← Decoder with Nilay Patel
Decoder with Nilay Patel
Prediction markets want to be the news
00:45:24
Why controversial gambling platforms Polymarket and Kalshi are cosplaying as the news.
Loading summary
Transcript65 lines
- [00:01]
A
Support for the show comes from Anthropic, the team behind Claude. You know, sometimes a problem just grabs you like you sit down thinking it's a quick thing, then suddenly it's midnight. That's exactly the kind of mind Claude is built for. People who don't just want the answer, they want to chase the thing that's underneath it. Anthropic positions Claude as a thinking partner, not a search engine. It works through the problem with you, and it doesn't try to just wrap things up in an easy answer. Get started with Claude for free at claude.AI/decoder
- [00:38]
B
support for this show comes from Vanta. Vanta uses AI and automation to get you compliant fast, simplify your audit process and unblock deals so you can prove to customers that you take security seriously. You can think of Vanta as your always on AI powered security expert who scales with you. That's why top startups like Cursor, Linear and Replit use Vanta to get and stay secure. Get started@vanta.com Vox that's V A N T A dot com Vox vanta.com Vox
- [01:14]
C
Adobe Acrobat Studio your new foundation use
- [01:17]
A
PDF spaces to generate a presentation.
- [01:21]
B
Grab your docs, your permits, your moves,
- [01:23]
A
AI levels of your pitch gets it in a groove.
- [01:26]
C
Choose a template with your timeless cool.
- [01:28]
A
Come on now let's flex those two draft design, deliver, make it sing AI
- [01:34]
C
builds the deck so you can build
- [01:35]
B
that thing do that, do that, do that with Acrobat learn more@adobe.com do that with Acrobat hello and welcome to Decoder. I'm Neil I. Patel, editor in chief of the Verge and Decoder is my show about big ideas and other problems. Today, let's talk about prediction markets, which continue to insert themselves into the news cycle and the news in increasingly weird, weird, unsettling, and potentially illegal ways. My guest today is Liz Lopato, a senior reporter here at the Verge who owns what we cheerfully call the chaos beat. Liz has been writing a lot about prediction markets lately, and especially why they all seem so intent on being perceived as sources of news, a position which directly incentivizes insider trading, which in turn creates a long list of very predictable problems. For example, this past weekend, after the United States and Israel went to war with Iran, leading prediction market platforms Kalshi and Polymarket erupted with Activ that included extremely contentious markets around the death of Iran's supreme leader and some that appeared to be rife with insider trading from people with advanced knowledge of U.S. military actions. That's right. In 2026, you can, from the comfort of your couch, wager on when the United States will bomb a foreign country. And for Kalshi and Polymarket, that's quite literally the business model betting on anything. Right now, sports is where they make most of their money, which is why both companies are in the crosshairs of so many state gambling authorities. But this industry thinks of itself as something far grander. Prediction market players want to be the news. And they've devised new, frankly unconvincing frameworks for why they should be considered legitimate sources of information instead of just anything goes. Casinos. Kalsh's tagline is trade on what you know. Polymarket CEO Shane Copeland has called insider trading, quote, cool. And later on in this episode, you'll hear from Robinhood CEO Vlad Tenev, who came on the show last year to defend prediction markets as, quote, the news faster in some cases before it even happens, which the last time I checked is impossible to pull off without insider trading. Insider trading is supposed to be illegal, as is operating an unregulated sportsbook. So you're starting to see Kalshit and Polymarket get hit from both sides of this broader regulatory debate. And 2026 is shaping up to be the year that all of it really comes to a head. To what end? It's hard to say, especially as these companies cozy up to the Trump administration. But it's also becoming increasingly untenable for prediction markets to sit in the middle. The tension between gambling on the news and trying to self regulate such that they don't encourage insider trading. One quick note before we start. You can listen to this episode or any episode of Decoder completely ad free by subscribing to the Verge. Just go to theverge.com subscribe okay, Verge Senior reporter Liz Zapato on prediction markets, gambling and the news. Here we go. Liz Zapata, you're a senior reporter at the Verge. Welcome back to Decoder.
- [04:46]
D
Thank you. It's good to be back.
- [04:47]
B
I'm excited to talk to you about gambling. I think we're just going to talk about gambling. I'm saying gambling because I know the people who run prediction markets hate it when we call it gambling. And I'm trying to bait them into talking to either you or me for a piece on the difference between prediction markets and gambling. What do you think the difference is?
- [05:03]
D
I don't think there is one. I'm just being honest here. I think the structural difference is what they'll point to, which is that on a prediction market, it's A contract between independent players. And with a casino, you're betting against the house. And so they're just taking a cut of these contracts rather than playing against the players.
- [05:23]
B
One of the reasons they're on the show this week is because prediction markets are moving ever more aggressively into news. The inciting event here is polymarket and Substack have launched a joint venture by which Substack writers can integrate Polymarket odds into whatever they're doing. They might get paid for that, they might not. The tagline for this is journalism is better when it's backed by live markets. I've been staring at that tagline for a long time. What do you think is made better by live markets in the context of journalism?
