The Biggest Legal Scam Ever.

- You've probably seen the ads, Kalshi, Polymarket. The pitch is that you can bet on anything, the election, the Super Bowl, whether or not aliens will land in 2026. Well, I put $1,000 of my own money in to find out, are prediction markets a scam? (upbeat music) So let's start with Polymarket. Let's see what we got. So there's $21 million in bets on what will happen before GTA VI. 55% that there'll be a Russia-Ukraine ceasefire. We live in a world where you're betting on whether or not a war will have a ceasefire before a game comes out? Actually, I'm kind on board with this. I feel like some stuff is dumb, but that's kind of funny. How it works. Buy yes or no shares depending on your prediction. Odds shift in real time. Place a trade, fund your account with crypto, debit card, or bank transfer. Oh, they don't take credit cards? I mean, that's probably for the best. - Makes sense. - But, okay. Oh, "By trading you agree to the terms of use "and attest that you are not a US person, "you are not located in the US, "and are not the resident of "or located in a restricted jurisdiction." Wait, I thought you could do this in US. - [Alex] Well, remember how we said something about different platforms being various levels of legal? - Polymarket aren't legal yet, are they? - [Alex] Not in the US. No, not really. - I am not gonna be doing any crimes on camera. I am a good, law abiding citizen. Let's go to Kalshi. (coughs) Okay, so quick context, because while they're both prediction markets, Kalshi and Polymarket aren't actually the same thing. Polymarket's the one you've probably heard of, and they're also the slightly more, shall we say, problematic player in the space. - How do you feel about war? - And as we've just seen, they're technically illegal in the United States. Now Polymarket US, which is its own thing, is coming, if you wanna sign up for the wait list. But for right now, if you're an American, and you keep hearing about Polymarket, well, you've been hearing about a website that you're not supposed to put money into. Kalshi is the one I can use. It is an actual CFTC regulated exchange, meaning it's approved by the same federal agency that oversees other futures trading. Now how betting on aliens is considered the same kind of futures option as farmers hedging against a dry season is a whole other question. But that's besides the point. So there were definitely a few steps I had to go through. So they needed email, a phone number, my name, my address. They wanted to scan my ID and take a selfie. And I also did have to give them the last four of my social. But after doing Rent-A-Center, I guess I'll just give that out to anybody at this point. So why don't we take a closer look? I do have, as you can see here, $1,000 in my portfolio, which they apparently pay... "Please check the information you introduced is correct "and try again." What? They take my money? What do you mean information? I gave you it all. Give me some options. What are we gonna bet on? - Pokemon. - I mean, sorry. Where are we going to financially make questionable decisions on? - [Ken] Pokemon. - I don't think... Is there Pokemon? Whoa. Okay, so you can bet on the price of packs. - [Ken] This is right up your alley, dude. Go. Go for it. You don't even have to buy packs anymore. - Who wants to buy Pokemon cards to own them? Why don't you just bet on value of Pokemon cards? - [Ken] Exactly. - My goal for this video is not to just say, "These are dumb and bad." Like, I wanna understand how these things work. I wanna understand how legal things like Kalshi are, how they've worked through these loopholes, and ultimately what it's actually like to really put time, and money, and effort into, can you win, how does it work, and what are the downsides? Because I'm pretty skeptical. But you can understand the pitch. No house, no bookie. You're not betting against Kalshi, you're betting against other people. Kalshi just takes a cut of every trade. To learn more, I spoke with Dr. Robin Hanson, the father of modern prediction markets. - I worked with this group called Xanadu, trying to invent the World Wide Web. And their vision, in part, was that the web would make it easier to find criticism and that would make public conversation healthy. And I started to have doubts. And so I wondered, what else could we do instead? You know, those of us on the project believe that many public consensus were stupid, and misinformed, and misdirected. The idea was accessible to me that, why not have betting markets? And couldn't the betting markets be a better, healthier context in which we would come together to form a consensus. That was my initial concept in the late 1980s. - So that's the theory at least. Now, Kalshi and Polymarket aren't really what Dr. Hanson had in mind, but the core concept is here. In a market where people put their money where their mouth is, the prices are likely to reflect what the crowd actually believes, not what they say they do. - And of course, I started to read more about the state of literature on financial markets, and I learned that the standard story on financial markets is that, in fact, it's hard to find information they don't embody. And then when we've had head-to-head comparisons of financial markets to other institutions at the same time, same