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Foreign. I'm Dan Runcy and you're listening to Trapitol. Today we're going to talk about polymarket, Kalshi and the future of prediction markets. But first, let's walk through a hypothetical scenario. Let's say you're at dinner in LA with a few friends who happen to be Grammy voters. You yourself may not be a Grammy voter, but you're interested in the conversation and they are very candid about who they're voting for for album of the year, best new artist, who they think their other friends are voting for, and more. And you know for a fact that these people are very tapped in. They're like that one county in Arizona that tends to indicate which candidate will win the presidential election. That's who these people are. Now, you leave that dinner, you're not a Grammy voter. But what's stopping you from opening up polymarket, checking the market for album of the year, seeing what the activity looks like, and then putting your money on the album that they said they voted for? Is that insider trading or is that exactly how these apps are supposed to work? Because that question and that tension is the exact world that we're living in right now. On platforms like Kalsheet and polymarket, you can put your money on a prediction in a wide range of industries, from sports and pop culture and entertainment to macroeconomics, politics and more. The CEOs of both companies have done plenty of interviews recently to reiterate why they don't believe that they're sportsbooks and why they don't believe that they're gaming companies. If you speak to them, they'll say that they're building the new layer of financial infrastructure. And their platform is not where you place bets, it's where you make an event contract. They're there to hedge risk, help society get better information about the future. And they compare themselves more to NASDAQ than a sportsbook and think that if you want to outlaw what they're doing, then you should also have an issue with any financial exchange where you can buy and sell securities. Now, there's a lot of people who have heard that argument and rolled their eyes. If you put lipstick on a pig, it's still a pig. That's what the critics say. So today it's time to make a prediction about prediction markets. This episode of Trapital is brought to you by 2lost, which offers independent artists and record labels the largest global reach. The platform distributes music directly to over 450 platforms, including Spotify, Apple Music, TikTok, YouTube, and Amazon. You can monitor your sales streams and earnings data in a dedicated analytics portal. Access comprehensive daily trend reports and transparent monthly statements, seamlessly add payment splits for each release, and automatically pay your team and collaborators. You can get early access to future earnings from your music catalog and upcoming releases. To learn more, visit2lost.com that's T O O L O S T.com There is a strong case to be made that the macro and economic policy markets that are out there that are focused on consumer price index, inflation, interest rates, regulation, or elections can be used as real tools for risk management and forecasting. It's a type of thing that belongs right next to bond yields or foreign exchange numbers on a Bloomberg terminal. But there's also a very strong case on the sports and entertainment side, which is driving a lot of growth for these prediction markets. That side of the business needs a lot more regulation, and not just in a black and white legal versus illegal way, but for the same societal reasons that we already have regulation on sportsbooks, casinos, and companies like DraftKings and FanDuel. But first, let's do a quick history lesson on how we got here with prediction markets and then a deeper dive into those two buckets. I mentioned the macroeconomics and policy type of markets and the sports and pop culture entertainment type of markets. But this history lesson brings us back to the 1860s. From the 1860s to the 1930s and 40s, there were big public markets for most presidential elections. Brokers would stand outside of the New York Stock Exchange yelling the odds, and crowds of people would put money on whether or not they thought the Democratic or Republican candidate would win. And the newspapers were printing those odds every day like box scores. These weren't just two people arguing in some bar or saloon. This was a real market. But a lot of that faded away with the rise of Gallup and polling. It became a much more respectable way to talk about election probabilities. And the broader crackdown from the government on bookkeeping and gambling pushed a lot of that activity off of Wall street. Then in the 1980s, a group of economists from the University of Iowa started the Iowa Electronic Markets. It was a tiny prediction market. Most event contracts were capped around $500, but they could be used to make predictions on who will be the next president of the United States, where GDP will fall and more. And the government was cool with it because it was mostly framed as research, not gambling. But then we fast forward to the late 90s and the early 2000s. The dot com era hits and things start to get A little weird with prediction markets. There was this website called