- [05:55]
D
Well, first of all, Neil, I think we have Bloomberg at home. But second, in the sense that markets and journalism have anything to do with each other, it is pretty much only markets reporting, right? Like if you're reporting on, say, the stock market and part of your job is to put together the big movers of the day and somebody publishes an expose on a company that sends its shares plunging, those things are sort of synergistic. I don't understand what these contracts would have to do with news, except in a very specific context having to do with politics. And that context is basically trying to figure out who's going to win an election.
- [06:39]
B
Obviously, who's going to win the election is something that there are odds made about every single day. Politics coverage in many ways. You can criticize it in a lot of ways, but predicting whether or not someone's up or down or whether some candidate is on the rise, such they might win an election, that's just a core part of political coverage. And the idea that you should be able to bet on that has gone through long periods of uncertainty. Mostly we've said that's a bad idea. I think these prediction markets are saying, no, it's a pretty good idea. There's some kernel of the conventional wisdom embedded that is more rigorous because the money provides stakes to your bet. And those stakes means that you believe what you say is true versus just lying to a pollster. Do you think any of that holds water?
- [07:24]
D
No. Let me start by just explaining something like that explanation you gave me about, like money stakes mean you believe something that comes from economists. And I just want to be super clear, like, one thing about economists is that they tend to discover, like 50 years later stuff that psychologists and sociologists have already known the whole time. One of the things that we know from psychology is that there are A lot of people who get involved in betting and just bet for the pure feeling of being in a flow state. And like, we know a great deal about this because casinos run on this, right? Like, they. They do what they can to keep you in this flow state so that you'll keep betting and keep losing money. Slot machines are, like, the ideal way of looking at it. And so while prediction markets are not slot machines, I do want to be clear about that. They share some of these basic mechanisms, specifically intermittent reinforcement. So if you are somebody who's, like, out there very serious about your prediction markets, you may not be betting because you believe in something. You may be betting just to bet, just to be involved, to be part of the action, because you can't win if you don't play.
- [08:33]
B
You wrote a long piece for us this week really unpacking from the beginning what the difference between news and events and pseudo events is. There's some philosophy embedded in there in classic Liz the Plato fashion. Let's start at the very beginning. This is a hilarious conversation for you and I to be having, but I'm going to ask, what do you think the word news means? And why are we having to redefine news in the context of prediction markets?
- [08:56]
D
If I were to give you, like, a pithy statement, it's very recent history. I'm giving you the history of events that occurred really recently, like as recently as yesterday or 20 minutes ago. But the primary thing that you have to keep in mind is that these events occurred. And if you look at the history of news, and I go into this more in the piece, maybe more than people want, it sort of evolved from trying to keep track of what's going on in either governments or trade. And so you're keeping track of specific events in order to orient yourself in the world. That is what news is. And at the very bottom, you know, it's about events. It's about car crashes and, I don't know, assassinations. Like, these kinds of things that really occur in the real world that you can really witness. There's this book called the Image, a guide to pseudo events in America that is about everything else that appears in a newspaper. The way that these are referred to is pseudo events, right? And they're things that can be repeated and that can be known ahead of time and that are essentially like marketing. So if you're thinking about, like the Apple event, for instance, like the iPhone event, that's a pseudo event. Like, that's not an event. In the same way that, like a helicopter crash is an event because, you know, everybody at Apple knows what's going to happen ahead of time. Like there might be a couple of surprises if the audience acts up. But like, they know what they're announcing. They know roughly when they are going to announce it. They've rehearsed. And so this is a knowable pseudo event. This is a lot of what happens in newspapers and in news organizations are covering pseudo events. You know, these are things like press releases. Celebrities are arguably like human pseudo events. In this book, the argument is made that this happens because we don't have enough events to fill the entire newspaper. And so these pseudo events have sort of crept in and becomes part of our language and understanding the world. And there is a market for these things. Like, people do want to feel informed about these pseudo events as much as they do about events. Like, our audience certainly wants to know what happened at the Apple event. That sort of really is one of the things that have kind of tipped, I think, some of the confusion around what news is into the place where we're going. And the place where these pseudo events happen most frequently is politics. So if you think of something like a debate or a protest, those are pseudo events. And polls arguably are also pseudo events. They're not real events. So because these things become knowable, because these things are not quite the same as news, I think there's some sense in which they become easier to bet on. Because like, if you know there's going to be a debate and you know there's going to be a snap poll after the debate, you can bet on who's going to win the snap poll after the debate to say who won the debate.
- [11:49]
B
We need to take a quick break. We'll be right back.
