It’s 2009. The US is in an economic mess after the financial crisis. People have lost their homes and their livelihood, and they are angry. The blame is directed at complex financial instruments like mortgage backed securities and credit default swaps that enriched the big banks, only to later blow them up and leave mainstreet as collateral damage. Obama has just been elected to the White House. The Democrats, including Elizabeth Warren and Gary Gensler, are channelling people’s anger into the Dodd-Frank Act to regulate derivatives, specifically swaps.

Swaps are the largest derivatives market in the world. Hundreds of trillions of dollars in swaps are traded privately between banks with little transparency. Dodd-Frank’s goal wasn’t just to regulate credit default swaps or interest rate swaps - it was to regulate *all* types of swaps. Including swaps that may be constructed in clever ways to avoid regulation in the future.

The only way to regulate every potential swap was to define ‘swap’ in the broadest possible manner. Dodd-Frank defined swaps to include any agreement based on events with “potential” financial consequence, which is… almost everything.

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Gary Gensler, the Chairman of the Commodity Futures Trading Commission, said in July 2009:

“(The regulation) should include interest rate swaps, currency swaps, commodity swaps, credit default swaps, and equity swaps. Further, it should apply to dealers and derivatives no matter what type of swaps or other derivatives may be invented in the future.”

With a definition that broad, any financial agreement could be swept under the federal regulatory umbrella. Nothing would escape oversight.

There’s one problem. When you pass a law, you’ve got to imagine your opponent using that law too. And sometimes, that can come back and bite you in the ass.

Fast forward to 2026 under a Republican administration. Prediction markets like Kalshi have registered with the CFTC, a federal derivatives regulator. Billions of dollars are being bet on sports markets on Kalshi, but Kalshi argues that this isn’t sports gambling. Sports event contracts are ‘swaps’, a financial product defined broadly in the Dodd-Frank Act. States like Nevada, Ohio, and New Jersey push back, arguing that they are, in fact, sports gambling where state-specific licenses, taxes, and bans apply. Fourteen states are involved in court cases with prediction markets and the CFTC over whether sports event contracts are swaps (regulated by the CFTC) or gambling (regulated by the states).

Yesterday, the Third Circuit ruled in Kalshi’s favor. The main issues are:

• Does a sports game have economic consequence?

  • The Third Circuit stated that sports games do have “potential” economic consequences like sponsors, media rights, and merchandise revenue.

• Does the game need to directly drive that consequence, or can it be indirect?

  • The Third Circuit said that indirect consequences count.

It will be an uphill battle for the states.

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.

The Democrats thought for sure that Dodd-Frank would lead to less degeneracy in our financial system. Their righteous rage led to an expansive definition of ‘swap’, which they thought meant that more financial products could be included in the CFTC’s purview, leading to less of a wild west.

However, since that same law is used by a Republican administration in a different way, it will lead to sports betting being treated as a financial product rather than a gambling product. Which potentially leads to gambling being legal and accessible in all fifty states in America, something the Democrats of 2009 would have never wanted or expected. The world works in strange ways.

If yes, then federal law preempts (i.e. overrides) state law and prediction markets can likely operate in all fifty states. If no, then sports event contracts are likely sports gambling, which is regulated by states, with all the licensing, taxes, and bans that come with that. Good luck building a venture-backed company if you need to get a gambling license in fifty states.

Today, in the highest-level ruling on this issue till date, the Third Circuit became the first appeals court to side with Kalshi. This is a big deal. Think of federal courts as a ladder: cases move through the district court, then appeals court, then the Supreme Court. Today’s ruling was at the second level. The Third Circuit stated that sports event contracts are swaps, so federal law under the Commodity Exchange Act preempts state law.

But the courts across the country are split.

• Kalshi won in New Jersey (appeals court), Tennessee (district court), and Northern California (district court).

• States won in Ohio (district court), Massachusetts (state court), and Nevada (state court).

The Commodity Futures Trading Commission is suing Arizona, Illinois, and Connecticut on Kalshi’s behalf. Washington state sued Kalshi last week, and Robinhood (which uses Kalshi to power its prediction markets) counter-sued Washington.

There are nineteen federal lawsuits pending.

After other appeals courts weigh in, this matter is likely headed to the Supreme Court in the next two years.

So What Exactly is a Swap?

Under section 1a of the Commodity Exchange Act, the term swap is:

“Any agreement, contract, or transaction ... that provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence”

In plain English, a swap is a deal where someone gets paid based on whether something happens or doesn’t happen, as long as that thing is connected with a potential economic consequence.

The term swap was added to the Commodity Exchange Act via the Dodd-Frank Act, which was written after the 2008 financial crisis to capture instruments like credit default swaps.

For example, Goldman Sachs owned mortgage-backed bonds but was worried that homeowners could default. Goldman paid AIG a regular premium; in exchange, if those mortgages defaulted, AIG would pay Goldman a large sum. The payment was triggered by an event (mortgage defaults) with an obvious financial consequence (Goldman losing money on bonds).

Even if an event contract qualifies as a swap for listing, the Commodity Exchange Act has a Special Rule that gives the CFTC the power to review and prohibit contracts that are “contrary to the public interest.” The Special Rule lists five categories of contracts that trigger heightened review: unlawful activity, terrorism, assassination, war, gaming, and a catch-all for “other similar activity” the CFTC deems is against public interest.

The threshold question is whether sports event contracts qualify as swaps. If they do, the CFTC has jurisdiction and the fight shifts to whether the Special Rule’s “gaming” prohibition applies. If they don’t, sport event contracts need to be regulated on a state-by-state basis.

It All Comes Down to Two Phrases

In the definition of ‘swap’, the bolded section below is what states, prediction markets, and the CFTC are fighting over the most:

“Any agreement, contract, or transaction ... that provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence”

There are two contentious phrases here:

1. “Associated with”

2. “Potential financial, economic, or commercial consequence”

“Associated with”

The CFTC and Kalshi state that “associated with” is a loose connective; it means “connected to” or “related to”, not “caused by” or “arising from”. The “association” to a potential financial consequence does not need to be strong, it just needs to exist. The Kalshi briefs cite examples of how sporting events are associated with economic consequences: Super Bowl host cities make billions in hospitality revenue, advertising markets shift based on which team is playing, and merchandise sales spike after team wins.

The states argue that “associated with” implies a meaningful, direct, or correlational relationship, one where two things rise and fall together. As New Jersey’s lawyer said, lung cancer is “associated with” smoking in this way. If any tangential economic effect is enough, then every event in the world is “associated with” some consequence, and every bet would be a swap. The funniest moment was when the New Jersey’s lawyer wrote that the CFTC was trying to regulate grandma’s bingo night:

“Either the CFTC did not exempt traditional gambling and sports betting because it does not think ‘swaps’ capture all gambling in the country, or the CFTC is funneling the bingo game at a rural senior-citizen home into its domain.”

However, most judges take the side of Kalshi and the CFTC on the meaning of “associated with”. They believe the word is broad enough. For example, in Tennessee, the judge ruled that “associated with” doesn’t require consequences to naturally follow or be “inherently connected” to the event.

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“Potential financial, economic, or commercial consequence”

This phrase is driving the deepest split among the courts and is likely to determine the outcome of the case.

Kalshi and the CFTC argue that the word “potential” is intentionally broad. Congress could have used a stricter qualifier like “significant” or “material” but chose not to. It doesn’t suggest any minimum threshold for how large the financial consequence should be.

Kalshi argued that it screens and limits its contracts to those with “financially significant events”. It gave evidence of its partnership with Game Point Partners, an insurance company that helps sports teams and sponsors hedge performance bonuses.

The CFTC’s brief reiterated that sports events generate commercial activity such as hospitality revenue for surrounding businesses. Sportsbooks are also using Kalshi to hedge risk, suggesting the contracts have financial consequences.

The states argue that if “potential” means any theoretically possible economic effect, then the swap definition has no bounds: anything can be a swap. The Ohio court, which sided with the state, stated that if Kalshi’s account is true, then:

"all contracts for payment based on the outcome of a sporting event — all sports bets — would be forced onto DCMs like Kalshi and every sportsbook in the country would be put out of business."

States have highlighted inconsistencies Kalshi’s own previous arguments. In 2023, Kalshi sued the CFTC for prohibiting them from listing election contracts on the platform. The CFTC under the Biden administration argued that election contracts constituted “gaming” under the Special Rule of the Commodity Exchange Act, so they were against public interest and had to be prohibited. Kalshi argued that elections aren’t games and that the Special Rule prohibition applies to sports betting. “Congress did not want betting to be conducted on derivatives markets”, Kalshi argued. “A football game is a game”, they said, but an election isn’t. In September 2024, the DC district court ruled in Kalshi’s favor. But now, Kalshi is arguing the opposite: that sports event contracts are legitimate swaps with real economic consequences. Multiple states have highlighted the inconsistency in Kalshi’s position.

Kalshi’s response is that the Special Rule is discretionary, not mandatory. The Special Rule states that the CFTC may determine that contracts involving gaming are against the public interest, not that it must. Also, Kalshi makes a clever argument: the Special Rule proves that sports event contracts are swaps. Why would Congress write a special gaming review rule if sports contracts couldn’t be swaps? When asked what kinds of sports betting may not fall within the swap definition, Kalshi’s lawyer said that certain kinds of player props may not have sufficient economic consequence.

What Happens Next?

The whole case comes down to two phrases in how the Commodity Exchange Act defines a swap.

On “associated with”, Kalshi has the textual advantage: most judges think the word is broad enough. The connection between a sports event and its economic consequence need not be direct.

On “potential financial, economic, or commercial consequence,” the courts are split, and this is where the fight will be won or lost. The states believe the economic consequences need to be significant and Kalshi doesn’t meet the bar. Kalshi and the CFTC believe that any economic consequences would suffice, and that Kalshi meets that threshold.

The case will likely make it to Supreme Court in the next few years. It’s an unusual one that cuts across typical ideological viewpoints. The conservative justices are textual originalists, which favors Kalshi since the swap definition is broad. But they are also committed to federalism and states’ rights, which favors the states.

The last time the Supreme Court weighed in on sports betting, it sided with states’ rights and struck down PASPA, the federal ban on sports betting. That ruling led to distinct state-by-state gambling regulations, the same ones that the states are now fighting to protect.

The liberal justices are typically pro-federal regulatory authority but skeptical of financial industry arguments and sympathetic to consumer protection.

There isn’t a clean 6-3 split here.