the Hollywood Stock Exchange, hsx. This was a prediction market where you could use fake money to make predictions on how well you thought an actor or movie would do in coming years. If a movie did well at the box office and you placed an early prediction on that or it exceeded its expectation, you, you could make more money. But if a movie flopped or if you overestimated demand, then you would lose some of that money as well. While HSX was fake money, it did a pretty good job of predicting how well a movie would do at the box office or the Academy Awards. And those HSX insights aren't just from research. I was one of those HSX users back in the dot com era. And let me tell you, on HSX in the early 2000s, horizontally, nobody was hotter than Orlando Bloom. The guy was young, coming off of Pirates of the Caribbean, Lord of the Rings. The way that people talk about Timothee Chalamet now is how people were talking about Orlando Bloom back then. Which sounds crazy to say now, but that was the time and that was hsx. And there were enough people that were playing HSX with fake money like me, which turned it into an attractive asset, which was later purchased by by Kantor Fitzgerald, who tried to turn HSX from a fake money platform to a real money platform. But Hollywood understandably freaked out. The studios, academies and unions all lobbied to Congress to stop it. And their pitch was that this would encourage insider trading, sabotage and create incentive for Wall street to root for certain movies to fail. Congress heard their complaints, put a ban to movie futures, and that was the end of Hollywood Stock Exchange. But HSX in Hollywood, one type of product. There were other products like Intrade that were based in Ireland that had prediction markets for presidential elections. And those also were outlawed. And there wasn't much regulatory appetite for this. So by the early 2010s, prediction markets were still largely looked at as research toys where the limits were capped at $500, the type of thing that can live in these gray offshore sites or on a website like Bodog, which would let you place a bet on the Oscars or the Grammys. But two big shifts happen in the 2000 and tens. The legalization of sports betting and the rise of app based trading platforms for stocks. In 2018, the Supreme Court overturned a federal law that had restricted legalized gambling on sports outside of Nevada. And they left it up to each state to decide. So by the mid-2020s, US sportsbooks like DraftKings, FanDuel and more are handling hundreds of billions of dollars annually and generating billions of dollars of revenue on their own. Check on your phone becomes normal. Sports betting itself becomes an industry that is lifting up a lot of the sports media companies and a lot of the sports leagues themselves. And at the same time, apps like Robinhood and plenty of others are making it easier than ever to open up your phone, download a trading app and make a quick trade on a security as easy as it is to order a car on Uber, order some food at doordash and any other thing that you can easily do on a phone. So legal sports betting plus app based trading plus the crypto rails that make the technology possible to turn any future event into a 24.7global market. And that's the context for how Kalshi and Polymarket became what they are today. Kalshi launches in 2018, and in 2020, Kalshi becomes the first platform which is registered as a designated contract market by the Commodities Future Trading Commission. And this registration is specifically for event contracts. So instead of the typical things that these commissions approve, like oil or S and P futures, you can trade on whether or not inflation will be above or below 3% next month. Will a particular policy pass, will the Fed hike interest rates and things like that. So it's structured like a futures exchange, but it's truly a yes or no on any future event. On the other hand, the Polymarket's origin story is different. It was primarily made for the crypto community and allowing them to place trades on chain for any type of event, sports, entertainment, crypto, politics and more. And that Commodity Futures Trading Commission had actually fined polymarket back in 2022. But things started to turn for polymarket in 2025 when the rules changed and the volume of trading opened up. Polymarket had acquired a regulated US Exchange as a wrapper to come back onshore in the United States. But now, with the billions of dollars raised and heightened attention, the regulators are forced to make a true decision on what Polymarket and Kalshi actually are. Are they risk management platforms and should be treated as such? Are they casinos in your pocket and should be treated as sportsbooks? Or are they something in between? And to answer that, it's helpful to break down the type of markets on both of these platforms into two buckets. Bucket A is for macroeconomics, finance and global policy. Things like inflation, consumer price index, oil futures, election outcomes, job numbers, interest rates, commodities, future weather events and climates, things like that. But bucket B is sports and entertainment. The Super Bowl, NBA Finals, World Cup, Oscars, Grammys, reality TV show winners, viral stunts. How many times Elon Musk tweets