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Front Burner Transcript for December 24, 2024

Host: Jayme Poisson

JAYME POISSON: Hey, everyone. Jayme here. So if you have been listening to the show for a while, you'll know that things slow down a bit during the holiday stretch. We're going to run some encore episodes that we really liked from this year. We'll also run a few great episodes from other podcasts that our podcasting friends have made. If big news breaks, we've got you though. Have a great holiday. Take care.

[Music: Theme]

JP: Right now, if I had money to burn, I could go online and put like 500 bucks down on a wager about whether or not Canada will become the U.S.'s 51st state before July, or whether or not there will be an election before the new year. Whether the U.S. will ban TikTok before May 2025. I could bet on elections, on invasions, collapses, bitcoin prices, and I could do it all on a website called Polymarket. Polymarket is a, quote, "prediction market" that allows users to spend crypto to place bets on the likelihood of life events. Advocates of prediction markets like Elon Musk say that they're more accurate than traditional polling because people have to put their money where their mouth is. And during the U.S. election, Polymarket gained notoriety because its odds on Trump winning outstripped some conventional political polls. But the site is not without controversy. Polymarket is illegal to use in the U.S. Researchers say that there is rampant wash trading taking place on the platform, and in November, the FBI raided Polymarket CEO Shayne Coplan's New York apartment. Today we are talking to David Yaffe-Bellany. He's a New York Times reporter who has done a number of stories looking at Polymarket in detail.

[Music: Theme]

JP: David, hi, thanks so much for coming on to Front Burner.

DAVID YAFFE-BELLANY: Thanks for having me.

JP: Could you just outline for me what the intended use for a site like Polymarket is? How is it different from online gambling, for example?

DAVID YAFFE-BELLANY: Sure. So, I think it's worth thinking about the intended use that, you know, the company's executives talk about and, you know, what the customers are actually interested in. So if you talk to Shayne or to, you know, anyone who's involved in running Polymarket, what they'll say is, sure, this is a, you know, a form of online gambling, but really we've got a kind of loftier goal than that. You know, we want to be a source of reliable information. We want to kind of harness the power of the market to give people a more accurate sense of what's going on in the world.

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UNIDENTIFIED SPEAKER: I think when you look at like UGC social networks, the way the algorithm works is if you already lean left or you already lean right, it just serves you more and more of the content that will keep you glued in, which plays further into your confirmation bias. And that's just like a recipe for anything but truth. Whereas with markets, if the market has an objective outcome and there's no leverage, that's not true. You're either going to be right or wrong.

DAVID YAFFE-BELLANY: And the idea behind that is, you know, when people put money behind their opinions, you know, on a kind of large scale, that can give you a sense of, you know, what's happening or what's likely to happen in the future. So that's the sort of kind of lofty goal behind a prediction market like Polymarket. But when you talk to customers of the site, you know, they're not interested in like curing disinformation. They just want to make money and have fun.

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CONTENT CREATOR 1: And it's not just for sports. People are betting on real world events like the election or whether Taylor Swift is going to get engaged in 2024. Or if Taylor Swift and Travis Kelce break up in September, which is what everyone's talking about right now.

DAVID YAFFE-BELLANY: And there's a thrill in kind of seeing, you know, the market swing back and forth, in sort of gambling on the outcome of politics the same way that you might gamble on the outcome of a sports game. And so there's this real sort of casino-like element to the Polymarket experience.

JP: This argument that the prediction markets offer insights traditional media or polling can't, does that hold any weight for you? Does that make sense?

DAVID YAFFE-BELLANY: You know, I've sort of swung back and forth on this. It's certainly the case that on election night in the United States, the Polymarket model about where the election was headed sort of told you a lot. I mean, it was sort of skewed way in favour of Trump from kind of very early in the night as the sort of initial returns came in.

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CONTENT CREATOR 2: Is Trump about to take this election? According to Polymarket, he is still trending upwards. Today, .7% is looking good for Donald Trump.

CONTENT CREATOR 3: Oh my gosh, guys. Eight and a half hours left, and guess who's still in the lead? This man, Donald Trump. 57.6 to 42.5. Guys, I think it's official. Can we [dusts hands off] clean our hands? Is Donald Trump going to be the next president?

DAVID YAFFE-BELLANY: But it's also the case that like, if you, you know, not to talk my own shop too much, if you looked at The New York Times' election needle, you know, on our website, that was also kind of swinging in that, in that direction. So it's not as if, you know, there weren't other ways that you could get that information. And it's also the case that, you know, what people are betting based on is, to some degree, polling. You know, they're looking at the public polling that's out there, and then they're placing bets that are kind of an interpretation of the polling. So, you know, is it a kind of radically new source of information? I'm not sure. But it does, you know, give you a sense of what's going on in a kind of real-time way that, you know, maybe more traditional forms of kind of information lack.

JP: Has it been good at predicting other things?

