and you might have seen this, there's a Kalshi idea section below the market, which is this notion that it's a bit like Twitter, but you can only post if you have a position in the market. It's beautiful because people sometimes they're making jokes and so on, but often they're talking about the analysis behind their positions. Why do I think TikTok is going to get banned? Why do I think that Gavin Newsom has no chance of being a Democratic nominee? I believe that Stephen A. Smith has actually pretty big chance, and I think the odds right now are a buy, and I think the odds are mispriced. The beauty of that is, like, you can actually craft that story from this community that is doing all this research and they're putting money where their mouth is.

Look, I think right now, the story on Kalshi is that there's a lot of volatility, and you see it in the odds. Like, the odds of a recession are moving a lot. The beauty is these markets work. If you trust that these markets work and they are accurate at every point in time. If the odds are constantly moving, so they were at 70%, three days ago, now they're back at 55%. That just tells you that right now there's a lot of volatility and instability in financial markets or really the system more broadly. We see it across politics, geopolitics, economics, financial markets, even things like science and technology. It's like anything is fair game. In some ways, if anyone is on the news right now making these bold assumptions and predictions about exactly what's going to happen, they're probably being over certain and overconfident. They're probably wrong. Our markets are basically showing that volatility today. We'll see what happens. Recession market has been extremely heavily quoted in the last few days. I think it's because people don't know what's going to happen. I think they want to know, like, are we going into recession or not? Right now, the odds are, you might have checked them. I think they're like 55%.

Ricky Mulvey: Above 60?

Tarek Mansour: Oh, 64%? They're back at 64. Oh, wow. They're back up. Two thirds chance of a recession this year.

Ricky Mulvey: The other thing going on, there are people that are not big fans of Kalshi, and that includes casino lobbies. You've gotten cease and desist orders from Nevada, Maryland, Illinois, Montana, New Jersey, Ohio. I understand the arguments that you're not a gambling pool because you're not trading against a casino, you're trading against other players, so it's a little bit different. But just broadly, what's it like going up against a casino lobby? What's that experience like for you?

Tarek Mansour: Look, I don't think of it that way. There's a lot of headlines, a lot of news. The thing I say sometimes, like, don't trust the news too much. Like, the news loves to create these duels and fights and this tension because news is tension. You want to see what's happening in the background and so on. Actually, a lot of the operators, we're having a lot of very constructive dialogues with them. You see we have kalshi.com, Kalshi direct, where people go to Kalshi directly and become members of the exchange, and they trade with us. But the traditional go to market for exchanges, like the New York Stock Exchange or CME, is you don't go to CME or New York Stock Exchange to buy an option or a stock. You go to Schwab and Robin that's where you go. You go to your financial broker. Right now, we're launching brokers, so we've launched Robinhood and we have something like 10-12 brokers in the pipeline today, and that's going to be a big part of our go to market for a year, and that can and will include a lot of the sports operators that want to get into a financial market offering or a prediction market offering that will be powered by Kalshi. In many ways, what people are viewing as this very conflictual competition is actually much more complimentary and looks a lot more like a partnership than people are like, thinking about.

Because people are thinking, like, the prediction market offering is not actually that competitive player props and all these different things that the books usually do and definitely not a casino, which is what casinos really do. Our offering really have nothing to do with that. But it's much more of a compliment, like, could we provide odds to the participants in those products, and could there be just much more of a healthier merger? I think a lot of operators in the space see that, and that's why they're talking to us and working on partnerships with us and so on and so forth. I think the premise is not quite right. Yes, so we do have some lawsuits right now in some of the states that believe that they have jurisdiction over this, and you might have seen the federal court in Las Vegas and Nevada ruling against Nevada in this first step or ruling in favor of our preliminary injunction because our message has been very clear. Like, financial markets are regulated at the federal level. You can trade stocks anywhere in the US because it's regulated at the federal level. If it's a state one day bans trading stocks, you can still trade stocks in a state because that's how the constitution and the law works. It's a similar thing for anything that an exchange, what we call a DCM, which is what we all does at the CFTC level.