Bucket A has a plausible claim to be labeled as a risk management tool. If you're running a business like an oil rig, let's say you're my guy, Billy Bob Thornton and Landman, and you're running an oil rig. Your business is based on the weather, is based on inflation. And if there are extreme weather events, or if the inflation rate exceeds what you expected to, you can buy an event contract on a prediction market that pays off if inflation exceeds a certain level, if rainfall exceeds a certain level. So if that unfortunate macroeconomic event happens, your business may still get hit, but it won't get hit as hard. But that's the key word can, because Calcium Polymarket aren't out here saying show me your proof of business. Show me how vested you are in this business in order to take an event contract out. Anyone could take an event contract out at any of those events that I mentioned. Their platform makes no distinction if you're the CFO for British Petroleum, or if you're a retail investor that just graduated from college and now has some extra bucks in the bank and wants to see if you can make a little money. And just like in traditional futures trading, most of that volume is speculative. It's people looking for arbitrage. It's much less common to be that farmer that's trying to hedge their crops. Let's be real. But one of the reasons why Bucket A is not just grouped in with the sports and entertainment predictions of Bucket B is the value of information. There is plenty of evidence dating back decades from the Iowa electronics markets in trade, and even from Cauchy and Polymarket that do show that the activity in these prediction markets can be just as accurate and sometimes even more accurate than the expert forecasters in these respective areas. But don't get it twisted. These are not crystal balls. For all the praise that Polymarket got leading up to the 2024 presidential election by being one of the few places that did show that Trump was more likely to win the election in 2016, weeks before the presidential election, prediction markets only gave Trump a 20% chance of winning. So they were wrong then too. That said, the fact that prediction markets forced the users to put their money where their mouth is on their predictions is a very valuable data point that can't be ignored. But the information provided by these platforms is only as valuable as how representative the user base is. Let's go back to the 2024 presidential election, Polymarket has a high concentration of users that are pro crypto and are active in those communities, and many of the users in those communities are much more likely to be pro Trump than Pro Harris, which did skew the data set. Despite the accurate results and given the wealth concentration that can happen on these platforms, it's important not to skew the activity, volume and perception of of the information offered in a particular market. Can you imagine the activity if a few big whales made a prediction on a bank run? That's the type of an event contract that can create hysteria, lead to further activity and the collapse of financial institutions, all for the benefit of those that manipulated the market to see that outcome. If you thought the short squeeze from the GameStop situation was a shit show, I can only imagine what what could happen if these prediction markets got manipulated for banks, companies or any other financial institutions. A lot of those situations can be solved through regulation, but that's what these prediction markets and the broader regulatory infrastructure is trying to figure out right now. So Bucket A Bucket A is messy, but there is some defensibility despite all of the gray areas that exist. Lets take a break for our chart metric Stat of the week. The 2026 Grammys are right around the corner and given this episode on prediction markets, it was the perfect time to look at both Kalshit and Polymarket to see which Grammy Award has the most interesting activity on both prediction markets. The award that has the highest trading volume isn't Album of the Year or Record of the Year, but Song of the Year, which surprised me, but looking at the nominees it started to make more sense. Song of the Year is the biggest award at the Grammy's that features a song from the K Pop Demon Hunter soundtrack on both Kalshee and Polymarket. Golden by Huntrix, off of that soundtrack has the highest likelihood to win, 57% on Kalshi and 58% on Polymarket. This was an opportunity to make a prediction on one of the biggest pop culture phenomenons of 2025 and that did not exist in the other major categories at the Grammys. Golden, a song that's just five months old already has more than 1.1 billion streams on Spotify, is soon approaching 1 billion views on YouTube and continues to dominate across platforms. The Grammys are historically hard to predict, so let's see if the people making these predictions and end up right. Let's get back to the episode, but now let's get into Bucket B where there's a lot less nuance for Bucket B. Let's start with Sports. If you're using FanDuel and you want to make a bet on the Knicks game, and the Knicks are minus three and a half points that night, there's a few things. Technically, there is an odds maker who sets the line that you and other people are betting