- [12:00]
A
Support for this show comes from LinkedIn. For small businesses, every hire matters, but the time and resources required to hire right are Limited. Luckily, LinkedIn Hiring Pro is built for that reality. It's your hiring partner designed to help you hire with confidence by servicing only the right candidates without turning hiring into another full time job. Posting a job isn't always the hard part. It's finding, connecting with and screening the right candidates. Hiring Pro streamlines the entire process from drafting your job to shortlisting candidates and conducting AI powered interviews for initial screenings. Conversational interface lets you describe what you need in plain language. No recruiter jargon needed. Nearly 60% of hires find a candidate to interview within a week. With Hiring Pro, you spend less time searching and more time connecting with the right talent. Hire right the first time. Post your first job and get $100 off towards your job post@LinkedIn.com partner. That's LinkedIn.com partner. Terms and conditions apply. Support for the show comes from Zapier when it comes to incorporating AI into your workflows, there's lots to consider and lots of trend chasing. But actually making it happen starts with the right tools like Zapier. Zapier is how you break the hype cycle and put AI to work across your company for real. It can help you actually deliver on your AI strategy, not just talk about doing it. Their AI orchestration platform allows you to bring the power of AI to any workflow so you can do more of what matters. You can connect top AI tools like ChatGPT and Claude to whatever tools your team already uses, so you can incorporate AI exactly where you need it. And it's for everyone, tech expert or not. According to data from Zapier, teams have already automated over 300 million AI tasks using the platform. Join the millions of businesses transforming how they work with Zapier and AI. Get started for free by visiting zapier.comdecoder that's Z A P I E R.com
- [14:16]
B
decoder
- [14:20]
A
support for this show comes from Doppel. Maybe that ping you just got is an urgent message from your CEO. Or maybe it's a deepfake trying to target your business. Doppel is the AI native social engineering defense platform fighting back against impersonation and manipulation. As attackers turn to AI to power increasingly sophisticated strikes, Doppel uses it to fight back. Their digital risk management dismantles attacker infrastructure, while human risk management builds team resilience through simulation and training with automated takedowns, multi channel coverage and AI defenses that build intelligence with every fight. Doppel works relentlessly to protect people, brands and trust Doppel outpacing what's next in social engineering? Learn more@doppel.com that's D O P E L.com support for the show comes from Anthropic, the team behind Claude. If you've spent any time lately trying to get an AI to do something useful, not just sound impressive, but generally help you think through a hard problem or task, you may have heard the name Claude. Claude is made by Anthropic and they've got a few things going on right now that are worth paying attention to. First, Claude Code. It's a command line tool for developers that understands your entire code base, run tests, iterates on solutions, and then handles complex tasks end to end. Developers have been using it for everything, not just coding, and that's exactly what led them to build something called Coworkers, which takes the same agentic power and brings it to everyone else. No terminal required. You point it at your files, set a task, and Claude works through it autonomously in the background while you focus on other things. Less back and forth, more deep, sustained work getting done. Anthropic is committed to keeping that conversation ad free. That means no sponsored suggestions, no third party influence on what it tells you. Claude's only job is to help you keep thinking. Try Claude for free at Claude AI decoder and see why problem solvers choose Claude as their thinking partner.
- [16:40]
B
We're back with Verge senior reporter Liz Zapato discussing prediction markets and the news. You just heard Liz explain the concept of pseudo events and the distinctions we draw between real, verifiable news and future events with outcomes known only to a select few people. But in the murky Middle, there are future events with unknown outcomes. The winner of a sports game or a political election, or even the moment when a new war breaks out in the Middle east after months of mounting pressure. Our history of wanting to know and profit from the outcome of these events before they happen is long and complicated. And as we saw with markets around Iran last weekend, this can have some very disturbing consequences. Last Saturday, a polymarket trader made more than half a million dollars by betting at the last minute on the date of the Iran offensive. This person was and remains anonymous. And polymarket refuses to ban trading on armed conflicts or the killing of world leaders, and has no plans to ban using inside information to profit off either. So I'm just going to keep asking if these markets want to replace the news. Well, isn't insider trading the whole point? One of the things that comes up over and over again in the context of these prediction markets is whether or not the people who run them think insider trading is good. You see insider trading happening all over these prediction markets and I for the life of me cannot tell if that is a bug or a feature. What do you think it is?
- [18:02]
D
According to the people who are in favor of prediction markets? It's a feature like that is a way of eliciting information into the public sphere. Do I agree with that? I do not, because there are just any of a number of ways in which this kind of distorts reality. I would say the easiest case, and like maybe the least consequential case, happened on a Coinbase earnings call where Brian Armstrong pulls up. I think it was polymarket, and he looks at the bets that he would say certain words and Then he reads them off and all of those bets resolve because he has chosen to resolve them in a specific way. That's a pseudo event. That's maybe not the biggest deal, but it is still a way in which these betting markets are affecting reality. And now, if you think back to when we invaded Venezuela and snatched their president, there was a massive bet on when that president would be removed from office. I think it was like, will Maduro still be president as of a specific date? And whoever it was made these bets very shortly before the operation happened and then made a bunch of money and left. So you're thinking, okay, worst case scenario is somebody on the inside in the administration who potentially is advising whether or not this happens, has bet on this and now is making sure it will happen.