Ricky Mulvey: I understand constructive dialogue, but also you got casino lobbies selling you cease and desist letters, which is usually not a let's keep talking kind of thing. If I understand, you're offering something different from the sports books and the casinos.

Tarek Mansour: Look, my point wasn't about everyone. I think anything new that's disrupting a potential, like, a mechanism or industry and so on, obviously, we'll come as always, a healthy degree of skepticism. I'm not saying that this is everybody in the industry. I think there's a lot in the industry that I think are looking to partner and work constructively. We want to work with anyone, anyone that's willing to partner and work with us. Then some that maybe are more resistant and are still figuring out what they want to do with this. To be clear, we didn't receive any cease and desist from casinos or rather, we received from states, which is they're not the same parties, so that's important to flag here. Again, not everybody, but, hopefully, over time, we'll rally more and more. I think the pie of people that are basically getting excited about this is growing in that industry.

Ricky Mulvey: You also recently announced a partnership with Robinhood. I know it's early days, but how do you expect that to impact activity on your platform? What do you expect Kalshi to do for Robinhood?

Tarek Mansour: Right now we have Robinhood and Webull launching the product. We have around 10-12 other brokerages that are in the process of integrating and hopefully launching sometime this year. Partnership has been extremely successful. The way we see it is very similar. Financial brokers like Robinhood, Schwab, Fidelity, Webull and so on. What they do is they list products that are exchange traded, whether it's stocks or commodities or options, even crypto now more recently. One of the markets our exchange traded today, really, the fastest growing one and the most exciting one is prediction markets because the markets are listed on Kalshi. As a regulated exchange, we no different than New York Stock Exchange or CME, and we over time, are going to put more and more of our prediction markets next to stocks and options in the brokerages so that people can really benefit from this diversity of offerings. Like, I can have my Tesla positions, for example, and I can hedge against Tesla earnings or against the Fed raising interest rates or other types of things that may going on in the world around me in one comprehensive portfolio. We're extremely excited about that direction where this can be heading. The partnership has been extremely successful. We expect and anticipate, quite a few launches in the coming quarters in terms of brokerages, and we're very excited about that part of the business.

Ricky Mulvey: Tarek Mansour, who's the CEO, co-founder of Kalshi. Thank you so much for your time and insight. Appreciate you joining us on Motley Fool Money.

Tarek Mansour: Thanks for having me, Ricky Mulvey, it's awesome. [MUSIC]

Ricky Mulvey: There's another major player in prediction markets. It's called Polymarket. This one runs on crypto and is currently not legal in the United States. Americans have to use a VPN if they want to play on the platform. After the break, New York Magazine features writer Jen Wieczner joins my colleague Mary Long to talk about how Polymarket achieved escape velocity in a crowded field and the chance it'll become legal in the US in the next few years.

Mary Long: Jen Wieczner is a features writer for New York Magazine. Her latest story is a profile on Shayne Coplan, the founder of the prediction market, Polymarket. Jen, to kick us off, I'm going to quote a quote from Coplan that you use in your story. He told you, "The plan is to build something that didn't yet exist and needed to exist that I cared more about than anyone else." That's the end of the quote. This is interesting to me because tech titans like to sell us a lot of stuff that they say we need, but that maybe we don't actually need. Why does Coplan believe Polymarket needs to exist?

Jen Wieczner: It's interesting. I think a lot of people see Polymarket as a betting site, but he doesn't sees it as sort of an alternative source of truth, a potential alternative to news in a way to gain information that isn't readily available in the mainstream news landscape that we have. In other words, this is a way of sourcing information. You could call it crowd sourcing. There have been other attempts to harness the wisdom of the crowds, but nobody has really been able to get it to a mainstream scale where you can actually learn something about what the large part of the world is thinking this critical mass of people. That is what he set out to achieve. How could you tap into the wisdom of the crowds in a way that nobody had yet done, where you could actually glean some real insights and make predictions that were better than pundits or what you would see on TV or hear from the news.