DAVID YAFFE-BELLANY: This is one of the big arguments against Polymarket, I think. I'm not sure it really has. I mean, for instance, you know, HBO released a documentary earlier this year that sort of claimed it was going to uncover the person who invented bitcoin, Satoshi Nakamoto, who's this, you know, mysterious, anonymous figure in the history of cryptocurrencies.

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NARRATOR 1: Satoshi Nakamoto, the inventor of bitcoin, could be one of the richest people on earth.

[ka-ching of cash register, coins spilling out]

NARRATOR 1: But many years ago, Satoshi had disappeared. And with bitcoin being woven into the fabric of the financial system, solidifying its role as digital gold, perhaps the question of Satoshi's identity was more pressing than ever.

DAVID YAFFE-BELLANY: And immediately, a market popped up on Polymarket where people were betting on who this person would be. Like, who HBO would identify as the person. And there were a bunch of candidates and people sort of aligned behind one person in particular. And then the person who was named in the documentary turned out not to have been on that list at all. [JP: Hmm.] So, you know, that's a good example of like a point where actually maybe the prediction market was sort of spreading false information, or giving people a sense that had turned out to be totally unreliable. And so if you look at kind of that market in comparison with the sort of election night market, I think it gives you a sort of picture of the two sides of this sort of technology.

[music]

JP: Polymarket is illegal for Americans to use. Why?

DAVID YAFFE-BELLANY: Political betting in the United States is a very kind of murky legal area. There's kind of an ongoing fight about it. Polymarket was never officially registered with the kind of financial watchdogs in the United States, and it settled with one of those agencies, the Commodity Futures Trading Commission, back in 2022. And as part of that settlement, it agreed to pay a fine and to what's called 'geoblock' users in the United States -- create sort of online guardrails that prevented people based in America from using the service.

JP: Though I'm assuming that people have found workarounds, right? What are they?

DAVID YAFFE-BELLANY: Yes. I mean, people can use VPNs to access the site. I mean, this is sort of an open secret, you know, in my reporting. You know, I spoke with a former employee of Polymarket who told me, yeah, within the company, it was an open secret that people could access it this way. If you go onto Polymarket's Discord, you know, you can see people talking about VPNs and ways to evade these restrictions. You know, people talk about it on other types of social media, too. And so it's sort of well known that, you know, you can-- you know, where there's a will, there's a way, and you can bet on Polymarket even if you're based in the U.S. But, you know, for fairness, I should add that, you know, the company says that it's, you know, working hard to prevent that and that it's, you know, instituted various security features designed to kind of block people from doing it.

JP: Okay. I wanted to ask you about this wash trading. So in the lead-up to the American election, when Polymarket was seeing this spike in users, a pair of blockchain firms, Chaos Labs and Inca Digital, did separate investigations where they found something like a third of activity on the site was wash trading, which is this form of market manipulation in which shares are bought and sold repeatedly in order to create this false impression of activity. And so this was all reported by Fortune. What does it say about the site and how accurate the predictions are if as much as one-third of bets are some form of market manipulation?

DAVID YAFFE-BELLANY: Yeah. And so one of the selling points of the site is, you know, that it has a huge number of users and a lot of different people placing bets, you know, based on the information that they have or the informed opinions that they've come up with. And so, you know, the revelation that a bunch of the trading might essentially be fake is, like, concerning if, you know, what the site's trying to do is, you know, promote accurate information. Now, I will say it's not entirely clear yet, you know, the extent to which the wash trading was going on or, you know, how it was actually affecting the odds on the site. It's also not totally clear what motive people had in, like, creating this sort of false impression that a lot of trading was going on. [JP: Mm-hmm.] One theory is that, you know, Polymarket has talked about, you know, releasing a cryptocurrency of its own, you know, that could be kind of traded. And, you know, people are theorizing that, you know, if they have an account on the site that's super active, then when that new cryptocurrency is released, they could get a bunch of it essentially. Like, you know, they might be rewarded for their activity with a large allocation of the new token. And so that could be an incentive for customers to kind of create this fake frenzy of trading on the site.

[music]

JP: I also wanted to ask you about this guy in France, right, who was responsible for millions of dollars of bets that Trump would win the election. So much so that this one person's actions tipped the odds on Polymarket.

SOUNDCLIP

NEWS PRESENTER: Bets of a closely watched French trader are likely to pay off millions of dollars. The French whale now stands to make over $48 million on his bets off a Trump win, in predictions for the U.S. election outcome.

JP: How useful is the information we get from a prediction market if one person can have such an outsized impact?