But my assessment is the Supreme Court will side with Kalshi and the CFTC because the definition of ‘swap’ in the Dodd Frank Act was intentionally broad. In the PASPA case, there was no federal regulatory body to oversee the sports betting ban, so states’ rights won over federal preemption. But in this case, there is a federal body (CFTC) that has a clear mandate to regulate swaps, which under the broad definition by Congress, includes sports event contracts.

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In late 2025, a pseudonymous trader on Polymarket that went by AlphaRaccoon began placing bets on one of the most obscure corners in prediction markets: Google’s Year in Search trends. Every December, Google publishes a ranking of the year’s top trending search topics, a proprietary data set known in advance only to a small number of employees inside the company. On Polymarket, you could wager on which topics would make the list and how they’d rank. Most traders treated these contracts as low-stakes entertainment. AlphaRaccoon predicted 22 out of 23 search rankings correctly and made over a million dollars. Months earlier, the same wallet made over $150,000 by predicting the exact release date of Google’s Gemini 3.0.

This isn’t an isolated incident. There are allegations of insider trading in several markets: Taylor Swift’s engagement proposal, the 2025 Nobel Peace Prize winner, the US intervention in Venezuela, the release date for OpenAI’s GPT 5.2 model, and the results of over 100 UFC fights.

Now, athletes and their associates, musicians and their friends, founders and employees of technology companies, and politicians and their staff, all have privileged access to information they can trade on. When nearly everything becomes a market, nearly everyone has inside information.

The democratization of investing leads to the democratization of white collar crime.

The Debate

“Insiders make prices more accurate”

There is a real intellectual argument that insider trading on prediction markets is actually desirable. Robin Hanson, “the father of prediction markets,” is the biggest proponent of this argument. The point of prediction markets is to produce accurate prices, and insiders have the most accurate information. Banning them from trading is like banning your best sources from contributing to a newspaper.

Insider trading is banned for stocks because stocks exist to raise capital. If insiders could trade on private information before it’s public, they’d extract value from new investors buying shares, making those investors unwilling to buy at fair prices and forcing companies to raise capital at a much higher cost.​​​​​​​​​​​​​​​​ But prediction markets exist to surface truth.

When AlphaRaccoon bought Google Year in Search contracts, the prices moved, and anyone watching could have inferred that someone with inside knowledge believed specific outcomes were near-certain. The insider’s trade was itself a signal, and the market was doing exactly what it was designed to do.

The argument has holes. If insiders dominate a prediction market, market makers (who take the other side of the trade) bleed, and without their liquidity, the market becomes thinner, more volatile, and paradoxically less informative. Second, there’s the problem of incentive corruption: if a tech executive can bet on their own product launch date and then adjust the schedule, or a government official can wager on geopolitical outcomes they have the power to influence, the market hasn’t surfaced “the truth.” It has created a financial incentive for manipulation.

Third, and most importantly, insider trading will not survive scale: if prediction markets grow 10x in volume, the public will not tolerate insiders making millions of dollars trading on privileged information. It is inevitable for regulators to step in to preserve market integrity.

The history of stock market regulation tells a similar story. When ordinary investors conclude the game is rigged, they stop playing. Trading volume on the NYSE fell 90% between the 1929 crash and 1932. It took the Pecora Commission hearings that exposed systemic fraud and the Securities Exchange Act of 1934, which specifically banned insider trading, to restore enough confidence for markets to function again.

The most defensible case for insider trading, however, is where the public value of the information is enormous and there’s no other reliable channel to surface it. A researcher at the Wuhan lab in December 2019 had no institutional incentive to raise the alarm about coronavirus cases, and the institutions that should have, like the Chinese government, actively suppressed it. If that person could have made $100,000 betting on a pandemic contract, the price signal would have been visible to epidemiologists, journalists, and governments weeks before the official acknowledgment. The profit motive becomes a whistleblowing mechanism.

The problem is that these cases are rare, and the framework you’d build to encourage them also enables all the harmful ones (Gemini release dates, UFC fights, Taylor Swift’s engagement). You can’t write a rule that says “insider trading is fine when the information is important to humanity”. But it’s fair to say that some permissionless markets will always exist, and that helps surface information that may be suppressed.

“Prediction markets aren’t stocks, so stock market rules don’t apply”

The second argument for insider trading is a legal one. Prediction market contracts are commodity derivatives regulated by the CFTC, not securities regulated by the SEC. Derivatives markets are designed to let informed participants trade on proprietary information. A corn farmer trading futures based on private knowledge of his own crop isn’t committing fraud; he’s doing what the market was built for. The CFTC’s standard asks whether information was stolen, not whether trading on it was unfair. Extending SEC-style insider trading doctrine to prediction markets, in this view, means importing a framework from a market with a fundamentally different economic purpose.

But derivatives markets tolerate informed trading because the underlying product (corn, oil, interest rates) is continuous, with prices shaped by many competing participants over time. Even when dominant players exist (OPEC can move oil prices with a single production decision), these markets have deep independent liquidity and decades of regulatory infrastructure built to manage exactly that risk.

Prediction market event contracts have none of this. The “commodity” is a binary question with a single definitive answer, often known in advance by a tiny number of people. When a Google employee bets on Year in Search rankings, there is no crowd of competing informed participants. Few people know the answer and everyone else is guessing. The legal distinction between derivatives and equities is real, but it’s an argument for writing new rules tailored to prediction markets, not for concluding that no rules are needed.

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How to Solve Insider Trading

There are three broad approaches to address insider trading in prediction markets: platform guardrails, market design, and legal frameworks.

Platform Guardrails

The most direct interventions are at the platform level: detection, progressive KYC, position limits, and automated public alerts.

Detection. Kalshi announced that they run a proprietary system called “Poirot” that uses pattern recognition to flag suspicious trades in real time. In the past year, they reported over 200 investigations and multiple account freezes. They recently expanded this through a partnership with Solidus Labs, whose “HALO” platform layers behavioral analysis on top of order flow data. On the unregulated side, an ecosystem of third-party tools has emerged: Tre Upshaw’s Insider Finder (roughly 24,000 users, funded in part by a $25,000 Polymarket grant) scans the blockchain for anomalous trades and reports an 85% success rate on flagged situations turning profitable. Similar tools like Unusual Predictions and PolyInsider do the same: they make suspected insider trading as a signal to copy.

Progressive KYC. Identity verification requirements could scale with position size, letting casual bettors trade pseudonymously while forcing large, suspicious positions (like ricosuave666’s four simultaneous bets on Israeli airstrikes from a brand-new account) through meaningful identity checks. Kalshi already requires full KYC for all users. The challenge is implementing this on crypto-native platforms without killing permissionless onboarding.

Position limits and trade disclosure. A $5,000 cap for wallets less than 30 days old would have made most insider trades more difficult. Mandatory trade disclosure with delays, modeled on the SEC’s Form 4 for corporate insiders, would give the public systematic data on large positions rather than forcing community tools to scrape the blockchain ad hoc. A trader could still generate new wallets and rotate IP addresses through a VPN. But more sophisticated surveillance tools can identify wallet clusters, especially when they’re funded from the same centralized exchange withdrawal. These systems don’t make insider trading impossible; they just make it harder to get away with.

Automated public alerts. If a large, suspicious-looking trade is placed in a market, the platform notifies all participants immediately. This converts the information asymmetry that makes insider trading profitable into the public signal that Hanson’s defenders claim it is. Building this into platform infrastructure would make it systematic and harder to game.

Market Design

A prediction market needs someone willing to take the other side of a trade, and that counterparty systematically loses money to insiders. The question is how to design the plumbing so those losses don’t drive everyone else away.

The status quo. Robin Hanson’s Logarithmic Market Scoring Rule (LMSR) is an automated market maker that provides continuous quotes with a bounded maximum loss. When an insider trades against it, the LMSR absorbs the loss and adjusts the price. That loss is the cost of price discovery: the platform subsidizing accurate prices the way a newspaper pays reporters. This works for smaller markets (corporate forecasting, research) but can’t support the billion-dollar volumes Polymarket and Kalshi now process. Polymarket moved to a Central Limit Order Book (CLOB), which shifts insider losses from an algorithm to human market makers. Those market makers eventually respond by widening spreads or leaving, producing the same adverse selection spiral.

Dynamic spread widening. Platforms could automatically widen the bid-ask spread in a specific market when surveillance detects suspicious activity, making it more expensive for insiders to trade. This is what traditional market makers do intuitively when they suspect informed flow. Automating it would protect liquidity providers in real time.

Market maker insurance pools. A pool funded by trading fees could partially reimburse market makers for verified insider trading losses after a market resolves. This wouldn’t prevent insider trading, but it would keep market makers in the game.

Segmented order flow. Market makers could offer tighter spreads to verified accounts and wider spreads to unverified ones, creating a two-tier system where insiders effectively pay more for execution. This is feasible on platforms like Kalshi and Polymarket, where order matching happens off-chain. It’s harder for fully onchain order books.

Time-weighted settlement. Contracts could resolve based on a price-path average (similar to a Time Weighted Average Price) rather than a single binary moment, making it harder for insiders to profit from a single perfectly timed trade. This works better for some contract types (product launches, earnings) than others (military operations, sudden events).

None of these eliminates insider trading, but together they keep liquidity providers in the game, which preserves the broad participation that makes prediction markets useful.

Legal Framework

The legal solutions are ordered from what can be implemented today to what requires an act of Congress.

Corporate compliance. The private sector is moving faster than Congress. KPMG’s 2025 report flagged prediction market insider trading as an emerging corporate risk. Most insider trading policies don’t contemplate employees betting on their employer’s decisions via event contracts. Compliance experts have urged large companies to update their policies to add event contracts to restricted trading lists.

Existing CFTC authority. The CFTC has anti-fraud authority under Section 6(c)(1) of the Commodity Exchange Act and Regulation 180.1, which prohibit trading on material nonpublic information in breach of a pre-existing duty, such as an employee's obligation to their employer or a contractor bound by a confidentiality agreement. This framework is modeled on the SEC's Rule 10b-5, but the CFTC's reach is narrower. The SEC can pursue insider trading under both a misappropriation theory (breach of duty to the source of information) and a classical theory (corporate insiders breaching fiduciary duties to shareholders). The CFTC only has access to the misappropriation theory, because commodities markets have no shareholder equivalent and no built-in disclosure obligations. So the CFTC can only act where it can point to a specific relationship of trust and confidence that was breached. The doctrine is also much newer, with the CFTC's first insider trading case coming only in 2015. The CFTC has never brought an insider trading case targeting prediction market event contracts, and the agency has roughly one-eighth the staff of the SEC. Its most important near-term move would be issuing guidance clarifying how its existing authority applies to prediction markets: what counts as material nonpublic information for event contracts, and what “pre-existing duty” means in this context. This wouldn’t require new legislation; the agency would use the authority it already has.

