(Bloomberg) -- On the top floor of a luxe hotel outside the Republican National Convention, amid a coterie of neatly coiffed GOP operatives in tailored suits, one person stood out in his dark T-shirt and a mop of curly hair.
That was Polymarket’s Shayne Coplan. The 26-year-old college dropout was introducing himself as the force behind the crypto-betting platform, which takes wagers on everything from election winners to whether the US will confirm the existence of aliens. At one point, Coplan’s schmoozing got him a seat next to Donald Trump Jr.
President Joe Biden’s withdrawal from the US race, the assassination attempt on Donald Trump and intrigue about the Democratic ticket have propelled open wagers about various US election outcomes close to $1 billion on Polymarket, a 500% jump over the past few months. They’re growing even though Polymarket says it has excluded US users since 2022 as part of a settlement with federal regulators.
The surge includes new bets from Americans, according to interviews with US-based users who have recently placed wagers on the platform. In practice, Polymarket’s system for blocking US users is easily circumvented by using virtual private networks, and social media is rife with instructions on how to do it.
Multiple traders’ social media accounts describe their activities on Polymarket and other exchanges like PredictIt and Kalshi that are open only to US residents. Some bettors told Bloomberg News they’ve been placing wagers despite being US-based traders. They asked not to be identified for fear of crimping their income from the platform. The traders requested anonymity to describe their interactions with other US-based Polymarket traders.
Polymarket hasn’t been accused of violating its agreement with the Commodity Futures Trading Commission, but its soaring popularity is setting up a clash between the anything-goes crypto world and US regulators. The agency is pushing for a clampdown on election-related betting and seeking more authority to police digital assets, while crypto companies are currying favor with politicians and arguing that existing rules don’t apply to them.
A representative for Polymarket declined to comment for this story. A CFTC representative declined to comment.
Crypto Friends
Election betting has driven the biggest surge in activity on Polymarket, and former President Trump has even shared the site’s odds on the likelihood of his return to the White House. According to the most popular gamble on the prediction platform, Trump has about a 55% chance of becoming president again. A Bloomberg News/Morning Consult poll, published July 30, showed Kamala Harris has wiped out Trump’s lead across seven battleground states.
Deep-pocketed crypto champions hope a potential second term for Trump would reel in the regulatory onslaught. “The day I take the oath of office, Joe Biden, Kamala Harris’s anti-crypto crusade will be over,” Trump told a Bitcoin 2024 conference in July. It was an about-face for Trump, who previously said he considered the asset class to be a crime-riddled scam.
In 2022, Polymarket reached a $1.4 million settlement with the CFTC over allegations it ran an illegal unregistered platform for trading options contracts tied to real-world events. Contracts currently on Polymarket let traders bet in categories such as politics, sports and pop culture on events such as “Will Taylor Swift endorse Kamala Harris?” or which country will win the most medals at the Olympics.
To the CFTC, those contracts are derivatives that can come under the agency’s jurisdiction. In its settlement, Polymarket didn’t admit any wrongdoing, but it agreed to block US-based traders from its platform, and amended its terms of service to prohibit use of a VPN to get around its system for blocking US-based transactions.
Human Billboards
At the Republican convention in Milwaukee, the schmoozing shifted from the convention floor at the Fiserv Forum to the nearby Trade Hotel. A room, with a large square bar flanked on two sides by booths and opening into a small dining room, was packed every night with a Who’s Who of the Trump world and an array of lobbyists, GOP faithfuls and business leaders trying to register their presence.
On one night, Coplan was seated at a booth with Donald Trump Jr. and others including prominent Trump money men such as Omeed Malik and venture capitalist Shervin Pishevar. Meanwhile, Polymarket made itself known to GOP attendees with branded camouflage-print baseball caps scattered around the convention, and the firm offered people up to $1,050 to walk around as human billboards for three days, according to a casting call on Backstage.com. Its elections markets were displayed on screens at bars nearby.
Earlier this year, Polymarket plastered champion boxing-themed posters around Manhattan touting the Trump v. Biden elections odds, and recently tapped political polling analyst Nate Silver as an adviser. At the time of the announcement, Polymarket’s vice president, David Rosenberg, told Axios that “all of the trading is happening outside the US.”
The advertising blitz was fueled by a fresh influx of capital. The company said in May it raised $70 million across two rounds from the likes of Peter Thiel’s Founders Fund and Ethereum co-founder Vitalik Buterin.
Crypto Transfers
Polymarket describes itself as a “decentralized finance” — or DeFi — platform. Wagers are often structured as binary, “yes-or-no” questions. Trading on Polymarket can be done only with USDC, a widely used digital currency. The company instructs traders to fund their Polymarket accounts from external digital wallet providers including Coinbase, PayPal, MetaMask and Robinhood Crypto.
Crypto transfers from some of those apps, including PayPal and Robinhood, are available only to US users. This means that, at least for PayPal and Robinhood users, only people based in the US would be able to fund their Polymarket trading accounts using those methods.
Coinbase allows crypto transfers, including USDC, in more than 170 countries. MetaMask is a widely used “self-custodied” wallet, meaning a user has complete control with no restrictions on their use of their crypto — much like a bank can’t touch the cash in a wallet.
The CFTC has brought enforcement actions against other DeFi exchanges for failing to register and illegally offering crypto products to retail traders. In one of those orders, the commission said that screening for US-based IP addresses isn’t sufficient to keep American users from accessing prohibited sites.
Tougher Measures
CFTC enforcement Director Ian McGinley has touted the settlement with Polymarket as further proof that “all derivatives markets must operate within the law regardless of the technology or legal structure used.”
But for the broader industry, those settlements “are lacking in providing any facts or remedial steps that DeFi protocols should take to effectively block US users,” said Elizabeth Davis, a partner at Davis Wright Tremaine and a former CFTC chief trial attorney for enforcement. “Taken together with the lack of regulation, DeFi protocols currently are not left with much guidance on how to effectively comply.”
The use of crypto for payment sets Polymarket apart from its primary competitors, Kalshi and PredictIt, but all three could benefit if a new administration takes a more favorable view of their business.
In May, the CFTC proposed banning derivatives from being used to bet on US elections and sports games. Kalshi, which is registered with the CFTC, is suing the agency for blocking its efforts to offer political contracts. PredictIt is suing to continue offering elections contracts.
For now, the political winds are blowing against regulated elections betting. Those contracts, CFTC Chairman Rostin Behnam said in May, “ultimately commoditize and degrade the integrity of the uniquely American experience of participating in the democratic electoral process.”
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