topic, similar resources, the markets just consistently do better. - Look, I'm not a huge fan of gambling. I personally believe that some friction in gambling is a good thing. A trip to Vegas is a very different proposition than casually tapping a few buttons on your phone. But let's do this. $1,000 to see how this actually works. (screen whooshing) Look, I don't know if this is for me. (Austin laughing) So I've been using Kalshi for a little over a week now, and I just don't know what I'm supposed to be doing, because look, I think what most people do with Kalshi is they take bets on things that they're really passionate about. But not only am I trying to not get Martha Stewarted, but even the things that I am passionate about, I feel like are really boring, right? Like, so I've made some bets. I'll actually show you my portfolio right now, which I am exclusively down on basically at this point. So I bet on some F1 stuff. But the problem is, there's no F1 races right now, and most of the bets that are there are like, you know, what's gonna happen at the end of the year? So they're not really exciting. I bet on a Pikachu card going up, which I am making some money on. I've taken a massive hit on betting on GTA VI, which at this point, at least as I'm recording right now, seems like they're about to, like, bring out a new trailer and confirm stuff. So I'm way down on that. The one that I was doing okay on for a minute is betting on aliens. That's also not exciting. Like, I understand there's a fun factor here, 1,000%, but to me, it doesn't click on betting real money on real world things. I'm trying to get it, but I'm not really getting it. Here's what I keep getting stuck on. It's not that I don't personally resonate with this stuff so much. I mean, I get it. Gambling is fun. The bigger question is, why are prediction markets suddenly everywhere? The ads all over sports on TV. The integrations on cable news. I mean, somebody decided this needed to be in front of all of our faces all the time, and it's working. Kalshi and Polymarket combined did about $50 billion in trades last year. They did that much again in just March and April of this year. Something else was going on here. So I reached out to a good friend of mine, Joon Lee, who is an independent sports journalist and who has done some great reporting on the rise of sports betting. - At the beginning it felt like the small, kind of niche thing. And then, especially over the course of the last year and a half, it's really exploded in a way that I think it's been kind of surprising. I think that people within the industry, both on the sports gambling side and on the prediction market side, I think have been surprised at how rapidly it's increased. And I think the breaking point moment for me was not even in sports. But I live in New York City and I was walking around during the Democratic primary of the mayor's race last year between Andrew Cuomo and Zohran Mamdani. And you would see these massive billboards on the sides of the subway basically, being like, "Look at the live ads "for the race between Andrew Cuomo and Zohran Mamdani." It felt like a kind of brick wall hitting me, because it was like, "Oh, this is such a dangerous, "slippery slope when you're taking sports logic "and applying it to something like politics, "which affects all of our lives on a day-to-day basis, "even if we don't want to think about it." - Yikes! The whole pitch is that these things are supposed to be different from the shady, old sportsbooks. You know, it's more transparent when you're betting against people, and not the house. Dr. Hanson's whole vision was about better information, not about late-stage capitalism. But it never quite works out like that, does it? Polymarket and Kalshi aren't blowing up, 'cause people are finding so much value in the information they provide. It's because of a serious marketing push. - Well, the marketing phrase that Kalshi uses is that the sportsbooks are rigged against you. Kalshi is decentralized. You're betting against the people. The reality of that is that a lot of these kind of private equity and, like, venture capital, like, these major financial firms that control Wall Street are actually setting the markets for it. And so the odds on these gambling markets in many ways aren't any different from what you would see on a sportsbook. But the marketing campaign, because of kind of the less centralized, less regulated nature of these prediction markets, it kind of pushes people towards this idea that you're just betting against someone like me or you, when in actuality you're betting against these massive Wall Street firms. And so- - Talking to Joon really opened my eyes to the biggest use of prediction markets, sports betting. By some estimates, it's around 90% of the volume on these markets, which is far above betting on, if the president's gonna say a specific word in a speech or if those aliens are actually gonna show up in 2026 or not. So since I'm not having a lot of luck betting on the boring stuff, I have an idea. So I'm here at an Angel game. Let's see how it works, shall we? So right now the Angels have a 40% chance to win. So as always, especially when it comes to sports, there's 1,000,000 different things you can do, the first five innings, a bunch of other stuff. I'm just gonna do