New legislation. Representative Ritchie Torres proposed the “Public Integrity in Financial Prediction Markets Act” (H.R. 7004), which would ban federal government employees from trading on contracts where they possess material nonpublic information through their official duties. But the bill is narrowly scoped: it covers government employees and says nothing about corporate insiders, deliberative bodies like the Nobel Committee, or sports and entertainment. The cleanest path is an amendment to the Commodity Exchange Act that explicitly defines insider trading on event contracts and gives the CFTC enforcement authority comparable to what the SEC has under Rule 10b-5, establishing that anyone with privileged access to the outcome of an event contract owes a duty not to trade on that information. But legislation carries its own risk. Compliance regimes modeled on securities law could impose costs that only well-funded incumbents can absorb, giving incumbents a regulatory moat. The goal is to define what counts as insider trading on event contracts, not to build in licensing requirements that kills prediction market startups before they launch.

Conclusion

Every major financial market has gone through a similar cycle: a period of explosive, lightly regulated growth; a series of scandals that reveal the cost of operating without rules; a political fight over what the rules should be; and then, after the rules are established, a longer and more durable period of growth built on broader participation and institutional trust.

The New York Stock Exchange operated for over a century before the Securities Exchange Act of 1934 created the SEC. For decades, insiders traded freely on advance knowledge of earnings, mergers, and corporate decisions. It took a stock market crash, a Congressional investigation, and a 90% collapse in trading volume to create the political will for federal oversight. But once the rules were in place, capital markets grew.

Prediction markets are somewhere in the early chapters of that same story. The AlphaRaccoons and ricosuave666s are this era’s pool operators, the traders in the 1920s who exploited unregulated markets until public outrage led to rules. Prediction markets will likely mature the way equity markets did: platforms build out detection, corporate compliance departments add event contracts to their restricted lists, regulators issue guidance and bring enforcement actions, the CFTC or Congress extends the insider trading doctrine to event contracts, and international regulators follow suit.

He hadn’t bought stocks before, doesn’t watch CNBC, doesn’t track markets, and has a low risk appetite. He is, I thought, a “my savings are in some retirement ETF I don’t know about” kind of guy. But he’s representative of a growing number of (mostly) men1 who take swashbuckling swings in financial markets, partly to escape the permanent underclass, partly for the thrill of it, but largely because *now they can*. The smartphone has put a casino in every pocket, and people can’t help but spin the wheel.

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Over the last decade, retail participation in financial markets has grown from a trivial amount to over a hundred million monthly active traders2. Unlike the speculative mania of the 1920s or the dot com bubble of the 1990s, this increase in retail participation represents a structural change that is likely to persist across market cycles.

2025 will be seen in retrospect as an important year in the history of financial markets.

The SEC led by Gary Gensler, defined by its regulation-by-enforcement style, was replaced with a technology-forward, permissive one. The former COO of PayPal was appointed as the AI and Crypto Czar. The SEC rescinded SAB 121, now allowing banks to custody crypto without having to list those assets as liabilities on their balance sheets. They dropped cases against OpenSea, Robinhood, Coinbase, and Uniswap. They stated that memecoins weren’t securities. They did everything the crypto industry dreamed of, and more.

The result? Crypto prices fell 26% by April and never really recovered.

But retail participation in financial markets grew significantly over the year across multiple categories.

Equities3

Options4

Sports Betting5

Perpetual Futures6

Prediction Markets (the newest addition)7

On election night, November 5, 2024, I, like many others, learned who won the Presidency not from CNN or Fox News but from Polymarket. I had CNN’s election broadcast on my TV and Polymarket odds pulled up on my phone, refreshing it every other minute. By night, Polymarket odds jumped to 95% for Trump, while CNN called the election the next day8. It was clear that this was a landmark moment for prediction markets.

The 2024 election market attracted over $4 billion in volume between Polymarket and Kalshi, and they leveraged this success to go big in 2025. Polymarket got a CFTC license through the acquisition of the derivatives exchange QCEX, which let them finally launch in the US. Kalshi and Polymarket are being integrated with major exchanges (Coinbase, Robinhood), wallets (Phantom, MetaMask), and media platforms (CNN, CNBC). “What’s the Polymarket at?” became a common phrase used by mainstream celebrities like Joe Rogan and Elon Musk.

Nothing was too trivial to bet on. Polymarket and Kalshi used the all-caps “BREAKING:…” news format to post about the most inane things like celebrity gossip:

And TV show finales:

Breaking news now comes with live odds, and nearly anything can become a market: elections, foreign policy, celebrity gossip, and most importantly, sports. Sports betting attracts a lot of dumb money that platforms can profit from: sports fans like to bet on their favorite teams, load up on lottery-style parlays, and 95% of them lose money. An estimated $165 billion was wagered on sports in 2025; by (likely) underwriting explosive growth in sports betting, Polymarket was able to raise $2 billion at a whopping $9 billion valuation from Intercontinental Exchange, the owner of the New York Stock Exchange. Kalshi raised $1 billion led by Paradigm at a reported $11 billion valuation. As expected, Polymarket and Kalshi launched sports prediction markets across all US states to compete with the incumbent giants FanDuel and DraftKings. The incumbents saw their stocks fall 30% as a result. But since prediction market event contracts for sports resemble sports gambling, which is regulated on a state-by-state basis, Kalshi faced multiple enforcement actions by states like Massachusetts and New York.

For the first time since its legalization in 2018, sports betting started to experience public perception problems. According to a Pew study in July, 43% of Americans said that sports betting was a bad thing for society, up 9% from three years earlier.

In October 2025, the FBI publicly disclosed “the insider trading saga for the NBA”. They arrested Terry Rozier (Miami Heat guard), Chauncey Billups (Portland Trail Blazers head coach), and several others in an illegal betting investigation. Terry Rozier allegedly took himself out of a game on purpose so a co-conspirator could win a sports bet. Jontay Porter bet on his own games and manipulated his performance so a co-conspirator could win money on prop bets. Chauncey Billups was involved in a long-drawn scheme to defraud players in poker games.

Now, athletes and their associates, musicians and their friends, founders and employees of AI companies, and politicians and their staff, all have privileged access to information they can trade on every day. And evidence shows that they are: Taylor Swift’s engagement proposal, Google’s search ranking, the 2025 Nobel Peace Prize winner, and over 100 UFC fights all have allegations of insider trading. While these aren’t proven yet, there are signs that the democratization of investing leads to the democratization of white collar crime.

Prediction markets were culturally loud but still financially small compared to the biggest trade of the year: AI stocks. Jensen Huang said that AI is a five-layered cake: energy, chips, infrastructure, models, and applications. Well, each layer of the cake went parabolic in 2025. AI stocks accounted for 80% of the stock market gains till October 2025. There is tremendous interest in making stocks of private AI companies tradable: Robinhood tokenized OpenAI’s stock and made them available for select European users, but OpenAI publicly rejected the legitimacy of these stock tokens.

For all the talk of an AI bubble, it still doesn’t feel irrationally exuberant like the dot-com boom. The AI companies being bid on in public markets are some of the most profitable businesses in human history. Investors are paying close attention to the earnings of these companies, given the enormous amount of capital expenditure on data centers and hiring engineering talent.

Retail doesn’t express their appetite for gambling by buying stocks; they do by buying zero-day options, which grew to a staggering 59% of total options volume in 2025. Perpetual futures take that impulse further, offering users 20-100x leverage on tap with no expiration date. Perps were originally designed by Nobel Prize-winning economist Robert Shiller to help ordinary households hedge against long-term economic risks like housing prices or GDP growth. Little did he know how degenerately they would be used a few decades later.

Over 2025, perp trading volume on centralized exchanges grew 110%, dominated by Binance, Bybit, and OKX. On decentralized exchanges, perp trading volume exploded, up 1,244%. Most of that growth came from Hyperliquid, the breakout crypto app of the past two years, with growing contributions from aggressive new entrants Aster and Lighter.

Coinbase laid out a vision for the “perpification of everything” from public stocks like Tesla to private companies like OpenAI to macro-economic indicators like VIX. Robinhood launched perps for its European customers and wants to do so in the US as well, pending regulatory approval.

Millions of mainstream users will soon have access to industrial-grade leverage, once reserved for Wall Street trading desks, not twenty-somethings trading from their toilet.

It is becoming clearer that investing is entertainment.

Robinhood doesn’t just compete with Charles Schwab and Interactive Brokers, it competes with TikTok and Instagram.

Investing used to be logging into your Fidelity 401K account every other month, but that puts people to sleep. Investing is now trading perpetuals with 20x leverage or buying memecoins that may go bust the next day, refreshing your trading app every few minutes to see if your net worth chart is going up or down.

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As investing becomes entertainment, top traders become the new celebrity class. These people have made under-appreciated bets early, publicly announced them, relentlessly shilled their bets, and turned out to be correct. They have rags-to-riches style stories of wealth creation in a short amount of time.

A recent example is Remus, a pseudonymous account that started with $370 and made $500,000 by buying the memecoin WhiteWhale. He trades on Fomo, a social trading app that shows you a feed of traders, their buys and sells, and the ability to copy their trades with one click.

The Fomo leaderboard shows the exact amount of money traders have made over the past day, week, and month, in an effort to induce fomo to trade, as the name suggests. Top traders become instantly well-known; Remus has made the most money over the past month, so he is the latest celebrity trader. The old model on social media was: build a following first, monetize later. The new model is: make money first, and the audience will find you. Positive P&L mints clout.

Remus is celebrated on Crypto Twitter for “reviving the memecoin trenches”, a reference to trench warfare, where men were knee-deep in mud, surrounded by rats and exploding shells, only to die in a few months. Today, it’s used to describe being in a terminally online group buying an animal-themed memecoin. Remus is lionized by Crypto Twitter for helping people “regain hope”, being the future of “social finance”, a true “GOAT”, having “the most shared PNL card in the history of crypto”, and getting “big props” from celebrity traders like Ansem. With the amount of praise he’s getting, you would think he is a war hero returning from Normandy.

What is Remus’s motivation? Make as much money as possible today because the opportunity may not exist tomorrow.

The operating maxim of today is to secure the bag. The cardinal sin used to be selling out; God forbid your favorite band did a McDonald’s commercial. But today we encourage people to sell out while they still can because real wage growth has stagnated, housing is exorbitant, student debt lingers on for decades, and the perceived window to cash out is small.

Holding periods for assets have drastically shrunk from over eight years in 1960 to months in 2020. Retail participation in financial markets has increased and investors have gotten myopic. It is fitting that Warren Buffet retired in 2025, as the “buy and hold” era retired with him. Zero-day options, perpetual futures, prediction markets, and memecoins have only compressed holding periods further.