Mary Long: Interestingly, and perhaps importantly, too, Polymarket called the election. Post that win, Coplan posted on X that Polymarket single handedly called the election for anything else. The global truth machine is here powered by the people. This wisdom of the crowds approach is interesting to me. But when I read that, I think, Okay, yes, Polymarket got the election, and I don't want to downplay that. I think there's something compelling about the idea that when you're using prediction markets, you're not betting against the house, you're just putting money on whatever you think the outcome will be. But I'm skeptical if that actually makes it a verifiable truth teller. Is there a running track record of the percentage of bets made on Polymarket, the final outcome that is predicted by the crowds? Then what percentage of those predictions actually turn out to be correct? If it's pitched by Shane as this is the truth, is there a running tab of how often they are actually right?

Jen Wieczner: I have not seen one, like a report card for prediction markets. That would be really useful. I do know that on the ones that really mattered, you know, would Biden drop out of the race huge. Would Sam Altman return as CEO of Open AI after they tried to oust him and who would win the election? They have a very good track record. As do some of the other leading prediction markets such as Kalshi, but Polymarket has kind of made themselves into the gold standard for most things. Notably, everybody got wrong that Beyonce was going to be at the DNC, including Polymarket, which I think is a notable of a funny one of one where they did not get right. But they were still even people who were close to the situation thought that Beyonce was coming, so I give them a little bit of a pass there. But I wish there was something like you're describing.

Mary Long: Who is actually on this platform? Because when I think about it, the image that comes to my mind is, OK, it's mostly regular people, and they're making miscellaneous bets on everything from who wins the presidential election? Will Beyonce be at the Super Bowl to whether Blake Lively and Ryan Reynolds are gonna get a divorce this year. Is there institutional money playing too, or is that, Hey, it's mostly Normis for lack of a better word? Is that pretty accurate?

Jen Wieczner: No, I think probably a large part is, you know, these professional traders, Wall Street types, hedge fund managers. I mean, we even saw the so called French whale, who made a big bet on Donald Trump is an institutional investor. There's a lot of hedge funds that are actually using Polymarket to potentially hedge their own bets as they've put a bet in the stock market that's based on some prediction about something geopolitical or macroeconomic, and they want to hedge that by also putting money on Polymarket, which I think is an interesting trend. I would say, as I talk to people, I hear a lot of people in finance in crypto who are really excited about this. Of course, there's people like me and others who just want to bet on the Oscar's. I do think most of the money is coming from that professional institutional side.

Mary Long: In your conversations with Shane, does the fact that so much of this money is seemingly coming from the institutional side, does that corrupt at all in his mind, this wisdom of the crowd, this democratization of truth concept that he seems really excited about?

Jen Wieczner: Yeah, so I should be clear. I don't know 100% that it's coming from the institution. That's my sense based on who I've been talking to. But I don't think in his mind that it corrupts it. I think, Heath sees this as a platform for everyone, the way that Amazon is a store for everyone. But he has talked about potentially the future business models and how Polymarket which doesn't currently make any money could eventually gather revenue by saying charging hedge funds a fee to list their own markets. And so I think they see this as one avenue, but they wouldn't want to we wouldn't want to limit it to only, you know, professionals.

Mary Long: Thanks for mentioning that Polymarket does not actually make any money at the moment. That was fascinating to me and reading your piece. For those less familiar, Polymarket was the most downloaded free news app on the Apple store this fall, and processed more than $3 billion on the presidential election alone. Despite that, as you write, it's still in world Eating expansionary mode. It does not collect fees. It does not actually make any money at the moment. Do you have a sense of when that might change? You mentioned, Okay, maybe they would turn to hedge funds and not charge the individual person that's going on in betting. But do you have a sense of what the actual business plan might be moving forward?