DAVID YAFFE-BELLANY: So there are two ways to look at this. One is, you know, it raises big concerns about the accuracy of the odds because you've got a market that can be swung heavily in one direction or the other by the actions of a single person. And that person could have an incentive to manipulate the market in some way. But the other way of looking at it, and the argument that Polymarket would make, is, well, this is how, you know, a market functions to some degree. And if somebody truly believes that this outcome is likely and is willing to put a huge amount of money behind it, then, you know, that sort of makes sense. And the person might have good reasons. You know, it could be the person has some sort of inside knowledge that, you know, that isn't public, that suggests that a certain outcome is likely. And, you know, their bet is a way of communicating that to the world and sort of improving the accuracy of the odds. [JP: Right.] You know, in this case, you know, this "French whale" was kind of quoted saying that he commissioned his own poll because he thought that there was a methodological flaw in the existing polling. And that based partly on that information that he had commissioned, he, you know, came to this opinion and then made a bet based on it. And so, you know, you could see Polymarket saying this is how our site is supposed to work.

JP: Right. And I mean, I'm just looking at an article from Bloomberg right now. And this guy made like $48 million, they say, on this bet. So it did, it did really work out for him.

DAVID YAFFE-BELLANY: Yeah, like just a colossal amount of money. [JP: Yeah.] But, you know, there is also a huge risk involved. I mean, I think the guy came out and said that he had basically invested his entire liquid net worth in this bet.

JP: Wow. Um. In November, the FBI raided Polymarket CEO Shayne Coplan's home, I mentioned this in the intro. They seized electronics, his phone. And just, could you walk us through what happened there and what law enforcement might have been looking for?

DAVID YAFFE-BELLANY: So based on our reporting, you know, we understand that there is an investigation into, you know, Shayne being run out of the Southern District of New York -- the U.S. Attorney's Office in Manhattan, which is, you know, sort of one of the premier federal law enforcement bureaus in the country -- and that the investigation is focused on this question of whether there are U.S. users illegally using Polymarket in violation of that CFTC settlement. And so our understanding is that was what prompted the raid. You know, and what will happen now, I think, is unclear. Shayne and Polymarket came out very strongly, in a very sort of unusual way, and said this was a politically motivated investigation because the site had given Trump an advantage in the election odds, you know, in the lead-up to November.

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REPORTER: Coplan blaming the Biden administration for the raid, writing, "it's discouraging that the current administration would seek a last-ditch effort to go after companies they deemed to be associated with political opponents."

NARRATOR 2: The people who are crazy enough to think they can change the world, are the ones who do.

REPORTER: Then posting this video, writing, "Polymarket called it. You called it. In the face of adversity, we build."

DAVID YAFFE-BELLANY: You know, I think certainly, you know, if-- you know, Shayne will be hoping that under Trump this investigation gets quashed in some way. It's a serious legal threat, you know. It's like, it's really-- it's no joke when the FBI raids your house, obviously, and so it'll be fascinating to see what happens next. But the reaction from Polymarket, I think, is really a reflection of how sort of confident and emboldened the tech industry feels about the changing political landscape in the United States. [JP: Right.] You usually don't want to poke the bear and say, you know, the FBI is corrupt, you know, publicly, when you're already in their crosshairs. But in this case, you know, Shayne did.

[music]

JP: Before we go today, I did want to ask you about this larger trend we've seen in recent years: the financialization of everything. And from your perspective, how does Polymarket fit into that trend?

DAVID YAFFE-BELLANY: Yeah, so I mean, this is something that, you know, has been a theme in my coverage of the crypto industry for years at this point. You know, one of the sort of arguments that people in the crypto world make is that this is a technology that allows you to essentially give people financial stakes in all sorts of things. So, for instance, if you're a big music nerd and you discover an artist that you're really interested in and who you think is going to blow up some day, you know, in a different era, you could have just, you know, listened to that person on Spotify, and then when they made it big, sort of felt good about your taste or whatever. Or felt angry that, you know, suddenly you weren't cool anymore. And the crypto argument is, oh, well, now you could buy stock in that person, essentially. Like, you know, maybe you could use this kind of crypto technology to buy, you know, a token for that artist, and then the token would rise in value when the artist kind of made it big. And, you know, to some people, that's like a sort of amazing vision of the future. For other people, it is sort of-- it's a little depressing. Like, can't see some elements of our culture, you know, not be financialized in that way? Like, can't [JP: Mm-hmm.] [inaudible] be kind of fun, beautiful, whatever? And, you know, Polymarket, I think, is an extension of that sort of vision of financializing the whole culture. You know, it's not enough to have an opinion about what's going to happen in the election and then to feel right if your opinion is vindicated. You can actually put money on it and financially benefit from it. And, you know, not just an opinion about the election. It could be an opinion about whether Taylor Swift and Travis Kelce will stay together or, you know, who HBO will name as the inventor of bitcoin. You know, all of those, you know, kind of predictions that you might make in a group chat or a conversation with friends, you can now benefit from financially.

JP: David, this was great. Really interesting. Thank you so much for this.

DAVID YAFFE-BELLANY: Thanks so much for having me.

[Music: Theme]

JP: All right. That is all for today. I'm Jayme Poisson. Thanks so much for listening. Have a great holiday. Take care.

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Polymarket and the rise of political betting - Transcript

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