I have spoken to traders who will manually buy and sell multiple memecoins in thirty-minute intervals, riding up a Pump.fun price chart and selling before they anticipate a drop. When I asked one trader what he thought about the time horizon of his strategy, he paused to reflect, then admitted that he, in fact, was “too long-term oriented” and needed to compress his trade cycles to ten-minute intervals.

Trading is becoming an esport, moving from a single-player activity to a spectator event that can be watched on stage and over a livestream. It seems weird, but watching nerds play video games on Twitch also felt weird in 2011. In September, a live perps trading competition was held in Seoul that went viral. These events usually follow a tournament format: multiple rounds to audition the best traders, followed by a final showdown in which the top five traders go head-to-head with the goal of generating the highest P&L over an hour for a large cash prize and indefinite bragging rights. The competition draws celebrity traders who livestream the event, with a parallel prediction market letting viewers bet on the winner.

The “traders as celebrities” phenomenon is spilling over to the normie world; someone even started a memecoin trading club in his high school.

When teenagers were asked who they want to become when they grow up, the answer used to be a professional like a doctor or lawyer. Around five years back, the answer was a YouTuber. Soon, it will be a trader (the guy who pulls you aside at New Year’s to ask you what coin will 10x). The American Dream is to get rich *quick*, and smartphones now export this fantasy to billions around the world.

Footnotes

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It is difficult to accurately estimate the number of monthly active traders globally, but I attempted to do a rough estimate. The table below accounts for major categories of speculation and adjusts for overlapping users, e.g. there is a high overlap between online gambling users and those who trade stocks and crypto. The numerical precision shouldn’t be taken as seriously, but it is fair to say there are at least 100 million monthly active traders.

He wrote this a century *before* smartphones and the financialization of everything. Today, there is a market for nearly every moment: viral tweets get paid by the view, celebrity proposals have odds posted before the question is popped, the Super Bowl has bets placed on the color of Gatorade dumped on the winning coach, the Nobel Prize committee has insiders trading on the winner.

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The medium or process of our time is money. Money is reshaping patterns of social interdependence and every aspect of our personal life. It is the medium through which we think, speak, and belong.

It is reflected in the language we use:

• “Secure the bag”

• “Know your worth”

• “Buy the dip”

• “Time is money”

• “Invest in yourself”

• “Bullish”

• “Double down”

• “Let it ride”

• “All in on the underdog”

• “What does Polymarket have him at”

The cardinal sin used to be selling out. God forbid your favorite band did a McDonald’s commercial. Today, the operating maxim is secure the bag. Sell out as soon as possible because you may not have the opportunity tomorrow. The American Dream is to get rich *quick*.

Internet celebrity Nadeshot previously complained about how promoting gambling was bad. But when asked if he’d take a hundred million dollars to do it, he said:

I ain’t turning down a hundred million dollars bro… I would sell my soul for a hundred million. I won’t sleep. I will be your workhorse. You want me to pump blue chews? Crypto gambling? I will do it all. Fuck them kids.

These words, while exaggerated, are a reflection of how our society thinks about money. The biggest icons of our time, including Drake, Kevin Hart, Cristiano Ronaldo, LeBron James, Jennifer Lopez, and Celine Dion have all promoted gambling, and their fans aren’t revolting against it. Money is both the means to the end and the end itself; it is acceptable and rational to secure the bag.

“The thing people never understand is that I’m not playing to win,” said Mollie, a Vegas gambler quoted in the excellent book Addiction by Design.

Why, then, does she play?

“To keep playing, to stay in that machine zone where nothing else matters.”

Gambling products aren’t designed for players to make “something from nothing”, they are after nothingness itself. The machine zone suspends time, space, monetary value, social roles, and one’s sense of their own existence.

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Characteristics of Machine Zone Products

The concept of the machine zone was first applied to slot machines.

Continuous play with minimal friction between decisions. On a slot machine, the moment one spin ends, you can start another. There’s no waiting for a dealer, shuffling cards, or finding new opponents.

Rapid, repetitive action. Slot machines complete a full gambling loop in three to six seconds: bet, outcome, opportunity to bet again.

Variable ratio reinforcement. You don’t know when you’ll win, only that you might win. Near-misses are more arousing than losses, and “almost winning” triggers a bigger urge to play than winning itself. Slot machines deliver wins just frequently enough to sustain hope, but unpredictably enough to maximize that anticipatory dopamine spike.

Elimination of natural stopping cues. Traditional gambling had built-in stopping points: your poker game ends, the racetrack’s last race finishes, you run out of chips and have to go to an ATM. Slot machines eliminate these cues.

Absorption that narrows attention to the game interface. On a slot machine, your awareness contracts until only the screen exists. Bodily sensations fade: you don’t notice you’re hungry, thirsty, or need the bathroom. Time distorts and hours feel like minutes. The casino floor’s noise and movement blur into background static. Your entire perceptual field shrinks to the spinning reels, the flashing symbols, the next outcome.

Smartphones: Acceleration Toward Machine Zone

A study commissioned by the National Gambling Impact Study Commission found that residents living within fifty miles of a casino had twice the rate of problem gambling than residents who lived further away.

Now, what happens when the casino is five inches away from you?

Products have relentlessly trended towards the machine zone, each step removing friction and compressing time between the bet and outcome. This section explores how the machine zone manifests in options, sports betting, and memecoins.

Options

Traditional options trading in the 2000s involved contracts that expired on a monthly basis, on the third Friday of every month. Traders chose a strike price, selected an expiry, and waited for a month for the contracts to settle. Every trade was a deliberate commitment with a defined time horizon. The CBOE introduced weekly options in 2005 that expired every Friday, which meant that these options were effectively zero day options if bought on Friday. It was only in 2022 that expiry expanded to all five trading days, which created daily zero day options and unleashed the retail options trading boom. Zero day options rose from 5% of total options volume in 2016 to 61% by May 2025.

The median option purchased by a retail trader in 2020 had 4 days to expiry; by 2022, that collapsed to less than one day. The median holding period for an options trade is absurdly short: 30 minutes. This compression shows the trend towards machine zone: shrinking the gap between the bet and the outcome to minutes, eliminating waiting periods that once served as stopping cues, and creating an all-consuming loop of rapid-fire bets.

Sports Betting

Following the Supreme Court’s repeal of the sports betting ban in 2018, legal sportsbooks initially offered traditional pre-game betting: you place a bet on Saturday’s football game, then wait hours or days for the bet to resolve. You can’t bet again on the same game, can’t speed up the outcome, and are forced to stop. You leave the app and you’re out of the zone.

By 2020, FanDuel introduced same game parlays, which combine multiple bets across a single game into one wager. You can bet that the Nuggets win by over 10 points, Jokic gets a triple-double, and Jamal Murray scores over 20 points. You’re tracking just one game, so your attention is constrained and the temporal window is narrowed. But it’s still just one decision without a repetitive loop.

However, sports betting progressed towards machine zone territory by 2023 with the spread of live in-game betting and micro-betting, which converted football games into three hours of continuous financial decisions: the outcome of the coin toss, the first player to commit a foul, the next player to score, whether the next kick is made or missed, among hundreds of other options.

Football in particular is suited for live betting, which is why it has the biggest market share of sports bets wagered. There are only 17 regular season football games per team versus 82 per team in the NBA, so each football game is more consequential. Scoring events in football are meaningful because they wildly swing the probability of winning. Every new play creates a new state of the world with opportunities to place bets on the next play’s outcome, the drive result, live spreads and totals, player props, touchdown odds, yardage milestones, and dozens of correlated markets that refresh every twenty seconds. There are also hundreds of natural breaks that allow sportsbooks to update live odds.

Memecoins

Machine zone taken to its logical conclusion is memecoin trading on a platform like Pump.fun.

Prior to Pump.fun’s launch in 2024, there were occasionally successful memecoins like Dogecoin in 2013 and Shiba Inu in 2020. But Pump.fun has dozens of new coins created every minute for users to trade. Unlike stocks (which have earnings) or sports (which have physical limits), memecoins are tethered to nothing but sentiment, allowing for unbounded possibility.

Borrowing the aesthetic of 4Chan, Pump.fun presents a constant stream of new coins. This creates a flow state where the user is locked in a perpetual present, scanning for the next 100x dopamine hit. The loop is near-instant: a user sees a new coin, apes in with a single click, and watches the chart update tick-by-tick. Because thousands of coins are created every day, there are no natural stopping cues: when one coin rug pulls or goes to zero, the interface instantly serves up a dozen fresh opportunities, keeping the user suspended in a state of continuous, hypnotic anticipation.

Conclusion

Trading options, betting on sports, and buying memecoins overwhelmingly loses money. 93% of traders lose money trading options and 95% of bettors lose money on sports betting. 98.6% of Pump.fun tokens are worthless and 97% of Pump.fun traders have made less than $1,000 trading memecoins.

But people continue to gamble because it keeps them in the machine zone, where time, space, and monetary value is suspended and nothing else matters but continuing to play.

Design patterns from slot machines are used not just in financial products but also in social media: an infinite scroll that eliminates natural stopping points, autoplay in short form videos that removes your need to make a decision about whether to continue, and notifications designed to heighten surprise like variable rewards on slot machines.

Machine zone was a warning about the effects of slot machines, but it’s been used as an instruction manual for designing smartphone apps.

The smartphone is the medium through which we process everything about the world, but more importantly, everything about ourselves.

You weren’t meant to look at your own face so much. The mirror in the 16th century and front-facing smartphone cameras in the 21st century revealed and increased people’s obsession with their own faces. The same applies to other trackers of yourself: people maniacally refresh their own LinkedIn pages, Instagram profiles, Robinhood balances, and Apple Health dashboards. The story people care about the most is their own life. Self-monitoring is addictive.

Just like financial analysts sit in front of a Bloomberg terminal parsing stock tickers, we sit in front of our smartphones analyzing every detail about ourselves.

In The Transparency Society, Byung-Chul-Han writes that when you make a domain fully transparent, you don’t just know more about that domain, you transform the domain itself. By making ordinary aspects of our life transparent to us, we transform ourselves. Nowhere is this clearer than our own faces. By providing 24/7 access to portable, high-resolution front-facing cameras through smartphones, we have made the human face a never-ending project to be optimized with makeup, filters, and plastic surgery. Smartphones have transformed the human face forever.

You can now see a zoomed-in image of your nose, access your heart rate in real-time, refresh your net worth every hour, and track how many likes your latest post got. You receive periodic photo memories of things you’ve done over the years and annual Spotify Wrapped summaries of your most-listened-to music.

