The growth story of the crypto prediction market Polymarket: The founder dropped out at 22 to start a business, using bets to understand the real world

Author: Weilin, PANews

The attitude towards cryptocurrency has become an important topic in the upcoming U.S. elections in November. Interestingly, users are not only seeing traditional polling agencies continue to provide data but also the rise of the cryptocurrency-based prediction market platform Polymarket. As of May 16, nearly $127 million has been bet on the topic of "the winner of the 2024 presidential election," with $15 million betting on Trump, whose winning probability is 50%, and $14.55 million betting on Biden, whose winning probability is 42%. The winning probabilities for the other three candidates do not exceed 3%.

Just a few days ago, on May 14, Polymarket announced that it had raised $70 million through two rounds of financing, with the latest round led by Peter Thiel's venture capital firm Founders Fund. Polymarket's investors also include Ethereum co-founder Vitalik Buterin.

The establishment of Polymarket is related to the widespread dissemination of misinformation during the COVID-19 pandemic. The project was founded in May 2020, and the platform went live in mid-June of that year. It coincided with the U.S. elections in 2020 and 2024, intertwining significant events that gradually brought this cryptocurrency-based prediction market platform into the public eye and market spotlight.

Dropped Out of NYU's Computer Science Program, Advocating Hayek

Polymarket founder Shayne Coplan is 26 years old this year, and his LinkedIn page shows that he once studied computer science at New York University. According to public reports, in many ways, Coplan embodies the spirit of a new generation of entrepreneurs. He is an artist who became fascinated with P2P file sharing in an era when people loved to share music. From that point on, he was introduced to Bitcoin and easily understood the intrinsic value of a global peer-to-peer asset network.

When Ethereum announced its launch in 2014, Coplan became an early follower and is believed to be the youngest participant in the presale. Two years later, at the age of 18, Coplan began participating in blockchain projects. In June 2016, he interned at Chronicled in the San Francisco Bay Area, where his responsibilities included "following the Chief Product Officer and helping to determine how products interact with the Ethereum blockchain."

Since then, Coplan has remained immersed in cryptocurrency, launching a series of startups, including a DeFi startup called Union.market, which is directly the predecessor of Polymarket. Although he later dropped out, he had been contemplating and understanding some specific issues faced by prediction markets and decentralized markets over the past few years. He referred to Hayek's famous paper "The Use of Knowledge in Society" as early entrepreneurial inspiration, and Coplan also drew on years of academic research on prediction markets. Hayek's relevant idea is that when economic incentives are at play, people are more likely to accurately understand uncertain probabilities. People read more and better sources of information, think deeper, and try to place their money on the outcomes that are more likely to occur.

"When the coronavirus outbreak happened, there was so much uncertainty and so many different viewpoints, (I thought) if there were only a free market on these topics, people could connect their money with their opinions," Coplan once told the media.

On June 16, 2020, the beta version of the crypto prediction market Polymarket was released, but it faced high friction for users at the time, only supporting Metamask login, high Ethereum transaction fees, and limited liquidity. Three months later, with the release of Polymarket's second phase, Coplan's approach to building Polymarket became increasingly clear. The platform was migrated to Ethereum's second layer Matic (now Polygon) to reduce gas fees for betting. He also designed a system for users without Ethereum wallets. All bets were made using the USDC stablecoin, which is pegged to the dollar and can be purchased with debit or credit cards.

Just a few months after its initial launch, Polymarket successfully attracted attention, completing a large seed round of $4 million, led by well-known investors Polychain Capital and Naval Ravikant.

The 2020 U.S. elections became a catalyst for Polymarket. On November 3 of that year, influenced by the U.S. elections, Polymarket's trading volume surged to $1.297 million, going from obscurity to prominence. Trading volume and monthly active users of Polymarket since its launch in 2020

With more positive feedback from the community and recognition from the market, Polymarket later attracted Series A funding, with General Catalyst helping the company raise $25 million in this round, with participation from Airbnb's Joe Gebbia and Polychain.

Recently, Polymarket's Series B funding reached $45 million, led by Peter Thiel's Founders Fund and existing investors 1confirmation and ParaFi, with participation from Ethereum co-founder Vitalik Buterin, Dragonfly, and Eventbrite co-founder Kevin Hartz.

