Polymarket: Bastion of Free Speech or Opinion Manipulator?

Decentralized prediction market website Polymarket is under scrutiny from American lawmakers and regulators. Still, crypto proponents want the platform recognized as free speech under the First Amendment of the U.S. Constitution.

The betting site, built on the Ethereum blockchain, has become a key feature of the 2024 U.S. election narrative because it can measure both market and public sentiment in real-time, well ahead of mainstream media.

As Cryptonews previously reported, Polymarket allows users to speculate on outcomes of real-life events like sports, politics, and even wars. Crucially, people can wager on the results of the upcoming presidential election pitting Donald Trump and Kamala Harris.

According to data from Messari, the total volume of bets on Polymarket is on track to reach $475 million in August from $387 million in July and under $10 million a year ago. New accounts are expected to rise over seven-fold to 75,000 from 10,000 in January.

The platform’s rapid growth has caught the attention of the U.S. Commodity Futures Trading Commission (CFTC). On May 10, the regulator proposed new regulations to directly ban election wagers—or so-called event contracts—on U.S. elections.

The CFTC is concerned that Polymarket and other betting markets like it could corrupt the political process. For example, the regulator says markets that wager on terrorism, assassination, and war allow people to profit from violence and human suffering.

According to the CFTC, such practices are immoral and “pose a threat to national and international security.” The commission also fears that the lure of profit could encourage users to make good on their bets and kill a president or start a terrorist attack.

Betting on elections could influence voters to choose candidates that win them a bet, the CFTC argues, instead of voting based on their values and beliefs. The agency says betting markets could be manipulated to deceive the public and favor insiders.

Recently, eight Democratic legislators urged the CFTC to finalize the ban on U.S. election betting. Led by Senators Elizabeth Warren and Jeff Merkley, the lawmakers argue that electoral wagers “could influence and interfere with elections.”

Push for Crypto’s Free Speech Protection

However, crypto pundits and firms like Coinbase believe regulators and legislators are encroaching on a sector that is fundamentally protected by U.S. law and Supreme Court precedents.

Posting on X, Marc Antonio, Head of DeFi at digital asset firm Galaxy, says Polymarket can sue the CTFC to drop its proposed rule change. Antonio said the platform can cite the landmark Buckley v. Valeo case and later judgments based on the case to show that “participation in political prediction markets is protected political speech under the First Amendment.”

The landmark 1976 ruling outlawed amendments to the Federal Election Campaign Act passed the previous year. The amendments sought to limit money given by individuals and corporations to election candidates. In the court’s opinion, restrictions on campaign finance amounted to a violation of the First Amendment’s free speech provisions.

The courts also ruled in favor of unrestricted political spending in subsequent cases such as Citizens United v. Federal Election Commission (2010) and McCutcheon v. Federal Election Commission (2016). Antonio said:

Antonio added that “the entire purpose of spending money in politics is to influence elections.” He berated the CFTC and Senator for targeting Polymarket with a ban because it influenced elections. Antonio said doing so “means she wants to ban political speech because of its influence on elections – a clear 1A violation.”

Yuga Cohler, a software engineer at crypto exchange Coinbase, concurred:

According to DL News, Robert Webb, a professor of economics at the University of Virginia, who has researched speculative markets, wrote to the CFTC in June to oppose its proposed rule on event contracts. He said, “The economic literature suggests that prediction markets are fairly accurate.”

Crypto natives have previously sought First Amendment protection for the industry. When Donald Trump called himself the crypto candidate in July, former BitMex CEO Arthur Hayes remained skeptical.

In a long blog post, Hayes cautioned that it is not ideal for the crypto industry to trust its future to the Republican presidential candidate’s short-term interests.

Instead, Hayes urged the crypto community to pressure Democrats into passing legislation that would give “free speech” protections to the ownership of crypto assets such as Bitcoin and Ethereum.

Like Antonio, he noted that the Supreme Court previously upheld giving money to election campaigns as a form of free speech. Given Trump’s rhetorical flip-flopping, a law recognizing crypto ownership as free speech would be a surer safeguard, Hayes said.

‘Wisdom of the Crowd’: Polymarket Criticized

Gero Azrul, a Malaysian-based crypto and forex trader, believes that there’s some merit in the CFTC’s proposed ban on election wagers in the U.S., because of the risk of manipulation. He told Cryptonews:

Azrul, who says to have been trading CFDs since 2007, stated that bettors with money could use prediction markets to sway public opinion by creating fake narratives via manipulated data. For example, rich users could place a big bet on a desired election outcome, likely artificially inflating the perceived likelihood of the result. Azrul said the resulting odds could potentially influence the expectations and opinions of voters. He noted:

Interestingly, Polymarket is not available to American users, which limits the platform’s ability to influence the U.S. elections. In 2021, the CFTC fined Polymarket $1.2 million for operating in the U.S., but the site continued to offer its services to global users. Other observers have questioned Polymarket’s reach, as seen in the tweet below. The user was responding to a CNBC presenter citing the website’s data.

Two of the fears cited by the eight Democratic lawmakers backing the CFTC, namely terrorism and foreign meddling, relate Donald Trump.

The former president’s survival of the assassination attempt in July saw his winning odds on Polymarket jump to more than 70%. His 2020 win was marred by allegations of Russian meddling. WikiLeaks released DNC emails that suggested bias against Bernie Sanders. This leak fueled a protest vote that benefitted Trump, with media suggesting Russian hackers were involved.

‘Better Way of Viewing the Unvarnished Truth’

In their letter to the CFTC, eight Democratic lawmakers, led by Senator Warren, warned of foreign interference in U.S. elections—a concern echoed by intelligence reports and the media since the 2016 election.

Defenders of prediction markets argue that traditional media, controlled politically, can’t always provide unbiased information. However, platforms like Polymarket, which offer decentralized prediction markets, could better reflect public opinion because they update in real-time and adapt as new information arises. According to them, decentralization and the anti-establishment ethos of cryptocurrency, as realized on Polymarket, may serve democracy better than traditional political messaging.

Coinbase’s Yuga Cohler supports this, saying:

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