Social media can lead to performing for other people, but self-monitoring leads to performing for yourself. You are the audience of your performance, watching and judging your own actions through photos, metrics, notifications, and profiles. You’re always on, even when you’re alone. A former Spotify engineer told me that after they introduced Spotify Wrapped, their user behavior changed in December. People would listen to the funkiest things at the end of the year to compensate for eleven months of pop, just to make their taste look interesting.

If it shows up as a number on your smartphone, it’s true. If it doesn’t, it’s not. Did you have a good run? It doesn’t matter if you felt energized, all that counts are your Strava stats. Did you sleep well? It doesn’t matter how you felt after you woke up, all that counts is your sleep score. Sleep was the last frontier for rest and privacy, but now people are performing for their morning sleep scorecard. You don’t trust your body, but you accept metrics from your smartphone like the word of God.

You rate your Uber driver, your DoorDash delivery, your neighborhood restaurant, your Taskrabbit help. Everyone is rated out of five stars, so implicitly you are rated too, not just by others but by yourself, and your smartphone provides you with all the data to measure yourself.

When everything is comparable, nothing is uniquely precious, including yourself. In The Philosophy of Money (1900), a study of how modern life is structured through money and quantification, Georg Simmel argued that this environment produces a “blasé attitude”: a protective numbness in people born from constant comparison and overstimulation. The modern version is the cool, distant stoicism people adopt towards the world and their own lives.

I remember going on a date with a girl several years ago who said, “sorry I took so long to respond on Hinge, my top-of-funnel was crazy”. She had been on a few dates a week consistently for two years and was tired. No wonder she just called men who messaged her “top-of-funnel”, as a salesperson would clinically refer to customers they were prospecting. Your dating profile is a KPI that can be optimized to increase top-of-funnel conversion.

Sam Altman said that millennials think of ChatGPT as a Google replacement, but Gen Z thinks of it as a Meta replacement. Instead of an Instagram feed that makes you jealous, ChatGPT is your personal servant that understands your emotional needs, remembers everything about you, and boosts your ego. That’s one of the many reasons Zuck is spending billions of dollars to hire OpenAI engineers; the breakout consumer product of the last decade is a chat feed with a significantly smarter but more sycophantic version of yourself.

People have fewer friends, less sex, and fewer children. Like monks, we are spending more time by ourselves, but instead of looking inward to find answers about ourselves, we look toward our One Source of Truth. Reloading our screens every other minute to find some new update about our lives, analyzing ourselves till death.

Instead of violent wars, there could be violent video games; instead of heroic feats, there could be thrilling amusement park rides; instead of serious thought, there could be ‘intrigues of all sorts’, as in a soap opera. It is a world where people spend their lives amusing themselves to death.

— Peter Thiel, The Straussian Moment

We used to make money by building tangible things like furniture, bicycles, and homes. We then started making money by working for people who built things, as managers, consultants, and investment bankers. Now, we make money by trading things that barely exist: perpetuals, memecoins, and zero day options.

Investing is Entertainment

As a society, we are dried of dopamine. Products with lottery-like payoffs give us another hit.

Investing used to be logging into your Fidelity account to check your 401K returns. The new investor class trades perpetuals with 20x leverage, like signing up to ride a roller coaster. The ticket fee for the roller coaster is the risk of liquidation, i.e. losing all your money, but it’s worth it, so you can feel the rush.

Investing is now entertainment. Robinhood doesn’t compete with Charles Schwab and Interactive Brokers, it competes with TikTok and Instagram. In a world of addictive short-form content, speculation products offer asymmetric financial upside and rapid feedback loops to keep you glued to your screen, more so than doomscrolling.

NBA Commissioner Adam Silver was early to identify that zoomers (gen z) wouldn’t watch basketball games. A basketball game is weak stimulation compared to a 15 second gas station fight video on TikTok. Unless… you could bet on those games. This is why the NBA (along with the NFL, NHL, and NCAA) entered into licensing agreements and provided real-time data feeds to sportsbooks like DraftKings and FanDuel to allow fans to bet on sports games. Not just on who won or lost, but how many points Curry would score, whether the last point of the game would be a dunk, whether the halftime show would run over its allotted time, whether Harden would arrive to training camp overweight. This kept the zoomers glued to their screen because they had money on the line; a five dollar bet on a 5-leg parlay could win you a thousand dollars.

Traders are Celebrities

As investing becomes entertainment, top traders become the new celebrity class. These are people who have been early to under-appreciated assets, shared their bets publicly, held through highs and lows, and made a lot of money. Today, people look up to the top traders and treat them like professional athletes.

The most prominent traders in crypto today are Ansem and Cobie. Ansem shot into Crypto Twitter fame by buying Solana around its $10 lows and publicly broadcasting his bet. He became the de-facto leader for the large retail community that Solana onboarded through memecoins in 2024. His peak celebrity trader status came as actual celebrities like Iggy Azalea and Kanye West learned about crypto and launched memecoins. High profile people came directly to Ansem for advisory and support. Traditionally, celebrities built cultural capital through their work and cashed that in for money later. The trading class inverts this by becoming rich in public, winning cultural status as a result.

Cobie bought his first Bitcoin in 2012 and has publicly shared his trades and takes through Twitter and his podcast UpOnly. He’s unfiltered, funny, vulnerable, and makes you feel like you’re going through the ups and downs of crypto cycles along with him. In 2023, he built Echo, a platform to help people get access to early-stage investments in crypto projects — deals that were typically restricted to the likes of Cobie. Echo was growing fast, and Coinbase recently decided to acquire it for $375 million. You’d have to think that part of the premium Coinbase paid was for crypto’s number one celebrity trader: Cobie.

Crypto is creating celebrity traders with increasing frequency. Few months ago, pseudonymous crypto trader CookerFlips had an insane trading run, aping in early into winners like Aster, publicly sharing them on Twitter, and making $10 million over a few weeks. He then doxxed himself at the Token2049 conference and people started approaching him like he was a celebrity.

Products are now being built to surface the best traders to the public early. Anonymous trader ThePrimeGreek started with $6,000 on the social trading app Fomo and made $268,000 in 30 days. He gained 3,000 followers on Fomo and many requested him to create a Twitter account to share his takes.

The old model on social media was: build a following first, monetize later. The new model is: make money first, and the audience will find you. Positive P&L mints clout.

Apps like Hyperliquid, Bullpen, Clicker, and Farcaster have leaderboards of top traders and news feeds of their trades so you can copy them. Robinhood introduced its social feature to follow your favorite traders, show off your recent gains, and copy trades. The crypto version of one-click checkout is one-click copy-trade.

The first mainstream investing community was the subreddit WallStreetBets, which launched in 2012. In September 2019, the user DeepFuckingValue famously opened a $53,000 long position on GameStop and posted about it on r/WallStreetBets. GameStop was doomed for bankruptcy with big short positions from prominent hedge funds like Melvin Capital Management, Citron, and D1 Capital. However, DeepFuckingValue led a populist revolt of retail traders against the big hedge funds that drew significant retail demand, especially options volume on Robinhood. The stock went up 28x in four weeks in January 2021, leading to a massive short squeeze. Melvin Capital Management lost 50% of their capital and had to shut down. DeepFuckingValue was the first populist trader celebrity. He was interviewed by the Congress, profiled by Wall Street Journal, and has multiple books written about him. It was a sign of things to come.

On WallStreetBets, there was no way to verify if the statements people made were accurate. The latest trading apps like Fomo make the trades and P&L verifiable. Now, people share their ups and downs with each other in real-time. It’s like going to a concert together, except you’re head banging to wild swings in your P&L.

In-person events are being organized in New York, Seoul, and Buenos Aires to bring together these celebrity traders in one location to participate in real-time trading competitions. There are multiple rounds to audition the best traders, and the final contest involves 5-10 teams going head-to-head to generate the highest P&L for a prize. The event is livestreamed with a prediction market for people to bet on who is most likely to win.

Someone even started a memecoin trading club in his high school.

When teenagers were asked who they want to become when they grow up, the answer used to be a professional like a doctor or lawyer. About five years back, the answer was a YouTuber. Soon, it will be a trader. The American Dream is to get rich *quick*.

In this post, I cover parlays, zero day options, and perpetuals: seemingly obscure products that have exploded in adoption to reach mainstream people.

Parlays

Sports betting adoption didn’t take off until FanDuel designed a lottery inside it. The most important invention in modern betting is the same game parlay: a single bet that combines multiple independent bets within the same game. Parlays transformed the user experience for casual sports fans. Now, fans can achieve lottery-style outcomes within a few hours of a sports game by betting something as small as five dollars to win a thousand dollars. They can craft a story behind the bet, giving them the perception of skill. When Dallas Mavericks owner Mark Cuban said that Russel Westbrook was not a super star, a sports fan could build a parlay around his revenge: Westbrook will answer the insult by scoring over thirty five points, have at least ten assists, and take his team to victory. Sports is reality TV for men; parlays keep them glued to their screens because now they have a stake in the outcome.

$150 billion was wagered on sports in 2024. Parlays contribute to two-thirds of sportsbook revenue and to the significant increase in hold, which is sportsbooks’ profit margin on all bets. Sportsbook hold has doubled from 6% when parlays were just introduced to over 12% today.

Parlays allow players to place a small bet for life-changing upside. But each leg of the parlay must be won for the player to win the bet, which drastically shrinks the odds. You would have a far higher probability of winning money if you placed all bets individually rather than placing a single parlay bet, but then the user has to click through and submit individual bets and won’t receive lottery-like upside. A parlay bet triggers a bigger rush.

Zero day options

Zero day options are short-term options contracts that expire within the same day. Weekly options were first introduced by the CBOE in 2005 and expired every Friday. This meant that on Fridays, these options were effectively zero day options but they weren’t on any other day. It was only in 2022 that expiry expanded to all five trading days, creating daily zero day options and unleashing a massive boom in options trading.

Zero day options rose from 5% of total options volume in 2016 to 61% by May 2025. Retail share of zero day options volume is a staggering 54%. Zero day options have low premiums and provide a lottery-like payoff since small moves in the underlying asset produce outsized P&L. You can also tie your bet to specific catalysts or events, which are easy to digest on social media. Speculation on whether “Trump will announce a new round of tariffs on China” or “Powell will cut rates” can help people craft a story on why their lottery ticket is a sound investment.

Post COVID, there was a massive boom in retail participation in the stock market: 30 million new brokerage accounts were opened in 2020 and 2021. This is more than double the total number of new brokerage accounts opened the decade prior. Retail consumers love zero day options, and brokerages like Robinhood love them more. Options were 26% of Robinhood’s revenue in 2024 with an implied gross margin of over 90%.