Fined $1.4 Million by CFTC, Controversy Over Submarine Prediction

Polymarket's development has not been smooth sailing. In January 2022, Polymarket was fined $1.4 million by the Commodity Futures Trading Commission (CFTC) for regulatory violations and received a cease and desist order, due to not being registered as a Swap Execution Facility. As part of the settlement agreement, Polymarket promised to reduce its services in the U.S. and continue operating overseas.

However, Polymarket has also strengthened its compliance efforts. In May 2022, Polymarket appointed former CFTC commissioner J. Christopher Giancarlo as the chairman of its advisory board.

In addition to this fine, in June 2023, a tweet about the Titan submersible's outcome went viral, bringing significant negative impact to Polymarket, according to Mother Jones. There was a bet on Polymarket regarding whether the submersible would be found by a certain date, with users betting over $300,000 on whether the missing submarine would "be found before June 23." This sparked discussions online about the ethical issues of profiting from potentially fatal events.

"What stage of capitalism does betting on someone else's death belong to?" one Twitter user asked, posting a screenshot showing the odds on Polymarket. This sentiment struck a nerve, and the post quickly went viral, garnering over 9,000 retweets and more than 150,000 likes. "It's just crazy. Imagine making money off whether someone will die," another user replied, which received over 1,000 likes. Others began to directly criticize Polymarket for opening this prediction.

In response to the ethical issues, the developing Polymarket described the submarine market as "unrelated to any outcomes for the passengers." "We understand that there has been some confusion due to misunderstanding that our prediction market is related to the fate of the passengers. We want to emphasize that this is not the case," Polymarket wrote. "Our goal is not to profit from this unfortunate event. We have not done so. Rather, we aim to help people better understand the world around them."

Breaking Through in the Crypto Prediction Market Space, When Will It Mature?

Prediction markets have a long history, but in the crypto space, the first decentralized prediction market was Augur, launched on Ethereum in July 2018. Augur was developed by the Forecast Foundation, which was founded in 2014 by Jack Peterson, Joey Krug, and Jeremy Gardner. The Forecast Foundation was advised by Ron Bernstein, the founder of the now-defunct company Intrade, and Ethereum co-founder Vitalik Buterin.

In addition to Augur, there are other prediction markets in the current market, including Gnosis, Hedgehog, PlotX, Projection Finance, Sanr.app, Better.fan, Feel.market, and more. However, Gnosis shifted to community management projects after failing to meet its expected goals. Other crypto prediction markets, such as Veil, simply shut down.

Early cryptocurrency-based prediction market experiments, such as Augur and Gnosis, were also severely impacted by Ethereum's long-standing scalability issues. Additionally, they initially used native tokens, which increased friction in user experience. Polymarket learned from the mistakes of its predecessors.

After four years of development, Polymarket has successfully "broken through" and is even cited by media reports and industry research as a reference for public opinion on some key issues.

As of May 14, Polymarket's website features many hot topics: Who will win the 2024 presidential election? Will the Ethereum ETF be approved by May 31? Will $GME reach an all-time high before Friday?

According to Token Terminal, Polymarket's highest trading volume this year occurred on January 10, reaching $5.73 million. The platform experienced significant growth in monthly active users in January, rising from 1,600 on January 1 to 4,100 on February 1, with a slowdown in monthly active users after April. As of May 15, the total amount predicted on Polymarket has reached $202.7 million.

After the recent financing, Coplan stated on LinkedIn, "The most gratifying thing is to see Polymarket widely adopted as an alternative news source. The trend is clear: because of Polymarket's existence, people are more informed about what is happening in the world. They are fed up with those blustering experts and algorithm-generated news. In this age of rampant misinformation, Polymarket provides a new form of information driven by financial incentives for truth, rather than clickbait. People want fair information. Polymarket is providing that."

As a firm believer in market theory, Coplan sees prediction platforms as a real way to better understand reality.

Polymarket has attracted the attention of many industry insiders. Vitalik has used Polymarket to track the board exit event of Sam Altman. a16z Crypto advisor Packy McCormick has also said that Polymarket's page might be the best place on the internet to start a day.

Riding the wave of social hotspots and supported by celebrity users, Polymarket has become the largest crypto prediction market. However, to achieve its original intention, continuously optimizing product experience and avoiding risks and ethical dilemmas are crucial challenges for future development.