Jen Wieczner: That's a very good question. Shane was strangely unconcerned about it when I spoke with him. He's not in a rush to make money, I'll put it that way. He really wants to gain growth and mainstream audience and get as many millions of people using Polymarket to make it the most accurate source of predictions before they actually start charging. They could charge everybody a small transaction fee. I feel like he sees it as an easy change to make. When the time comes, you flip a switch. Suddenly, everybody's getting charged a small cut. You charge hedge funds a little bit more, maybe to list their own markets. But basically, you're saying when there is money flowing through, the more money that you have that people are wagering on their own predictions, the easier it's going to be for the business to actually make money just because there's so much money in the ecosystem.

Mary Long: Joey Krug was the founder of a blockchain based backed prediction market that's now since shut down, but he was an early investor in Polymarket. You write in your story that Krug was skeptical of Shane's pitches at first. In fact, he told Shane that prediction markets are one of the hardest types of start ups to build. There are dozens of them, and none of them hit escape velocity. Today, 90% of all prediction market activity happens on Polymarket. It seems to me like it has hit escape velocity. What's the story of how exactly it got there?

Jen Wieczner: I asked a lot of people this question, and what everyone pointed to was just Shane's own determination. He was so determined that he was going to make this work working around the clock. Tweeting sending every single thing he put on Twitter or X to all of his investors to try to gain traction, asking them to make bets, making it happen. I think that's part of it. Another part of it is just branding. They've been made themselves the go to prediction market. They're also available to the whole world rather than just limited to the US as others have been. Then I think they just made it fun. It's very easy to use, even though it's based on crypto, which allows this ease of use, they're not doing some of the know your customer regulatory hurdles that some other platforms do, which allows you to get on and put your money to work very quickly and if you're in the US, you do have to use a VPN. But I think those few decisions and just combined with Shane's own persistency. He's just so passionate about that, and I think you need all those ingredients together.

Mary Long: You mentioned that if you're in the US, you do need to use a VPN to use Polymarket. This is important to note, and it's an essential piece of your article because while Polymarket has seen massive success, it is an illegal operation in the United States and in France and Singapore and Thailand and Belgium. This is because prediction markets are considered evens contracts under US law, so they need to be regulated by the CFTC so that companies that want to offer such contracts have to apply for permission to do that. Polymarkets not done that. Again, your story opens with an arrest of Shane, raided by the FBI in his house. Polymarket hasn't filed for this license. Why? What is stopping it from doing that? You mentioned regulatory hurdles. That seems like yes, a hurdle, but a smart one to jump over.

Jen Wieczner: I would agree that that is the most obvious path. I think what happened was when they first started out, they just skipped ahead to it. He was young. He wanted to put this online as fast as possible and didn't bother to check the laws and go through those regulatory hurdles upfront thinking that if I just build something, if I build something that's great and then I make it popular and people will love it, then it will all just work out that people will welcome this. That's not exactly what happened, especially under the Biden administration. Prediction markets were very taboo and you have the CFTC cracking down on unregulated platforms like this. Very early on within months of their launch, really, they're dealing with an investigation from the CFTC that they eventually have to pay a pretty big fine for, especially for a young start-up. With that settlement, they basically agreed to not offer to US customers.

That closed off that path for the time being and now I think that they are likely going to reconsider that, especially under the Trump administration, which is not just friendlier to crypto, but much more friendly to prediction markets as it appears so far. Trump could potentially just give them a hall pass, write an executive order. All prediction markets are illegal now, something like that, which would give them even faster shortcut, or they're going to have to work with their lawyers of whom they have a lot and find a regulatory path, whether it's through that application or, you know, kind of trying to overturn the CFTC settlement.

Mary Long: A key question that you raise is, like, whether or not this illegality even matters, as you mentioned Trump could give them a hall pass. You've been in this story for a while now. Do you want to take a 50 50 bet on how this plays out over the next 12 months? Do you have a prediction will Polymarket become legal in the US, or will they just keep moving forward as is?