- [19:35]
B
That's insider trading. Like, I think most people would see that make. Okay, that's insider trading. We usually have some laws against that. Right. If you are an executive at a public company, you're not allowed to trade on material information before your earnings. There's all these rules we have about insider information in that context. Why do you think it's just allowed in the prediction markets? Is it structurally that they're different? Is it just that they're not regulated? Is it that we think it's fun? What is it exactly?
- [20:03]
D
There are several things here and I'm going to walk through all of them because they're all annoying. And thing one has to do with how we define insider trading, which is that you are essentially trading on stolen information. It's not because you're ripping somebody else off that you get charged with insider trading. It's because you have misappropriated information from another source. The reason I say this as being important is that there was a insider trading case involving NFTs that essentially got thrown out after a conviction. It was thrown out on appeal because the theory of the case was essentially the people who were being defrauded were the people who were trading against this insider. And the courts were like, no, no, we don't care if people lose money. The question is like, was the fraud in stealing the information to make the trade? That's thing one. There's like a sort of specific way that the law thinks about insider trading. Thing two is that SEC enforcement has seriously declined under the Trump administration and probably is going to continue to decline. And also the SEC just has been declining in power generally over the last, I would say, 20, 30 years. So we don't really have an enforcement mechanism. And so one of the things that has been Known for a while is you'll see in pharmaceutical stocks, around certain big conferences, you'll see that the shares trade before the abstracts of studies are released. So somebody knows what's in those abstracts and they're trading on that information before it becomes public. And this is a really well known phenomenon and no one has done anything about it. So those are sort of two things that are involved. I think the third thing is that at this point, again, given the sort of limited enforcement resources that our government has, prediction markets just aren't big enough to really be on their radar yet.
- [21:55]
B
That's changing. Right. It feels like the Trump administration is extremely aware of prediction markets and how important they are and how they can be gamed. There's some back and forth about whether anyone should regulate them at all that we'll come to. But the prominence of a poly market or a Kalshi, it's only going up. And I'm wondering if you see the relationship between the existence of the prediction markets and the behavior of the principles in business, in politics, in finance, in a way that suggests actually this is going to go very badly. I'll give you. You know, the Brian Armstrong example is funny, but people are betting on all kinds of things for these companies to do that aren't even necessarily in the company's best interests, but the incentive to behave that way is only increasing.
- [22:40]
D
Yeah. And so I can give you a couple of ways that this can go wrong, but I think this will be your favorite, which is that the 90s dream of assassination markets is alive and well. Right. Like you can potentially win a bet about whether Tim Cook is still going to be the CEO of Apple by ensuring that he is not alive at the specific date at which that bet closes. Now, that's an extreme example. Obviously, I don't think it's likely to happen, but it's certainly a possibility. There are also a couple of other things that are involved here, and one of them is that investigative reporters rely on insiders to tell us when something bad is happening in a company. If you think about Theranos, John Carreyrou's sources were people inside Theranos. They were Theranos workers who were saying, hey, like, what's going on here is fraud. What prediction markets do is they provide an incentive not for these things to be disclosed broadly to the public, just for the public good, to try to prevent people from being harmed, but for you to trade on this information and make money on this information in a way that if you are talking to a reporter, you don't because by and large in the US we don't pay for information. I have never in my entire career given anyone a dollar for anything. You know, it creates this weird perverse incentive when it comes to knowledge of wrongdoing, in part because now you can make money off of that instead of just like trying to live in a society.
- [24:08]
B
So when you see a substack or CNN or any of the other news organizations that are partnering with prediction markets loudly announce their partnership, are they just undercutting their own newsroom or are they getting a better, more direct sense that actually some insiders think something is going to happen?
- [24:25]
D
I definitely think they're undercutting their own newsroom. Right. Like they're not only sort of legitimizing the prediction markets by saying, hey, these are our partners, we're endorsing them, but they're also, you know, using the information in those prediction markets in order to make the news, which, you know, in the world of pseudo events can create this weird ouroboros where prediction markets say, let's say that Apple is going to buy Microsoft at thus and such date and there's a big weird trade on it. So that becomes news, which then folds back into the prediction market and changes the odds, which then again becomes news. And this round and about monetization of what is essentially a rumor mill I think is a problem. And you know, that's with something like CNN where you have people who are actually paying attention to what counts and what matters. And like with substacks, there are real reporters on substack. And I don't want to pretend that there aren't. There definitely are people who are reliable there, but at the same time there are a bunch of people who are just like whoever, like just some people, you know, if they are making news but nobody's checking to see if it's true, you wind up with situations like we've seen with the prediction markets a couple of times now where somebody makes up a Jeff Bezos quote, it's not real, and Bezos has to come out and deny it. So, like there's just like a way of polluting the information environment that I think this really contributes to.