something simple. So 2.3 times payout. So if I put $200 down, and the Angels win, I make $468. Sure. I guess with that, well, let's see how it goes. This is a lot of fun, but it helps it's a good game. Again. (laughs) (audience cheering) One inning left. Right now we're at 93%, so I'm feeling pretty good. I'm feeling pretty good. The score is five to seven. It got a lot closer than it was before. Okay, I'm gotta put my phone away, I've gotta put my phone away. I've gotta lock in here. I've gotta lock in. - [Announcer] On 13 is your agent. - That was a ton of fun honestly. I think it really actually made a difference that I was a little bit more motivated than normal. I still have somewhat conflicted feelings about Kalshi and Polymarket, but it definitely did give me a new appreciation for the way you can enjoy sports, if I'm honest with you. It was interesting for sure, but... I've gotta think on this a little bit. I don't know. Look, the numbers don't lie. It's not just people against each other. Maybe Kalshi and Polymarket aren't the house. I mean, that's the whole legal argument for why these things exist. But the people you are betting against are not just regular people. More than 70% of users lose money on average and only 0.1% of accounts take two-thirds of all profits. Just the same way you're probably not gonna pick better stocks than the big Wall Street firms with huge amounts of data. The same thing goes for prediction markets. - It's not just about kind of the the technical way that things actually work in the world. It's how these systems are applied to kind of the existing cultural narratives, and the emotions, and feelings that we have towards sports, and the romantic idea we have towards sports. - Who could have guessed? The odds are stacked against you the whole time. So at this point, I have definitely seen enough. I closed all of my positions, and cashed out of Kalshi yesterday. And wouldn't you know it, the second I went to withdraw the money, Kalshi flagged my account for suspicious activity, 'cause of course they did. So I now need to contact customer service to get things withdrawn. But regardless, I've already donated the $265 I made from the Angels game to the National Council for Problem Gambling. Prediction markets didn't just slowly build up to $50 billion in trading volume. They exploded. Two years ago, this is a niche thing. But today there's subway billboards, ads all over YouTube and TV. I mean, we are looking at two of the biggest platforms in the world with valuations in the tens of billions. The idea of a prediction market, it's not necessarily a bad one. Dr. Hanson had some of the right ideas, but what Kalshi and Polymarket are doing, allowing anyone to bet on basically anything, it's just problematic. It enables truly wild stories like the soldier who bet on the outcome of his own mission to capture the President of Venezuela on Polymarket. I mean, sure he got caught for being a dumbass, but I think it's a good snapshot of just how out of control things can get when there are no adults in the room. I am not gonna dance around what happened here. The rules have essentially been abandoned. The Commodity Futures Trading Commission, or the CFTC, is the federal agency that's supposed to regulate futures, which is where prediction markets fall under. They're a small agency designed to ensure that nefarious behavior is kept to a minimum. According to a New York Times investigation, the CFTC really has been flattened at this point. I mean, there's so much here. People being fired for speaking out. There's only a single commissioner left who used to be a lawyer for crypto and prediction market firms. And there's also this. - Why did you guys make Donald Trump Jr a strategic advisor? - (gulps) We have a lot of advisors. - Mm-hmm. What kind of advice does he give you? - So it really is again about growing prediction markets. - What's his role? I mean, this is the son of the president. - Again, I mean, we have a lot of advisors. The people- - He's not just any advisor. He has a direct line to the White House. - We have a lot of advisors. (speaker booming) - Well, I think that kind of speaks for itself, doesn't it? So, are prediction markets a scam? Honestly... (sighs) Kalshi will let you bet on aliens. Polymarket will let you bet on whether the president says "bigly" in a press conference. And those bets will resolve fairly. I mean, the platforms aren't lying about what they're selling. But these are not designed to make information more freely available. They might as well be casinos that live in your pocket, pretending to be a financial product that really feel like they're just growing as fast as they can, because the regulator who is supposed to be in charge is asleep at the wheel. What do you think is more likely, humanity benefits from the information on Kalshi and Polymarket or it all turns into Biff Tannen's Pleasure Palace? - Hello. - Hey. - Hello. Anybody home? Huh? Think, McFly. Think - I know which one I'd bet on. If you enjoyed, make sure to subscribe to the channel, and ring-a-ling that ding-a-ling button. You can check out our deep dive on why AI has become such a huge problem. I probably need to go take a shower or something after this one. "Who? "The son of the president? "He's just an advisor. "Don't worry about it. "Meh."