Jen Wieczner: I do and I asked all of my sources this question, as well, and by and large, everyone gave it above a 50% chance that they would become legal in the next year or two. I think, the next year to 18 months, I have a feeling they will be legal. As part of the story, actually went on, used a VPN and illegally traded on Polymarket very, very small amount. But it doesn't feel meaningfully different to me than trading on Robinhood where you can also buy extremely risky stocks or anything I'm policing bets on who's going to win the Oscars? Who's gonna win the Super Bowl? You know, what's Trump going to do next? What's Elon Musk going to write on X or how many times is he going to post? It's silly things that, sure, if you want to lose your money that way, like I don't really see the harm in doing it. You could make money. But I don't really see a reason for it to be less legal than all the other forms of risky but legal trading that we already have.

Mary Long: Yeah, fair point, for sure. Another prediction market that does exist legally in the US is Kalshi. They exist without crypto, though. Whereas Polymarket you can solely use crypto to make bets there. What is the fascination with crypto? I know Shane has a long history with ethereum, but why limit yourself to just crypto? Why do they like to stay in that lane?

Jen Wieczner: I think they've built their whole system on top of Blockchain, which allows for these bets to settle on the blockchain, so they're using actually smart contracts, which gives in some ways the outcomes of these bets an objective referee, if that makes sense, where it's not so subjective, they've set the rules and these smart contracts are just going to settle the way that they are. All the bets are also placed in crypto because it allows people this anonymity that then makes them more likely or less afraid of betting on their beliefs because they can do it without fear of people finding this out. Some of the other platforms have similar formats. But I think, this was a way to open it up to the world very quickly, and skirt the regulations that also come with using dollars. Polymarkets not actually handling any of the money because it's all just settled through smart contracts, so they don't actually have to be the bank and Shane, it speaks to his strengths as well because he was early in aim and became very passionate about crypto, while he was basically still in high school.

Mary Long: You paint this picture of Shane early in his 20s. It's around 2016, and at that time, he's running pretty deep in the crypto crowd. But at some point through that, he grows relatively disillusioned with that scene. You write that he became unimpressed with what he calls the Bildeba lineup of copycat start-ups and crypto scams. That's his wording, scams. You spend a lot of time with him. How now does he distinguish between the scummy side of crypto and what he might deem to be the more righteous side of it?

Jen Wieczner: Yeah, so one of the most ironic parts about Shane is that despite running a platform that's technically illegal and having had to deal with the regulatory consequences of that, he sees himself as the good guy, as the person who's built a platform that should be legal, that's useful, that's popular, that people really love, and he's providing an important service in the landscape of news and information. Whereas in the past, he saw people who were basically less hardworking than himself take a lot of money but not follow through on actually building it or build a wonky platform that wasn't that great or wasn't good enough to gain mainstream attention. What they built didn't match up to what they promised. Shane, who talks a huge game, like this guy, his ambitions are off the charts. He really believes that he's going to make it happen, and he swears he's not going to stop until he does.

I think he's raised a large amount of venture capital, and he just believes in himself to the point where, I'm going to do this. I'm going to build this until it's legal. It's going to be something that's as useful as the other technology that we rely upon. I mean, he's a big fan of Uber and Apple and these Meta on Facebook. He's admired these CEOs and entrepreneurs for a long time, and he really sees himself as one of those big tech giants as opposed to these anonymous crypto scammers who don't even use their real name, even as they're raising money and trying to build stuff. He puts himself in a different category.

Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear. While Personal Finance content follows Motley Fool editorial standards and are not approved by advertisers. Motley Fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back on Monday.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Charles Schwab is an advertising partner of Motley Fool Money. Mary Long has no position in any of the stocks mentioned. Ricky Mulvey has positions in Charles Schwab and Meta Platforms. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, and Uber Technologies. The Motley Fool recommends CME Group and Charles Schwab and recommends the following options: short June 2025 $85 calls on Charles Schwab. The Motley Fool has a disclosure policy.