- [25:50]
B
Why do you think polymarket and Kalshi aren't so motivated to say that they're news instead of just saying that they are prediction markets? There's something there, right, where they are absolutely drawn to insisting that they're the news, that the thing that they're giving you is information before it happens. What do you think that motivation is,
- [26:08]
D
oh, they want to distinguish themselves from being casinos. Right. A significant amount of their trading volume is not actually on stuff that matters. It's on, you know, stuff around sports. We already have a sports betting industry and it's already regulated in a very specific way on a state by state basis. Some of those state regulators are looking at the prediction markets and going yo, you need to comply with our laws around sports betting because this is stock, this, this is sports betting. And so these, these guys are trying to distinguish themselves and say oh no, no, no, no, we're not sports betting. We're information. We're like the news. We're part and parcel of the information environment. And like this is like actually a pretty big deal. There's been a lot of like motion around it. For instance, you have FanDuel and DraftKings both pulled out of the American Gaming association because they want to open prediction markets. This is a really big deal with a lot of money involved and like pretty high stakes. So you can see why, like there's some maneuvering going on.
- [27:07]
B
I want to take a moment here to point out that we are in fact seeing some enforcement around insider trading on prediction markets. Last week, Kalshi made its first ever disclosure related to an insider trading investigation and Find the Traders. One incident featured an editor for Mr. Beast who was betting on markets related to the creators upcoming YouTube videos. The other was California politician Kyle Lankford was found to have been trading on his own candidacy. The fines so far are in the low thousands of dollars, so it's small fry stuff for now. But Kalshi says it's opened hundreds of such investigations in the past year, signaling that it takes this problem seriously enough to begin a wider platform crackdown. You'll notice though that it's Kalshi taking these steps internally and even issuing the fines, not any law enforcement authority. And so far the law enforcement activity we've seen has been pretty toothless and reactive. For example, after this latest Kalshi press release, the Federal Commodity Futures Trading Commission issued its own press release saying that insider trading like this might be illegal, but didn't confirm any enforcement action of its own. That brings us back to the central tension with prediction markets, whether insider trading is in fact the very feature that makes it all work. So now I want to bring in Vlad Tenev, the CEO of Robinhood. When Vlad was on the show last year, he went to bat for prediction markets in a number of ways on both the gambling and news fronts. As Vlad put it to me, the main goal of Robinhood is to, quote, acquire full wallet share of our customers across multiple generations. It's quite a goal. So I brought some clips of my conversation with Vlad to get Liz's reactions. Last year, we had Robinhood CEO Vlad Tenev on the show. Robinhood obviously does investing, but they are partnered with Kalshi and they want to bring prediction markets into everything. Vlad is very high on prediction markets being news. He said some things to me during that interview that I just want to play for you and get your reaction to, because I've been thinking about a few of these quotes, particularly about insider trading. And again, I'm absolutely puzzled whether this industry thinks insider trading is good or bad. Here's this quote from Bud. Check this out. How do you manage the prediction markets against that incentive? Because I see that as totally distorting and in most cases, negative.
- [29:10]
E
I think that's a great question. And I think that's one of the areas where the traditional financial system already has lots and lots of infrastructure because we've faced this problem for decades, right? Like you have insider trading rules and regulations, and it's very analogous to a company insider using proprietary information for their own benefit to make money in financial markets. Like that very much exists.
- [29:42]
B
So I listen to that and I say, okay, Vlad wants to take insider trading rules from traditional markets in which Robinhood participates and bring them to the prediction markets that Robinhood is expanding to. Is that what you're seeing?
- [29:56]
D
No. I mean, like, first of all, let's remember that a lot of there, there is insider trading going on that nobody's doing anything about already in the existing financial markets, right? Like, arguably our enforcement mechanisms are not strong enough. And he's saying we don't need any extra rules. These rules are good enough. That. That is what he's saying. Like, don't. Don't regulate us.
- [30:17]
B
Please let me play you the next one, because again, and I'm just saying this for all the people listening, I am finding it very hard to tell whether this industry has a shared understanding of whether insider information is good or bad. So here's the next quote from Vlad on decoder last year. If you want to outlaw insider information, you have to prevent people who have that information from trading on it. So how does that get into the prediction market?
- [30:42]
E
Yeah, I mean, basically, individuals who have proprietary information shouldn't participate in the prediction markets. And, you know, the. All of the DCMs basically have rules against this. And because we know who's making the trades, right? I mean, everyone has to be kyc that, you know, dcm, fcm, Regulator, prediction markets. We have the capabilities of identifying abuse. And of course, all of these rules can evolve over time. So if there's new vectors for abuse as the markets expand, there's mechanisms for. For those to be incorporated and to become new rulemaking.
- [31:24]
B
I would say in. In the months since Vlad and I chatted, there have been new vectors for abuse as these markets have expanded. Right. Are we going to kidnap Nicholas Maduro as a new vector for abuse of a prediction market? Do you see any heat around? Well, we should stop that because. Right. This is the industry classically saying we can regulate ourselves. But I don't see that push from inside the industry. Maybe you do.
- [31:49]
D
Not only do I not see that push from inside the industry, if we rewind, you know, we have people inside the industry saying stuff like insider trading is cool and that's how we get information out. And that's like the bonus of these markets is that people have an incentive to share information broadly via, you know, insider trading. I'm not making this up. There is literally an academic paper on this. So I find this very difficult to believe because insofar as prediction markets have any value whatsoever, that value is tied specifically to insider information.
