While the internet swarmed around submersible news and memes, some people saw an opportunity to make a few bucks.
They placed their money on a relatively obscure prediction market website, Polymarket, which offered users the chance to place bets on the question: “Will the missing submarine be found by June 23?” The market drew $2.3 million in volume, according to the website.
It turned into a resurgent moment — albeit a dark one — for online prediction markets. Polymarket, which launched in 2020, is one of many online prediction markets that have emerged in recent years to take bets on a wide variety of current events.
It’s also one that has embraced blockchain technology as a way to possibly sidestep regulation that has scuttled other prediction markets.
Neeraj Agrawal, director of communications at Coin Center, a Washington-based think tank that advocates for the free usage of cryptocurrency networks, called regulation of prediction markets that use crypto “an open question.”
Agrawal said he had mixed feelings about the market betting on whether the submersible would be found, something he calls “the first viral moment for a crypto prediction market.”
More than 60 markets are currently available on Polymarket, including whether Twitter will sue Meta by July 15, who will win the Guatemalan presidential election and whether there will be an explosion at the Zaporizhzhia nuclear plant in Ukraine by July 12.
But it’s the grimmer markets that have drawn some attention. Shortly after the sub market, focus shifted to the Russian coup and the likelihood of Russia using nuclear weapons by June 30, along with other Russia-related trending markets.
Polymarket described the sub market as having “nothing to do with any outcomes regarding the passengers.”
“We understand that there has been some confusion stemming from the misconception that our prediction market related to the passengers’ fates. We want to stress that this was not the case,” Polymarket wrote. “Our goal is not to profit from unfortunate events like this — which we didn’t — it’s to help people better understand the world around them.”
Polymarket, like most prediction markets, works by allowing users to bet on the particular outcome of certain events. Such markets initially became popular around presidential elections. Polymarket describes itself as an “information market” that sells shares to reveal the probability of an outcome. Each share costs some fraction of $1. Once the market closes, the correct answer is valued at $1 per share, and the incorrect answer at $0.
The payout of each bet depends on the current market price, a proxy for how likely bettors believe a certain outcome will be. A market on a possible cage fight between Mark Zuckerberg and Elon Musk was almost evenly split. As of Friday afternoon, a $10 bet on Musk returned $20.85 (or about $0.48 per share), while the same bet on Zuckerberg returned $17.88 (or about $0.56 per share).
Unlike previous prediction markets, Polymarket uses blockchain technology for much of its operation. Users are required to buy USDC tokens, a type of cryptocurrency known as stablecoin whose value is pegged to the U.S. dollar, and its shares are blockchain-based contracts, also known as smart contracts, that execute without any central authority.
Agrawal said in centralized markets there is typically a person or company that “holds the market.” This structure disappears in a decentralized market, which makes it an open question as to how to regulate it.
It’s not clear how much money is bet on Polymarket on any given day, but the platform’s website shows sizable trading volumes for some markets, including $4.6 million for “Who will win the U.S. 2024 Republican presidential nomination?”
Such markets are legally dubious. Polymarket operates globally but is view-only for U.S. users. The Commodity Futures Trading Commission (CFTC), the primary U.S. regulator of derivative markets, fined Polymarket $1.4 million in 2022 for failing to register as a swap exchange facility or designated contract market.
Other prediction markets have faced similar regulatory scrutiny. The CFTC has tried to stop Predictit, one of the most successful online prediction markets, from operating in the U.S. Predictit is fighting those CFTC efforts in court.
Prediction markets predate the internet by hundreds of years and have been studied as a way to gauge public sentiment. Rebecca Haw Allensworth, a professor at Vanderbilt University’s School of Law, said the main goal of prediction markets was to pool together varying knowledge from various sources to predict an outcome.
In an email statement to NBC News, Polymarket described itself as the solution to misinformation and sensationalist journalism.
“Polymarket’s mission is to serve as an alternative news source, leveraging the wisdom of the crowd to get real-time, unbiased forecasts about the things that matter most,” Polymarket’s team wrote.
Allensworth noted that prediction markets have their own problems when it comes to manipulation. She said that opening betting pools to the public leaves prediction markets susceptible to information cascades in which one person with a large reach or who is perceived as knowledgeable can get people to pile on to their answer,
In the case of the grim viral events making waves on the market, Allensworth does not see a chance for the statistics to be helpful or effective.
“It’s really about entertainment,” she said.
Michael Abramowicz, a professor who specializes in law and economics at George Washington University and wrote “Predictocracy,” a book on prediction markets, said prediction markets lost popularity in their traditional form once they began offering forecasts of terrorist events in 2003.
Basing the market in crypto, however, opens the door to more edgier markets.
“Crypto prediction markets are more likely to be able to include a variety of topics because they’re more difficult to regulate,” Abramowicz said. “The more regulated prediction markets are, the more people will turn to crypto alternatives.”