My friend texted me an idea to make options even more addicting:

I had an absolutely disgusting thought today: Robinhood should offer parlays. Sell customers a call option on multiple assets. For example a call option to buy Apple at $250, NVDA at $190, GameStop at $25 and Bitcoin at $120k, but only if ALL of them are in the money. Robinhood could buy offsetting calls on each individual asset, then sell the parlay “bundle” to retail. Risk-free profit for Robinhood, and their customers would love it.

Perpetuals

Perpetuals, or perps, are futures contracts with no expiry dates. They were originally designed by Nobel laureate Robert Shiller in the early 1990s to enable traders to hedge against long term economic risks like housing prices or economic growth. Little did he know how degenerately they would be used a few decades later.

Technically, perps do not offer a lottery-like convex payoff, i.e. a small fixed cost for a chance at a huge windfall. Perps have linear payoffs: if the price of the asset rises 10% and you’re long with 10x leverage, your P&L is +100%; if it falls 10%, you’re liquidated (–100%). However, perps offer leverage up to 125x depending on the exchange. When you combine leverage with highly volatile underlying assets like crypto tokens, the distribution of outcomes ends up being lottery-shaped: most positions end in small losses or liquidations, a few end in abnormal gains.

Perps had minimal adoption until 2016, when the crypto exchange BitMEX introduced perps. Crypto made perps viable because it enabled 24/7 trading, so funding payments could run continuously. It required no physical delivery and it operated in a regulatory grey zone, side stepping CFTC constraints. But the most important reason for the growth was that crypto markets are highly volatile with high retail demand for leveraged exposure.

About half of all crypto trading volume today is perps. Perps are available on major exchanges for retail to trade including BitMEX, Binance, OKX, Bybit, Coinbase, and Kraken. They are also available on decentralized exchanges like Hyperliquid, the most successful decentralized perps exchange. Hyperliquid processes $6 trillion in monthly volume and generates over a billion dollars in annualized revenue, arguably the highest revenue per employee in startup history. Phantom wallet introduced perps trading in June and is already doing $10 billion in monthly volume.

South Korea is streaming live perps trading like it’s an esports competition.

Robinhood launched their crypto perps product for European customers. Perps are going mainstream, and they are soon going to be accessible to every retail customer to trade crypto assets with 20-100x leverage. Or as Gwart more eloquently put it:

Conclusion

We will see many more companies build a lottery-like experience into their product. Prediction markets, for example, may introduce perpetuals to trade bets with leverage or parlays that combine multiple predictions into a single bet. For a small amount of money but potentially massive upside, a user can bet that Mamdani will win the NYC mayoral election, the US will have a recesion, and the Fed cuts will cut rates by 25 bps. An even crazier idea for credit card points: invest a user’s credit card points into zero day options and randomly distribute a lottery-style winning of an enormous amount of points to a select few users. The world is getting stranger.

The first type of game is a game of luck like a slot machine, roulette wheel, or lottery. This game is entirely driven by chance: there is no skill involved in influencing the outcome.

However, it requires basic human agency like tapping a screen, rolling dice, spinning a wheel, or buying a lottery ticket, so your brain temporarily mistakes it for control, and prods you to do the deliberately simple action again, hoping for a different outcome the next time.

Your excitement comes from an unexpected result you cannot control. While this appeals to people already wired for gambling and those who want to try this for fun, it is difficult to become a habitual, mainstream gambling product because most people have a negative reaction to casino-style games that are entirely driven by luck.

Games of skill

The second type of game is a game of skill like chess, sudoku, or Counter-Strike. This game is driven entirely by skill: the best player wins almost every time. You cannot beat Novak Djokovic at tennis, however hard you try.

These kinds of games are fun for mainstream people to play because they are easily accessible, you can play people at your level, and you can improve with practice. It is also fun to watch talented people play games of skill live.

But since the outcomes are determined by clear skill levels with minimal uncertainty, they are hard to make into repeat gambling products because there’s no built-in randomness to bet against. For example, if a chess app added the option for users to bet $10 on a match against their similarly matched opponent, most wouldn’t do it because the randomness is minimal and there is no lottery-esque financial upside.

Games that are perceived to be skill based, but are driven by luck

The third type of game is one like sports betting, prediction markets, and poker. This game feels skill based so it attracts a mainstream audience, but the outcomes depend on chance. This is the perfect intersection for mainstream gambling products.

Perceived skill makes people think they can spot edges, so the house (gambling app) can bake in a healthy margin.

In this video, a woman reassures her boyfriend after his fantasy football team lost. “It’s not your fault that your fantasy team lost,” she says. “You’re so talented. You know exactly what you’re doing.”

Near-misses and “I almost called it” stories fuel the next bet, and the action continues.

What makes mainstream gambling products

For a game to become a mainstream gambling product, the outcome needs to be uncertain. This ensures that the favorites lose often enough to keep hope alive for everyone else. Players should still perceive the game to be one of skill, so they feel like they can outsmart others, even if it’s actually driven by luck. The game should produce a result fast enough to trigger a compulsive urge to bet again.

Imagine a chess app that allows users to bet money on their match, but now an in-game Magnus Carlsen bot can randomly remove a piece from either side. The players don’t know when this would happen, what piece will be removed, or which side Magnus will target. This introduces chance, which flips results wildly. It also shortens the game, which makes people want to bet again.

What other games have the perception of skill but are actually based on luck?

A sportsbook is a licensed operator that sets the odds for each sporting event and takes the other side of the bet. Contrary to what many think, a sportsbook is a low margin business. They owe up to 51% in state taxes1, pay over $3002 to acquire every new user, and have a smaller house advantage than casino games like craps or slot machines. They cannot afford highly skilled bettors, known as sharps. The average casual bettor loses $100 a year3; one sharp bettor winning $100,000 wipes out the losses of 1,000 casual bettors. Sportsbooks survive by attracting unsophisticated sports fans who are likely to bet on their own favorite sports team; only around 3% of them are profitable.

In the US, a business can refuse service to practically any customer, as long as they do not discriminate based on race, religion, sex, etc. Sportsbooks take advantage of this common law principle to identify their most unprofitable customers early and limit how much they can bet.

DraftKings CEO said at an investor summit in 2021:

This [sports betting] is an entertainment activity. People who are doing this for profit are not the players we want.

The business of sportsbooks is built on losers.

Exchanges vs. Sportsbooks

There are two main ways to facilitate sports betting: exchanges and sportsbooks.

An exchange is a marketplace where people bet against each other instead of against the house. Users post offers and odds are determined by demand and supply, like in a financial market. The exchange itself doesn’t take risk; it only matches bets and charges a commission, typically 2-5% on winnings. Betfair pioneered the sports exchange model, which remains uniquely popular in the UK. In most other countries, however, sportsbooks are the dominant model for sports betting.

A sportsbook is a licensed operator that sets the odds and takes the other side of the bet. If the user wins, the sportsbook pays them. If the user loses, the sportsbook keeps their stake. The two biggest sportsbooks are DraftKings and FanDuel, which have over a 75% market share in the US.

How do Sportsbooks Make Money?

Sportsbooks make revenue from the vig, a small margin built into the odds for a particular bet that ensures the house profits over time. For simple, straight bets like “Lakers will beat the Warriors”, the vig is lower at around 5%, meaning the sportsbook expects to keep $5 out of every $100 wagered on those bets before paying operating costs, promotions, and taxes. Unlike straight bets, parlays are a complex bet that combines multiple independent bets. For parlays, like betting on both “Lakers will beat the Warriors” and “Lebron will score below 15 points”, the vig can go up to 20%.

When you aggregate the vig per bet across all the different bets in a sportsbook, you get its structural hold on handle. Handle is the total amount bet on the platform and structural hold is the percentage of the total handle the sportsbook expects to keep after paying out winners but before paying for operating expenses, promotions, and taxes. Structural hold is the blended percentage across low-vig straight bets (simple bets with low margin) and high-vig parlays (complex bets with high margin).4 A sportsbook’s structural hold on handle is its primary driver of profitability.

Product Design and Psychology That Pushes Users to Parlays

Parlays are a profit engine, so the more a sportsbook can lure novice players into high risk parlays which combine multiple bets, the higher their structural hold is.

Facebook, in its early days, had a magic number: if a new user added 7 friends within 10 days, they’re highly likely to become a long-term active user. If I had to arrive at a similar magic number for sports betting apps, it would look something like this:

A new user who makes a first deposit and places 3+ real-money bets within the first 7 days, with at least one parlay bet, is very likely to become a retained, revenue-positive customer.

When you sign up on DraftKings, the first action they want you to take is to deposit money, for which they offer a 20% bonus reward:

The second action they want you to take is to place a bet, specifically a parlay. In the screenshot below, DraftKings displays Lebron James’s handpicked parlay so you can place this bet with a few clicks: “James Cook to score a touch down + Jonathan Taylor to score a touch down + Garrett Wilson to score a touch down”.

DraftKings introduces an authority figure in Lebron who backs this bet, they add social proof (“11.1K people placed this bet”), and they make the financial upside compelling ($10 pays $59). Instead of combing through stats, setting up custom parlays, or doing your own math, the app puts a trusted face to recommend a bet that is most favorable to the house.

DraftKings and FanDuel love parlays because they drive an increase in their structural holds on handle, i.e. the house’s take rate. Sports fans love parlays especially within the same game because they can weave a story around the bet. The bet also keeps you glued to your screen, so it makes the game more entertaining.

To make sure you go through with your first bet, they offer you a $200 bonus that expires within 24 hours:

Even if you didn’t like Lebron’s recommendation, DraftKing displays an entire carousel of parlays so you can’t escape them:

Once you’ve placed a bet, they send you a push notification the next day offering you a bonus to bet so this becomes a daily habit:

Costs: Promotions, Advertising, and Taxes

Despite all these optimizations, sportsbooks operate on thin margins. DraftKings’s structural hold on handle is currently 11% and FanDuel’s is 14%, leaving little room to pay for its costs, which are significant.

Sportsbooks have three main costs: promotions, advertising, and state taxes.

Promotions include free bets, bonus bets, deposit matches, and odds boosts. DraftKings has a signup offer of $200 in bonus bets along with a 20% deposit match up to a cap. While they do not disclose how much in total they spend on promotions5, it is likely they spent over a billion dollars in 2024 since they added 3.5 million new customers.

Advertising is the primary way for sportsbooks to acquire new users. Sports betting is still new in many markets and sportsbooks have winner-take-most dynamics, so DraftKings spends about $300 to acquire each new user, adding up to a total spend of $1 billion in 2024. Advertising spend includes Kevin Hart’s Super Bowl commercials, official sponsorship of the NFL, paid search and paid social marketing, among others.