- [32:27]
B
So this is what I mean when I say I'm finding it hard to understand if the industry thinks this is good or bad. Because here's Vlad saying insider shouldn't trade. And there are rules in the books and the rules can evolve if there's new abuses. And those rules should be analogous to the rules against insider trading in the public markets, which maybe we're not enforcing enough, but everybody understands those rules. Then there's what you're saying, which is the value of the markets is the insider information. The insiders will communicate what they know by placing bets or buying contracts against information that's not yet public. Here's Vlad just talking about what he thinks news is. And I'm going to ask you to try to square these ideas between you shouldn't have insider trading. And here's what Vlad thinks the news is.
- [33:13]
E
It's an evolution of what the newspaper served in the past. You have the front page, which is events that people want information of that are trending right now. Then you have the business section, Arts and Leisure style, and of course you have sports. And the newspaper obviously had value. I mean, people were paying for it after the fact. Right. Prediction markets actually give you that news faster in some cases before it even happens. So I think certainly it has enormous economic value.
- [33:47]
B
So, I mean, this is your framework Right. This is the most decoder thing of all time. You provided a framework for news and pseudo events. You said the news is history. Here's Vlad saying prediction markets give you the news faster, in some cases before it even happens. Are these frameworks compatible without conceding that insider information is what makes the British market viable?
- [34:07]
D
No. Like, that's the whole ball game right there. He's admitting essentially that like, the reason prediction markets matter is because of the insider information, because it's the news before it happens. You can't get there in any credible way without having insider information. Like, otherwise you're just like betting, right? Like you can bet right on a coin toss. But that's not really information. So the idea that it is somehow valuable, even more valuable than the news, is predicated entirely on insider trading.
- [34:44]
B
We have to take another quick break. We'll be back in just a minute. Support for this show comes from Odoo. Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need. It's an all in one fully integrated platform that makes your work easier. CRM, accounting, inventory, E commerce, and more. And the best part, Odoo replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you try Odoo for free@odoo.com that's o d o o dot com.
- [35:35]
F
This is advertiser content brought to you by Stonyfield Organic. Our cows, them going out to pasture, they love it. They're so excited to go out every day. They wait right at the door. In fact, we milk them and we just open up the laneway and let them just go right out to pasture. I'm Rhonda Miller Goodrich and I'm a dairy farmer in Cabot, Vermont. Our farm is Molly Brook Farm. We're an organic dairy farm and we are a supplier to Stonyfield. Molly Brook Farm has been in my husband's family since 1835. We started our organic transition in 10 2015. We had 53 acres of corn ground and of course we had to use herbicides and pesticides and the soil was dead really for all intents purposes. We stopped growing corn and stopped using herbicides and pesticides and we seeded that down to perennial grasses. After that we begin to see biodiversity in that soil again. To be organic certified, our cows need to be in pasture at least 120 days. I think the organic practices really benefit our animals. You know, having good feed, good water, a nice light area. That's what's important to us, and that's what's important to Stonyfield. Visit stonyfield.com to find Stony filled organic yogurt near you. It's true that some things change as we get older. But if you're a woman over 40 and you're dealing with insomnia, brain fog, moodiness and weight gain, you don't have to accept it as just another part of aging. And with MITI health, you can get help and stop pushing through it alone. The experts at MITI understand that all these symptoms can be connected to the hormonal changes that happen around menopause. And MITI can help you feel more like yourself again. Many healthcare providers aren't trained to treat or even recognize menopause symptoms. MIDI clinicians are menopause experts. They're dedicated to providing safe, effective, FDA approved solutions for dozens of hormonal symptoms, not just hot flashes. Most importantly, they're covered by insurance. 91% of MITI patients get relief from symptoms within just two months. You deserve to feel great. Book your virtual Visit today@joinmidi.com that's joinmidi.com
- [38:07]
C
when you use the trusted automated investing and savings app Betterment, you stop worrying about where your money is growing and you start to feel calm, cool, confident. That's when things fall into place, like a domino effect. Since you use Betterment's automated investing tools to invest for you, you now have more time to help your plants thrive. You decide to buy one more then seven. While your money is globally diversified, helping you stay calm during market chaos, you start to focus on other new niche hobbies like collecting miniatures. Now you have a thriving miniature town in your living room. Since their tax smart tools help you keep more of your after tax returns, you're no longer afraid of tax day. You start to sleep better and remember to put on your PM moisturizer every night. People give you compliments on your glow. It gets kind of weird focusing on your life more than your money. That's the Betterment effect. Get started today@betterment.com that's betterment.com to start investing. Investing involves risk performance, not guaranteed. Betterment is not tax advisor nor should any information herein be considered tax advice. Please consult a qualified tax professional.
