How might the ayatollahs know an American strike force is coming? Advanced radar technology, perhaps, or a mole somewhere in the Pentagon. Or they could just look at Polymarket. There is currently around $125 million wagered in the largest market predicting when the US will next strike Iran. Given the current odds, traders reckon an attack will take place in the second half of this month.
If Nicolás Maduro had checked Polymarket on the night of January 2, he would have seen his odds of losing power spike from around one in ten to 66 percent, hours before Delta Force arrived.
One trader has racked up $150,000 in profits in seven months, placing trades on military activity by Israel
Polymarket and its competitor Kalshi are prediction markets. For any given future event, a market can be created where you can buy contracts, either Yes or No, priced between $0 and $1. When the event does take place (or doesn’t, depending on the market) the contract will resolve and you’ll either get paid out $1 if you’re right or nothing if you’re wrong.
For example, if you think Gavin Newsom will be the 2028 Democratic nominee for president, you can buy Yes contracts on that outcome for 34 cents on Kalshi. If you bought 1,000 contracts at a cost of $340 and Newsom was selected, you would earn a payout of $1,000, a tidy $660 profit.
There are markets for nearly everything, from politics and sports to climate and culture. Do you think Jerome Powell will be charged with a federal crime? If you think Yes, you’re with 53 percent of Kalshi traders. Chances of the US taking control of Greenland? 47 percent. Leonardo DiCaprio winning Best Actor at the Oscars? 15 percent. You can even place a bet on what the temperature will be in Central Park today.
The high-minded idealists say markets allow you to prepare for future events. Farmers, they point out, have been buying weather-linked derivatives to hedge against crop failure for decades. Prediction markets can also be used to learn the likelihood of future events, showing you where people are willing to put their money; a 33 cent contract means the market believes there’s a one in three chance of that event happening. And there’s meant to be wisdom in crowds.
Prediction markets live in the same world as commodities and futures markets and are regulated as such by the Commodities Futures Trading Commission. This is the same agency that regulates the Chicago Board of Trade and other exchanges where you might trade contracts on frozen orange juice, rice or grain.
This was a clever piece of regulatory arbitrage by the prediction markets: by presenting themselves as derivatives, they avoided the patchwork of state-by-state regulations which govern gambling. But prediction-market companies also differ from traditional books in that they’re not the ones taking the bets. Instead it’s an exchange and you’re trading with other users.
If you want to bet that the Republicans will hold Thom Tillis’s North Carolina Senate seat in November when he retires, you’re buying that contract from someone who thinks the Democrats will win. Obviously, such markets are ripe for manipulation. In January, a trader made $410,000 betting that Maduro would be deposed. His largest bet was $20,000, placed in the hours before the raid. It’s possible that this trader had some inside knowledge. The number of people who knew about the operation in advance was probably in the hundreds. If you extend that to people who knew something was going to happen, that number might have been in the thousands.
Proponents of prediction markets say that insider knowledge is actually a feature of these markets, not a bug. They want people with insider knowledge to trade, as that gives you the purest distillation of knowledge about what actually might happen. “Unlike in the securities market, the laws around insider trading in prediction markets are less clear,” says Nigel Eccles, the founder and former CEO of early prediction market platform FanDuel. “Some pro-prediction market commentators have claimed societal benefits to insider trading on prediction markets. Of the ones I’ve looked at I’m really not convinced that is true.”
One trader on Polymarket with the username Rundeep has racked up more than $150,000 in profits over the past seven months, placing trades almost exclusively on military activity by Israel. Their biggest payout came last summer when they correctly bet that Israel would take military action against Iran by June 13.
The Trump family’s social media company, Truth Social, is developing its own prediction market
In theory, Polymarket and Kalshi ban those with “material non-public information” from betting, a phrase borrowed from legal rulings involving the Securities Exchange Act 1934. What does that mean in practice? D.J. Hennes, a director at KPMG, recently told CBS: “If you know something is going to happen through your job, your friend, whatever it may be, and you bet on that… you could be prosecuted. That’s fraud.” So far, the risk is purely academic. There have been no successful prosecutions testing how insider trading rules apply to prediction markets.
Yet concerns continue to plague the sector. Though regulated by a federal agency, prediction markets are engaged in constant fights with both federal and state governments. Polymarket is actually barred from operating in the US until sometime later this year after a settlement with the federal government over not obtaining proper licenses. Kalshi is in the midst of several lawsuits with state governments as they attempt to impose their own regulations. None of this has dissuaded the Trump family, whose social media company, Truth Social, is developing its own prediction market, Truth Predicts.
Americans have always loved to gamble. It’s almost in our DNA. As Clark Griswold told us in the classic Vegas Vacation, “Gambling is what made America great. You see, kids, when Columbus set sail on a little rickety boat and let it ride all the way to the New World on a single tank of gas, that was a gamble.”