States consider sports betting as a “sin” good, so they tax betting revenues heavily to boost the state budget and minimize political pushback. New York, New Hampshire, and Rhode Island take 51% of online sportsbook revenue. Pennsylvania charges 36%, Illinois charges 40%, while most other states fall in the 10-20% range. Because this tax is charged before sportsbook expenses like payment processing, real-time data feeds, marketing, and product expenses, it cuts deeply into their margins.

DraftKings has operated at a loss for the past three years because they’ve spent heavily on growth and state taxes have eaten away at margins.6

Why Sportsbooks Restrict Sharp Bettors

In 2022, Washington Post reported a bettor Beau Wagner who bet $1,000 and won $50,000 on an NBA game. He tweeted a screenshot of his winning bet, and DraftKings reposted it with the caption, “BEAU KNOWS BETTING”. However, a day after his successful bet, his betting limit was severely restricted to a grand total of three dollars and sixty three cents. DraftKings used his win as an advertisement to lure new, unsophisticated bettors to the platform, but they shut down the very bettor they were advertising.

Around 1% of bettors on the platform are limited, according to BetMGM. Sharps are a small share of accounts but not necessarily a small share of handle. That tiny cohort can bet large, target weak markets, and materially drag blended margin for a sportsbook.

The structural hold on handle, the take rate of sportsbooks, is 11-14%. After paying for promotions, federal excise taxes, state gambling taxes, and advertising, the margins fall to low single digits. Sportsbooks cannot afford sharps.

The overwhelming majority of bettors place bets with negative expected value. Sharps are bettors with positive expected value. Sharps do not make the obvious parlay bets that sportsbooks have pre-packaged for users to make. They may exploit arbitrage opportunities across multiple sportsbooks, bet before the odds refresh after big plays, or find the best price and take advantage of the slowest book. They aren’t sports fans who like to casually bet; they are professional gamblers.

Right to Refuse Service to Any Customer

The industry defends the act of restricting sharps. The Director of Colorado’s Division of Gaming has said that there is no right to be a professional sports gambler and that it is simply “a form of entertainment”.

In the US, a business has a right to refuse a customer for pretty much any reason, as long as they do not discriminate against protected classes like race, gender, sex, national origin, among others. Sportsbooks have advanced data science teams to identify potentially unprofitable customers (sharps) and heavily restrict their betting limits early.

Businesses denying service to customers is nothing new. There are comical examples outside of betting where businesses turn away customers they don’t want. As Hacker News user cortesoft puts it:

You could refuse to do business with someone because you didn’t like the way they looked at you, or because you were grumpy the day they came in. Famously, for example, James Dolan [CEO of Madison Square Garden Entertainment] bans all sorts of people he doesn’t like from Madison Square Garden and any of the other venues he owns. He notoriously bans all lawyers who work for any firm that sues him (which happens a lot). He even uses facial recognition to catch them, and kicks them out without refunding their tickets. People have tried to sue him for this (many of them are lawyers, after all!) and so far no one has won against him for it, so he keeps doing it.

Conclusion

Sportsbooks make their money by tempting casual sports fans into making complex parlays, which rarely ever win but drive revenue for sportsbooks. Despite this, sportsbooks operate on small margins, so they cannot afford sharps, whose bets have positive expected value. They consistently restrict their best bettors, and optimize their product and marketing to attract losers.

How did sports betting become legal? It’s a fascinating story involving four characters.

Bill Bradley: who America aspires to be. Bradley was an NBA player and New Jersey senator who introduced PASPA, the law that banned sports betting in the US in 1992. Bradley is charming, disciplined, and principled. An all-American hero.

Chris Christie: who America is. Christie was the governor of New Jersey who fought to legalize sports betting by repealing PASPA. He’s a realist who understood his residents’ demand for sports betting. He himself was a big sports fan, indulgent, and a lover of spectacle.

Jeremy Kudon: who America pays. Kudon is a lawyer and lobbyist that helped legalize fantasy sports and, later, sports betting across US states. He is tactically brilliant at working state legislatures to enact or repeal laws on behalf of his clients.

Ted Olson: who America listens to. Olson is a prominent constitutional lawyer who argued the case to repeal PASPA in the District Courts and Supreme Court. He was central to cases involving legalizing gay marriage, upholding the second amendment, and the landmark campaign financing ruling in Citizens United.

Creation of Fantasy Sports: When the American Sports Fan Changed Forever

In 1979, the American sports fan started to change; in retrospect, forever. A writer Dan Okrent taught his friends a new game: players picked a fantasy baseball team from the pool of real-life baseball players.1 You win by being the best at predicting what your handpicked baseball players will do in the actual game. This game was called fantasy baseball.

Fantasy play spread to other sports like basketball and football. People bet small amounts of money to participate in fantasy sports contests with their friends. Those who chose the best performing fantasy teams got to keep the pot.

It was primarily a fun social activity you’d do with your friends.

PASPA: Banning Sports Gambling in 1992

In 1992, New Jersey Senator and former basketball player Bill Bradley sponsored a Federal law called PASPA, the Professional and Amateur Sports Protection Act. This law banned most states from legalizing sports books: businesses that set odds, accepted wagers, and paid out winnings on sports games.

Bradley, a former NBA player and principled senator, believed that gambling corrupted the integrity of sports. It could lead to match fixing, point shaving, and unfair influence.

PASPA passed with broad, bipartisan support: 88-5 in the Senate and by a voice vote in the House. A voice vote is when lawmakers shout “aye” or “no”, reserved for uncontroversial proposals. The experts thought sports gambling was a problem, and the public didn’t care about it much.

The law was unusual in its wording: it didn't explicitly make sports betting a federal crime for individuals, but it stopped states from legalizing it. PASPA was crafted to avoid opposition from states where sports betting already existed, like Nevada, Delaware, Oregon, and Montana. It blocked other states from passing new laws that would legalize and regulate sports gambling. Twenty five years later, this wording is what led to the undoing of PASPA when New Jersey wanted to legalize sports betting.

In the meantime, fantasy sports continued to gain popularity through the 90s and 2000s. Fantasy sports expanded from small circles of die-hard sports fans to a national pastime, played in high schools and colleges, debated in office break rooms, and argued over at Thanksgiving dinners.

Commercialization of Fantasy Sports: FanDuel and DraftKings

In 2009, a company in Scotland was created called FanDuel that introduced daily fantasy sports. Before FanDuel, players would draft a fantasy team just once before the season started and have points accumulate through the season. Daily fantasy sports introduced daily contests: players could draft a new team every day for the game that is being played that day. Instead of just competing with your friends, the prize pool was now a large global jackpot aggregated among millions of FanDuel users who you did not know. In 2012, DraftKings was founded to compete with FanDuel.

Fantasy sports extended from primarily a social activity to a money-making activity.

FanDuel and DraftKings began spending heavily on TV ads. In the 2015 NFL season, they spent $27 million on 8,000 television spots, outspending the entire beer industry. These were crude ads, most of them being testimonials about people who won big; the kind that bragged “I turned five bucks into fifty thousand”.

The ads caught the eyes of regulators. Isn’t this sports gambling? How was this on TV screens when sports gambling was illegal?

In 2015, the attorneys general of New York and Illinois ordered that FanDuel and DraftKings had to cease and desist fantasy sports contests since they were considered to be sports gambling.

Legalizing Fantasy Sports Across States

In response to the crackdown, FanDuel and DraftKings hired Jeremy Kudon, a partner at Orrick, a New York law firm that lobbies legislatures on behalf of clients. Kudon had a challenging job. PASPA, which was passed in 1992, effectively banned sports betting.

Kudon viewed that the best path to influence national policy was working through state legislatures. By winning over several states, you can eventually shift national policy.

His strategy was to initially focus on smaller and male-dominated legislatures like Kansas because it would be easier to explain the issue:2

A lot of women would say, ‘I have no idea what you’re talking about. That just sounds like gambling.’ The men would say, ‘I do fantasy sports. You’re telling me this is gambling? There’s no way this is gambling. I do this with my friends.’

His argument to state legislatures was that fantasy sports is a game of skill like a golf tournament, not a game of luck like a slot machine. To prove this, he worked with an economist to show that the best fantasy football players are better at building teams than any real NFL general manager.

Kansas was the first state to explicitly legalize daily fantasy sports. After Kansas, Kudon persuaded 22 more states to allow fantasy sports.

New Jersey: Sports Betting in its DNA

Sports betting was still illegal under PASPA, but it was prevalent in New Jersey. About half of today’s sports bettors in New Jersey used to bet on sports when it was illegal. Minor bookies would pass out cards with spreads for sports fans to bet on. Illegal bookies operated quietly, taking bets in diners, corner stores, and high schools.

In 2007, Rudy Garcia, a New Jersey politician, went to do something that was common in Jersey: place a sports bet with a local bookie. However, this bookie was part of an FBI sting operation, so Garcia was indicted for criminal activity and forced out of politics.

Ray Lesniak, a New Jersey senator, who was a close friend and ally of Garcia, was shocked at how unfair the case was. After all, sports betting was a harmless pastime in Jersey. He decided to take on the cause of legalizing sports betting in New Jersey.

Changing New Jersey’s Sports Betting Laws

To change New Jersey state law, Lesniak needed the help of the then governor Chris Christie. But the two didn’t get along, and Christie backed the sports betting ban at the time.

Blocked at the statehouse, Lesniak turned to the public. He proposed a referendum asking voters if sports betting should be legalized. When nearly a million residents cast their ballots, two-thirds voted for. The vote had no legislative effect and was largely a publicity stunt, but it worked. Christie, a big sports fan who occasionally bet on games in high school, was pragmatic and decided to change course.

When asked why he changed his position on sports betting, Christie said:²

“When you look at the black market of sports betting, there are billions of dollars bet every year. Legitimizing that already ongoing activity would create economic activity for the state.”

Christie thought that Senator Bill Bradley, who sponsored PASPA, was “extraordinarily naive” with his rationale for maintaining the ban on sports betting.

Two weeks after the referendum, Lesniak introduced the Sports Wagering Act (2012) which allowed sports betting in New Jersey, and Christie signed it into law.

The Leagues’ Lawsuits vs. New Jersey’s Ace: Ted Olson

Immediately after the 2012 Sports Wagering Act was signed, the NFL, NBA, NHL, MLB, and NCAA sued New Jersey, arguing that this act violated federal law PASPA. To defend New Jersey’s case, Christie approached Ted Olson, a legendary constitutional lawyer.