- [39:12]
B
So Liz and I have covered the news angle here and the insider trading component, but the last piece of this puzzle is the most important. Who is going to do anything at all about any of this, as you can imagine, politicians are starting to speak up and it's not a clean break along partisan lines. Sure, the Trump administration loves polymarket and Kalshi for a number of reasons. Donald Trump Jr. Is an advisor to both companies. And Trump and his inner circle repeatedly pointed to production markets as the real indicator that he was going to win the 2024 election. But as we've seen since the start of the year, some Republicans are starting to break ranks, even as the CFTC says it will sue any state that tries to regulate prediction markets markets. The governors of New Jersey, Utah and Nevada all seem prepared to go to court because prediction markets directly undermine the gambling taxes they collect from regulated sportsbooks. There's a host of other critics as well, all armed with different regulatory levels that might stop these prediction markets in their tracks. This is all going to get very messy this year. So I really wanted to dig in with Liz and where she sees this going and what we can learn from what happened with crypto. So this brings me to the regulatory piece and you actually started this conversation by saying they don't want to be casinos and the mechanism by which a prediction market operates is not the same as gambling. And I said they hate it when we call it gambling. And it's true that the mechanism is different. Right. Instead of buying odds against the house, you're buying contracts that other people can also buy the other side of and you can actually sell out of your bet early. The share price of your contract goes up and down. And that's actually what makes the prediction market work, is that it's a two sided market. So if no one's buying what you're selling, there isn't any gambling to be done. That's the entire argument for why this isn't gambling, why the gaming commissions in various states should not regulate these platforms, for why it's not creating an assassination market. Because you need to have somebody credibly buying the other side of your bet. Give these companies the benefit of the doubt. Is that meaningfully different?
- [41:11]
D
I don't think so. I mean, like, let's say Nilay, you and I decide that we're going to make a bet on what do you want to bet on the Green Bay packers winning sometime in the near future?
- [41:23]
B
Sure, it's rough. It's rough for me right now that you went there, but it's fine. It's fine.
- [41:27]
D
Yeah. Let me have fun. So we make this bet, right? And then like I decide actually I don't love my side of the bet. And so I Sell it to, I don't know, Dieter. And Dieter's like, oh, I don't love this bet either. So I'm going to buy your portion of the thing for less than you paid, and I just want to get rid of it. So I'm like, fine, there's still a bet happening. There's still, functionally at the bottom, an actual bet. The thing that I have just described is kind of convoluted, but the contract is still a bet. And if you think about futures contracts, which is the analogous thing that they want this to be, like, the origination of that has a commodity underneath, and the commodity for a long time was grain. That's, I think, originally what was going on on the Chicago exchange. And then you had, like, pork bellies and any of a variety of other agricultural goods. The idea was that at the point that the futures contract expired, you would deliver the goods. There's been a bunch of weirdness around people betting on futures contracts in this way. Like, every once in a while, oil goes negative because, like, some of the people who are goofing around and betting, like, realize they actually can't take delivery of the oil that's about to come due. And so they just need to get rid of their contracts. But that fundamentally is what a futures contract is. There's an asset underneath, and that sort of got abstracted into financial products, where the thing underneath is a stock, where you buy or sell a stock at a certain price on a certain date. And so I guess what they're trying to say is this is a second level of abstraction. There's a similar financial product, except the financial product underneath has to be a bet. That's just what the contract is. That's what you're saying. I recognize why they want to be distinct from gambling, but I can't say that I think it is.
- [43:14]
B
I have to ask you this because you also covered crypto for us. It feels like a straight shot from the crypto economy to gambling with real money in this way. And it's a lot of the same players. Do you think that there's as much of a connection or is that just vibes?
- [43:30]
D
It's a total straight shot. Not least because some of these players, some of these markets are trading in crypto. So, like, when we talk about the Venezuela bet, like, that person walked away with crypto, like, that wasn't a KYC transaction. This person has crypto that they are presumably going to launder before they cash out. So, like, to the degree that this is something you can follow well, maybe that's true on some of these platforms. Sure. But like, a bunch of them are built on crypto. That connection just is like, direct. So. Yeah, I mean, the other thing that I'll say about it is that we also saw that sort of gambling spirit behind the sort of GameStop phenomenon during the pandemic, where the actual underlying value of the company was irrelevant to what was going on in the market. I feel good about the stock was essentially what you were saying when you bought the stock. And I like the stock, famously, is what the rallying cry was. So there is this sense in which reality doesn't matter. The representation of reality matters. And for some of us who've read some French theory, this is a very uncomfortable place to be, but that's kind of where we are. And like, this sort of sense of financial nihilism, especially among younger people, is a really important part of this. Like, both the increase in inflation and the decrease in opportunities has sort of resulted in people being like, all right, well, if I ever want to be able to retire, I have to gamble and get really rich because I can't do it on my current salary. I'm just barely keeping my head above water. I can't sock away enough that I know that I'm going to be able to, you know, live out my golden years comfortably. So I. If I want to ever have real money, I have to gamble somewhere.