What’s new is the ubiquity of it all. Once upon a time, if you wanted to place a wager or play a game of chance, you either needed to book a flight to Vegas or know a good mob-run game somewhere in a backroom. Now, gambling is everywhere and you can bet on everything.
There once was a time when the NFL swore that Las Vegas would never get its own team – the proximity to the bright lights of Sin City was just too dangerous. In 2012, NFL commissioner Roger Goodell gave evidence in a lawsuit in which the state of New Jersey was attempting to legalize sports betting. Goodell was asked whether the NFL had ever considered putting a team in Las Vegas. “Not when I’ve been commissioner,” was the response. Asked what threats there were to the integrity of the game, Goodell responded that “gambling would be No. 1 on my list.”
How times have changed. A little over four years later, the NFL announced that the Oakland Raiders would become the Las Vegas Raiders. A year or so later, in 2018, the Supreme Court voted to overturn the Professional and Amateur Sports Protection Act, creating a bonanza of sports books and apps from state to state. In 2017, the total value of US betting was $4.9 billion. By 2024, that figure had risen to $150 billion.
It’s now hard to watch a football game without being bombarded with ads for any number of betting apps, fronted by celebrities offering incentives to place your bets and win big. Tune into ESPN, the network that once would have been horrified at even the mention of gambling displays, and you’ll see the bookies’ odds during pregame shows, brought to you by its official sports-betting partner DraftKings.
Eventually, amateurs realize they can’t win and the ‘dumb money’ vanishes, meaning there is no liquidity
In 2024, around $2 billion was spent on advertising by betting apps. “I’m not at all surprised by the popularity of sports on Kalshi and Polymarket. I do think Kalshi in particular has done a phenomenal job including sports and then redefining the term,” says Eccles.
Betting increasingly dominates American media. And not just sports bets. Late last year, Kalshi announced official partnerships with CNN and CNBC. Its real-time market data is now being incorporated into its stories across TV and digital, streamed along the bottom of your TV or the top of your web browser. Last month, Dow Jones, the parent company of the Wall Street Journal, entered into a similar partnership with Polymarket, which struck a similar deal with Yahoo Finance last year.
The corrupting aspects are just starting to become obvious. Many woke up on October 23 last year to an incredible news alert on their phones. Several former and current NBA players had been arrested in connection with a mafia ring. They were accused of rigging prop bets, essentially a side bet within a game, like betting on who might win the tipoff at the beginning of the game. These bets are easier to manipulate as they rarely affect the outcome of a match.
The manipulations don’t stop there. In November last year, a website called Pentagon Pizza Watch began overlaying real-time maps of Ukrainian troop positions alongside Polymarket bets on which territories might be lost or gained. Pentagon Pizza Watch is a sort of Bloomberg Terminal for prediction markets, mostly for geopolitical events. The site’s name is based on the theory that you can predict US military operations by watching northern Virginia-area surges in real-time data provided by delivery apps like Grubhub or DoorDash. Last year, nearly $100 million was traded on outcomes in the war in Ukraine via Polymarket. And once again, the impulse to manipulate markets is too great to resist.
Late last year, the Institute for the Study of War, a think tank that publishes maps of the Ukrainian front lines, shared what turned out to be an altered map. It falsely showed that Russia had taken control of Myrnohrad, a city in southeast Ukraine, but Polymarket paid out the contract before the map was corrected. ISW dismissed one of its researchers after admitting that its map had been subject to “an unauthorized and unapproved edit.”
After reports of Ukrainian troops placing their own bets last month, Kyiv attempted to ban Polymarket and other prediction markets. Volodymyr Zelensky legalized online gambling in Ukraine in 2020 but apparently found that the prospect of his soldiers manipulating prop bets on the war was maybe a little further than he wanted to go.
The greatest risk to prediction markets does not come from unscrupulous gamblers but professional traders. DRW, a Chicago trading firm that employs 2,000 people, recently advertised for a $200,000-a-year position on their “dedicated prediction markets desk.” Gamblers may soon find themselves betting against expert algorithms with highly developed information processing systems – and losing. Eventually, amateurs realize they can’t win and the “dumb money” vanishes, meaning there is no liquidity inthe markets.
In the late 2000s, when online poker first took off, normal users on their home computers found they kept losing to other players. These turned out to be bots using odds prediction methodologies, often controlling several players at a table to share information about hands. Traffic to some poker sites fell by almost half. The game was no longer fun.
Prediction markets sell themselves as a way of seeing into the future. Yet with regulatory restrictions incoming and greater professionalization inevitable, betting on the future of prediction markets is a risky proposition. Or, as Eccles tells me: “There is definitely value in elections and some types of current affairs. But with a huge caveat that news is messy. Most interesting questions aren’t settled in simple Yes or No answers.”
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