Unlike in the U.K., it is currently prohibited for U.S. residents to bet on the outcomes of U.S. elections.
But Polymarket, a crypto “prediction” market founded by a New York City native recently saw its prediction volumes exceed $1bn, fueled almost entirely by people’s appetite to bet on the outcome of the U.S. election.
While U.S. residents are technically blocked from using the site as a part of a 2022 settlement with federal regulators, Bloomberg states that: “Polymarket’s system for blocking U.S. users is easily circumvented by using virtual private networks” and “social media is rife with instructions on how to do it.”
In other jurisdictions, gambling operators can take bets on the outcomes of elections. Although insider dealing is still not permitted, as some unruly politicians learnt when they rather foolishly decided to place bets on the date of the UK election back in June.
It is very difficult to regulate against an innate lack of integrity. Of course regulation can and does try, but ultimately if individuals are so inclined the likelihood is regulation won’t get in their way.
In a letter to Commodity Futures Trading Commission (CFTC) chair Rostin Benham on August 5, five U.S. senators and three House representatives outlined concerns that prediction markets “could influence and interfere with elections and further erode public trust in democracy”.
The fear, as they worded it, is that “Wall Street” might set up “massive political betting markets that could influence and interfere with elections and further erode public trust in democracy.”
The group are calling for the CFTC, which is the federal regulator overseeing derivatives markets, to finalise a new rule proposal mooted in May. The change would prohibit event contracts, which are effectively bets on the outcome of events such as political elections, but also sporting events and awards ceremonies.
The CFTC is already embroiled in legal challenges from prediction markets PredictIt and Kalshi, which offer election betting options.
In a statement for Politico in May, PredictIt co-founder John Aristotle Phillips said: “Instead of attempting to shut down and restrict event contract markets, we urge the Commission to embrace innovation and formulate a reasonable regulatory framework that keeps Americans in regulated U.S. markets and not push this valuable activity offshore.”
Offshore, presumably meaning platforms like Polymarket despite its U.S. ties, which are perhaps considered mirkier still for their crypto-based operations. But what if election betting was just allowed on prediction markets, and on betting platforms, where it could be monitored and foul play more likely detected?
“I’ve used prediction markets for years — never for trading but as a source of information gleaned from prices that represent the collective wisdom of thousands of people,” Jeff Sommer wrote in The New York Times in May. PredictIt is his preferred platform, he said, because it currently remains open to U.S. residents.
In the same article, Dartmouth economist Eric Zitzewitz also highlights the use case for prediction markets, saying: “We learn nothing from a crap game, and very close to nothing that’s economically interesting from sports betting. But having a market price the odds of economically meaningful political outcomes is extremely valuable to those who are affected by them.”
Meanwhile, betting platforms that know a little something about creating products that live within the bounds of restrictive regulation are DraftKings and FanDuel.
The former has been running legal betting pools on the outcome of the U.S. election primaries, whereby bettors stand to win a prize if they predict the outcome correctly in a free-to-play competition.
Meanwhile, a co-founder of the latter, Nigel Eccles, weighed in on the topic on X at the end of July, pointing out that “every election cycle since 2008 has seen the emergence of a go-to prediction market with mainstream press coverage”.
Polymarket, he added “has done the best job so far in (1) having a fantastic UI/UX, and (2) easy money in/out”, with the help of widespread adoption of crypto. However, he warned that every successful prediction market faded into obscurity after the election it came to prominence during.
“Our prediction market Hubdub faded immediately after the 2008 election, so we pivoted to building FanDuel,” he said. Watch this space for the next innovation to circumvent regulation and deliver what is clearly a product with a massive use case.