- [45:32]
B
I see that all over. I see that in our audience. I certainly see that in crypto. There was a part of me that thought the meme stock phenomenon was just a bunch of bored people at home during the pandemic. And now I'm increasingly convinced it's the entire economy in a way that is maybe not good. That said, it's still gambling. There are some states that collect a lot of revenue from legal gambling. There are some states that want these prediction markets to participate in that system so they can collect even more revenue. There are some states, Republican states, like Utah, that think gambling is immoral. And there's already a fight between Utah Governor Spencer Cox and the only commissioner on the Commodity Futures Trading Commission, Mike Selig. Mike Selig says he will prevent all states from regulating prediction markets. Governor Spencer Cox says, try me and find out. We can see it in New Jersey and Nevada that they would like prediction markets to regulate it the same way as their existing gaming industries. What is the likelihood that this bipartisan coalition of states and gambling commissions and anti gambling advocates is going to find a way to meaningfully regulate the prediction markets?
- [46:41]
D
Great question. I don't know the answer to that, by the way, because, again, I can tell you what happened. And one of the things that I can tell you has happened is that these prediction markets have hired Donald Trump Jr. As an advisor, and this administration is astonishingly corrupt. We've seen people have their SEC actions dropped, essentially after donating to Donald Trump. So the fact that Trump Jr. Is involved tells me that the feds are going to fight tooth and nail to avoid letting the states, you know, regulate this. So we're going to end up in court, and how that turns out is anybody's guess. And whether or not we decide that we're going to actually enforce the court's ruling is still anybody's guess. So, you know, to. To be continued, I suppose. But I think for now, I expect this to continue rolling out and continue trying to embed itself in the national consciousness in such a way that if there ever is any action against the prediction markets, you know, a lot of people are going to feel upset about it, and that that sort of public sentiment potentially protects them.
- [47:55]
B
I think there's something absolutely wild about famous sports stars becoming spokespersons for prediction markets. There is something very weird about our literal major leagues trying to keep gambling away for so long and now embracing it so wholeheartedly that the players are telling you to gamble. And I actually wonder if that's gonna cause this all to crack. Right at some point. The thing that you create is the sense that everything is rigged and all this insider information means that you will never get an edge and that you're just watching a giant conspiracy theory unfold, and eventually the bottom falls out of that. I think that is probably catastrophic. I think that is an outcome everyone should try to avoid. But it does seem like the outcome we are headed towards.
- [48:38]
D
I think it's also the reason that we initially had banned sports betting. Is it not like there very famously were a number of players who were disgraced because they had bet on their own games or thrown their own games? And it's also something that's like, in the history of boxing as well. You know, this is something that we have dealt with before, decided that we did not want, and got rid of. And now everybody who, like, experienced it and was like, this is bad is dead. And so we're gonna do it again and think it's gonna turn out different, I suppose.
- [49:12]
B
Well, no, we're doing it again this time with computers. That. That's what's different.
- [49:16]
D
Great.
- [49:16]
B
The last. The last time there weren't, you know, there weren't computer this time. There's KYC laws in computers. Besides just the catastrophic loss of trust and everything, is there anything else that you think would would flip the conversation? Is it just young men who, you know, by all sort of public opinion polling, know that gambling is bad for them stopping? Is it some other sort of, I don't know, catastrophe in the culture that makes more states more amenable to regulating these industries?
- [49:47]
D
I don't know what that would be. It could potentially be something in sports where we discover an entire team is fixing outcomes or that an entire league is fixing outcomes. It could be something else where, you know, we discover that some important politician has fixed an outcome and there is a real consequence, a real event that occurs because of this fixed outcome. But yeah, I think young men going bankrupt isn't going to move the needle. And it hasn't moved the needle so far because it's been happening pretty regularly with crypto for a decade now and no one cares. So I really think that we are headed someplace very, very bad and there doesn't seem to be a lot of urgency in preventing it. And then on top of that, a lot of our trust in our public institutions has really been shaken and is being corroded by the Trump administration, I think deliberately to benefit Donald Trump, which makes it even harder to try to stop this, because who would you trust to stop it?
- [50:50]
B
I don't know what happens next. Liz, I suspect we're going to have you on several times this year to figure out what's going on with these markets. You're covering them for us in great detail now. Thank you so much for being on Decoder.
- [51:02]
D
Oh, my pleasure.
- [51:04]
B
I'd like to thank Liz for taking the time to join Decoder, and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode, or really anything else at all, drop us a line. You can email us@decoderge.com we really do read all the emails. Or you can hit me up directly on Threads or Blue sky. We're also on YouTube. You can watch full episodes at Decoder Pod. That's the same hand you can find us at on TikTok and Instagram. Both platforms are a lot of fun. If you like Decoder, please share it with your friends and subscribe wherever we get your podcasts. The Decoder is a production Verge and part of the Vox Media Podcast Network. The show is produced by Kate Cox and Nick Stadt and edited by Ursa Wright. Our editorial director is Kevin McShane. The Decoder Music is by Breakmaster Cylinder. We'll see you next time.