one way or another. The odds maker takes their cut, the vig. And while the game's going on, you're sweating watching the outcome to make sure that not only do the Knicks win, but do the Knicks win by three and a half? But on a predictions market, technically there is no odds maker. These are just other users that are making their predictions on the future outcome of the game. And the future outcome of that game can be whether or not the Knicks win by three and a half points. So you are technically having the same experience, even though the mechanics are different. And since this is a Knicks game we're talking about, you're not hedging your company's payroll. You're not trading on macroeconomic risk. This is pure gambling. And to be honest, from a consumer perspective, prediction markets might be a better deal. They have lower fees than a sportsbook. There's no one that stops you if you're winning too much money. And you can trade in and out of the same event easily before the event concludes. And given the legal gray area, DraftKings may not be available in your state, but Kalshee might be. And that's where this gets messy. Now, on the entertainment side of things, let's revisit that Grammy example I talked about at the top of the conversation. Grammys and Oscars, unlike sports, are purely subjective. The outcomes are based on other people's opinions, which can increase the likelihood for manipulation. The reason that Hollywood shut down the Hollywood Stock Exchange was because they wanted the surprises. They didn't want to create the narrative control. They didn't want the outcomes to be manipulated. And if you look at these industries, specifically the Oscars and Grammys, the millions of dollars that is spent annually on, for your consideration, advertising. Because the record labels or the movie studios know how valuable and impactful winning these awards can be. There was this great book I read a couple years ago called Oscar wars that breaks down all of the mechanics for how the Oscars became the annual machine that it is today. And one of those chapters does a full deep dive on Harvey Weinstein, Miramax, the Weinstein Company, and how aggressive Harvey Weinstein was at trying to win Oscars. All of the manipulation, deception, talking negatively about other films, working behind the scenes, bending the rules in order to get his film ahead. Weinstein today may be behind bars and not involved with this process, but that same mentality exists with a lot of these studios. Companies like Netflix spend tens of millions of dollars annually just to win Best Picture. When there's that much money at stake, it's hard to ignore the impact of what the results show on these prediction markets and how that could impact the votes from the tens of thousands of voters in their respective academies. Now, prediction market manipulation is an unfortunate topic to talk about, but it needs to be discussed. And again, this is why the regulation matters. I break it in three tiers. The first tier is low stakes chaos. Every day you'll likely find a market that says, how many times today will Elon Musk post on X? Most people may look at that as a fun thing, a speculative prop bet, no different than betting how long someone will sing the national anthem for at the Super Bowl. But certain people who put money on that event contract may try to do certain things to influence that outcome. Will they start posting replies to Elon Musk? Will they start elevating and reposting the type of content that they hope that Elon Musk sees? Some people may win. Some people may lose. They may win 50 bucks, lose 50 bucks. Low stakes. But that's tier one. Tier two is where things can get uncomfortable. For instance, will LeBron James miss more than 20 games in this 2025, 2026 NBA season? Will Killian Mbappe get hurt during the World Cup? Will bank of America need a government bailout by the end of 2027? Now, we've created a structure that incentivizes people and gives them financial rewards. If a star athlete on a team gets injured, if there is a bank run, if there is financial collapse, you may hear this and say, hedge funds have been doing this for years. People can short stocks easily. What's the difference? The difference is that there are regulations in place in those areas and those types of regulations do not currently exist in these prediction markets. And tier three, sadly, is where things get really scary. Will XYZ politician be assassinated by the end of their term? Will there be a terrorist attack in this country by the end of the year? And at that point, what's the difference between a forecast and a bounty? Because even if no one acts or tries to manipulate that market, having financial reward that is tied to a violent event is a dangerous game to be in. Now again, some people may hear this and talk about defense contracts, companies that profit from war. I get all that. But again, that is regulated. This is not, it's worth having a deeper look at who's using these prediction markets and what type of event contracts are they making predictions on. On Kalshi, nearly 90% of the volume is sports. On Polymarket, that number is closer to 35, 45%. Crypto and politics is still quite heavy there, but Kalshi Sports has taken off big time and they're leaning even more into politics given the partnership with cnn. The trading activity on both platforms is like a barbell in terms of its users. One side of that barbell is retail, where most of the users live. You can think of these users like the type who may use a Robinhood or Coinbase or DraftKings or FanDuel. One user in particular that's gotten a lot of attention is a user named Doma. He was interviewed by 60 Minutes and has made a lot of money over the years in gambling, sports books, but also on prediction markets. He won hundreds of thousands of dollars in 2024 by accurately predicting that JD Vance would be picked as Trump's running mate. And he made that pick from an article he had read back in 2016 where Trump said that one of the reasons that he picked Mike Pence to be his 2016 running mate was because Pence was a one syllable last name like Trump, Trump, Pence, Trump, Vance. And Vance was only two letters off from Trump. It's the type of insight that most political experts may have overlooked, but that's one where Dahmer accurately predicted. He's also making accurate bets on Best Picture Oscars. For instance, in 2009, he bet that Avatar would lose Best Picture because he didn't see the older Academy voting for a movie that had a bunch of blue animals in it, as opposed to a movie like the Hurt Locker, which was much more of the typical war drama that the Academy voters loved. But on the other side of the barbell, there are fewer players, but they make big bets. The crypto whales, the prop shop, the quant funds, they're doing that heavy lifting to find liquidity and arbitrage. And frankly, more of those users could make a claim that polymarket, Kalshi and other prediction markets are helping them with hedging risk information and the type of thing that could stabilize their business. But if the regulation limited the use of these prediction markets only to those type of users, the volume would drop considerably. Which brings us back to regulation. Currently, prediction markets live in these three worlds. They're part derivatives, part securities and part gambling. And the Commodity Futures Trading Commission already wants to put a harder line on these prediction markets and is currently proposing a rule that would treat certain event contracts like sports, entertainment, assassinations, terror as things that are contrary to the public interest. And the states are getting aggressive too. The Attorney Generals in several states have came out and said this looks like sports betting and we need to treat you the same way that we treat the sportsbooks. But the rails and infrastructure that these prediction markets live on can make any regulation fuzzy. Look at polymarket. It lives on crypto rails, it was created offshore and on chain. In a post regulation world, what's stopping someone from setting up a VPN to bypass any of the regulations that have been in place? But here's my prediction on prediction markets and where this is going. That Bucket A that we talked about, the macroeconomic, finance and politics driven event contracts, those will be treated under the Commodities Future Trading Commission and be regulated the same way that oil futures and derivative markets are. Sure there's some messy activity that will exist there, but that's where those will live. Bucket B Though the sports, entertainment and pop culture related events markets, those will be treated as gambling and those will be regulated the same exact way that DraftKings, FanDuel and others are on a state by state basis. And further, both Kalshi and polymarket know that they offer tremendous value, insights and information to people who may check the platforms on a regular basis but may never put their money on an actual prediction themselves. To date, I've yet to put my money on any prediction on Kashi or polymarket, but I check these platforms often for research for insights because it helps with the process and I know I am not alone in that. But regardless of what the regulation looks like and what the future holds, these prediction markets aren't going anywhere. Just like AI, the genie is out of the bottle in some shape or form. They're here to stay. The real question now though is where do we want these markets to live, what do we want them to look like and how do we toe that line between a risk information tool and a brightly colored casino app on your phone? And that's my prediction on prediction markets. Thank you to our producers G and Eric for everything that you do on the audio and video side to help make trapital possible. And thank you for listening. If there's one person you know that would really enjoy trapital and get a lot out of listening to the show, then send them a link. Whether it's this episode on prediction markets or any of the conversations that we have you sharing that helps trapital reach the right people and word of mouth is the best way to get the word out. And if you have a few moments as well, if you could either leave a review, leave a comment that helps the algorithm on those platforms reach the right people. And if you can make sure that you're following the show, tap that start button on Spotify, Apple Podcasts, wherever you get your podcast so you get the next episode as well when it drops. Thanks again. Talk to you next time.