By the time Olson was challenging PASPA, it was in force for 20 years without being challenged. At the time, he thought:²

“The desire to pass this statute was perceived as doing good: to stop people from betting on sports, to stop the potential corruption of athletes and the temptation put before them. Why will the Supreme Court get involved now?”

But the Supreme Court had been drifting in a new direction for a while and Ted Olson helped it drift. In the 1980s, Olson was a prominent member of the Federalist Society, which believed that the constitution should be understood as it was originally written, rather than as a “living document” that evolves with modern values. Clarence Thomas, Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett were all part of the Federalist Society at different periods, and groomed to be Supreme Court justices. Olson was an influential leader in the same club as the Supreme Court judges who would decide if PASPA should be repealed. Christie hired Olson because his presence showed that New Jersey’s case should be taken seriously.

Ted Olson’s Argument and New Jersey’s Losses

Olson’s argument was that Congress had overstepped. PASPA told states that they cannot authorize sports gambling, but they would have to enforce the ban themselves. Under the anti-commandeering doctrine of the constitution, Congress cannot compel states to do something. Congress can legislate on people, not states.

Under PASPA, Congress didn’t ban individuals from betting on sports, which it could have done under the Interstate Commerce Clause. It also didn’t provide the federal regulatory muscle to enforce the sports betting ban. In contrast, for example, when Congress passed the Federal Aviation Act of 1958, it created a federal regulatory regime (the FAA) to enforce airline rules directly, rather than compel states to do it.

Olson, however, lost his first two cases in the lower courts and the Supreme Court refused to hear the case. The courts said that New Jersey’s 2012 Sports Wagering Act was exactly what PASPA prohibited: a state “authorizing” sports betting, and federal law supersedes state law under the Supremacy Clause of the constitution. The NCAA lawyers effectively argued this:²

“We aren’t saying you have to enforce the prohibition. We aren’t saying you need to do anything to prevent sports gambling. You just can’t legalize it.”

While PASPA blocked states from legalizing sports betting, it didn’t force them to regulate it. A minor difference, but not commandeering.

Christie’s Clever Maneuver: Repealing New Jersey’s Prior Sports Betting Regulation

Christie took this as an opportunity to do something clever. In 2014, New Jersey passed a new law that repealed the state’s own previous regulation on sports betting. They didn’t create licenses or regulate it; they just removed the prior ban. The state took the hands-off position: they weren’t going to formally legalize or regulate sports betting, but they weren’t going to prevent it. Now, if the leagues sued New Jersey, the state could argue that it hadn’t authorized sports betting at all; it had merely stepped aside.

As expected, the leagues sued. They argued that even this partial repeal authorized sports gambling. The commissioner of the NFL Roger Goodell told Chris Christie:²

“You’ve got to drop the case because we’re going to embarrass you.”

The early rounds went badly. Olson lost four more cases in the lower courts and Christie spent $6 million in public funds. But Olson knew that if they petition for the Supreme Court to hear their case, they had a good shot at getting accepted.

Supreme Court Hearing on PASPA

Olson was right. In June 2017, the Supreme Court agreed to hear New Jersey’s case.

On December 4th, 2017, Olson argued New Jersey’s case in the Supreme Court. Supreme Court cases aren’t like courtroom dramas you see on TV, but more like a press conference with nine hostile reporters who are constantly interrupting and questioning you. The full audio argument of Murphy vs. NCAA (formerly Christie vs. NCAA) is worth listening to; it is gripping from start to finish:3

Olson starts with arguing against PASPA based on the anti-commandeering principle: Congress can regulate people, not states.

Almost immediately, Justice Ginsberg interrupts Olson:³ wasn’t PASPA just another example of federal preemption, where federal law supersedes state law?

Olson says that when federal law supersedes state law, the federal government should regulate individuals via the Interstate Commerce Clause. PASPA doesn’t regulate individuals, nor does it provide regulatory muscle for enforcing the ban on sports betting. It simply commandeers states to ban sports betting and do the work of enforcing the ban.

Justice Sotomayor challenges this. She says that states don’t have to enforce the ban:³

“Mr. Olson, if every governor enforced every law on the book, the state would be more than bankrupt. It would have no way of surviving. There are countless laws, and even laws that are in force, that are not enforced totally. States make choices all the time. There is nothing [in PASPA] telling this state that it has to enforce this law.”

But Olson had a stronger counterargument this time thanks to Christie’s clever 2014 maneuver. New Jersey’s sports wagering act of 2014 did not legalize sports betting, it simply removed their prior ban. If PASPA blocked that, it meant that Congress was dictating what state legislatures can and cannot do.

Olson’s logic resonated with Justice Alito, a New Jersey native who had been part of the Federalist Society. Alito said there is no difference between Congress ordering a state to pass a law and forbidding it from repealing one: both are unconstitutional intrusions.

With that framing, the issue became clear. This was no longer about sports betting in New Jersey; it was about the balance of power between Washington and the states. The court, now more open to states’ rights than in prior years, delivered a landmark judgment. In May 2018, the Supreme Court ruled with a 6-3 vote that PASPA was unconstitutional, therefore removing the 26-year federal ban on sports betting and unleashing the modern sports betting industry.

Lobbyists like Jeremy Kudon saw this ruling as an opening to persuade state legislatures across the country to legalize sports betting. Kudon started with states that already legalized fantasy sports, a landscape he knew better than anyone else. Today, 38 states have legalized sports betting.

Conclusion

The widespread embrace of sports betting among everyday Americans wasn’t inevitable. Bill Bradley’s views on the harms of sports betting were the norm in America through the 90s and 2000s. It took a motivated state Governor in Chris Christie, an exceptional constitutional lawyer in Ted Olson, and a tactical lobbyist in Jeremy Kudon, to bring sports betting to nearly every American state and household.

3

Supreme Court oral argument of Murphy vs. NCAA. (Formerly known as Christie vs. NCAA.)

---

If you liked this post, check out my post on Financial Speculation in Ancient Rome:

Dopamine Markets

Financial Speculation in Ancient Rome

The average zoomer and millennial believes that a traditional job is a road to the permanent underclass…

Read more

8 months ago · 5 likes · 3 comments · Shreyas Hariharan

• Housing is out of reach: homes cost 7 times median income today

• Student debt lingers on for decades: the average student takes 20 years to pay off their debt

• Healthcare costs have exploded: insurance premiums have quadrupled since 2000

  

People believe that the primary way to escape the permanent underclass is not through hard work or expertise but financial speculation. Hundreds of millions of people are trading meme stocks and crypto currencies, betting on sports games, gambling in online casinos, and buying lottery tickets.

This feels unprecedented, and the scale certainly is, but are there any historical analogues to this sentiment? Interestingly, yes. One of the earliest examples comes from Ancient Rome.

In Daily Life in Ancient Rome, historian Jerome Carcopino writes, “Work might still ensure a modest living, but no longer yielded such fortunes as imperial favor or a speculative gamble might bestow… speculation was the life-blood of an economic system where production was losing ground day by day.”

He is describing Imperial Rome at its height in the 2nd century AD, where big fortunes came from speculation and favorable access to the emperor, not craftsmanship and production.

At the late stages of many empires, speculative activity increases.

Complex Markets: Necessary Condition for Financial Speculation

By the 2nd century BC, Rome had developed complex markets: property transfers, loans with interest, exchange of foreign currency, the use of bankers’ draft, and a primitive form of insurance for ships and other property.1 Complex markets are a necessary condition for financial speculation.

In Latin, speculator describes a sentry whose job it is to “look out” for trouble. Speculators met at the Forum where they bought and sold shares, bonds, goods, farms, houses, ships, cattle, and slaves. The Roman comic playwright Plautus describes two types of men at the Forum: those who would boast (bulls) and those who would spread accusations about one another (bears).

Speculating on the State

Rome often hired the publicani (state contractors), which were effectively private companies, to perform essential state functions like collecting taxes, buying grain, and building temples for the city. Like joint stock companies, the publicani had independent members who owned shares in them, which included capitalists, politicians, and merchants.

Through shares in the publicani, common people had a financial interest in the construction and repair of public buildings, and revenues from navigable rivers, harbors, gardens, mines, and lands. Privileged knowledge of state decisions, for example about when the state would buy grain or where it would construct a temple, fueled speculation and made some people rich overnight.

Speculating on Grain

A typical deal between the state and the publicani (contractors) worked like this: the contractor paid a fixed fee to win the job, sent agents into the countryside to collect grain at a low price, then sold that grain at a profit into the city’s food program.

Speculative gains were made when the state bought grain at higher prices or higher volumes during shortages.2 This created a strong financial interest in shortages, emergencies, war, and famine. Contractors actively hoarded grain supplies only to release them during severe shortages. They would get privileged information of when and where shortages might exist from state officials. Many senators were themselves involved in the grain trade so had a financial interest in exaggerating shortages.3

One season of contracts could move millions of sesterces, the everyday Roman coin; for comparison, a regular soldier earned about 900 sesterces in a year.4

It was more profitable to speculate on grain prices and hoard grains for months than to work as a carpenter, mason, or blacksmith at the height of Imperial Rome. A carpenter or mason’s income rose only with the hours he worked, but a grain speculator who timed one winter correctly could capture a season’s worth of profit in a few days.

Gambling and Dice

Gambling was part of everyday life in Rome, and most adult men played semi-regularly. People rolled cube dice and tossed knucklebones at their homes and in taverns; emperors played too, which made it feel normal. Tables used simple rules: a bad throw cost a coin, the best throw took the pot. Julius Caesar famously said, “the die is cast” when he crossed the Rubicon in 49 BC; he was comparing his decision to a dice throw: once the dice leaves your hand, you can’t take it back. Clearly gambling on dice was something everyone could relate to.

Stakes were usually small: four sesterces, about 5% of a soldier’s monthly salary. There were flashier gamblers like Roman emperor Claudius who reportedly bet 400,000 sesterces on a single roll of dice, and even wrote a treatise on the art of dice that is now lost.

Roman law mostly banned gambling outside festival windows and threatened fines and infamia (loss of legal standing), so for most people it stayed pocket-money fun, not a path to wealth.

Betting on Gladiator Games

Gladiator games were staged fights that took place all over Rome but famously at the Colosseum. What is lesser known is how much the gladiator stands buzzed with side bets: friends and strangers wagered coins, drinks, or favors on who would win, how long a bout would last, who would draw first blood, and if the defeated fighter would get mercy. Fans picked favorites by gladiator type, by a fighter’s recent record, and by what they spotted in the pre-fight parade: fresh bandages or a swaggering walk could swing the “odds.”

There were no official bookmakers; bets were peer-to-peer, shouted across benches or pooled among groups with someone keeping tally on a wax tablet. Small “prop” bets were common: number of hits, who falls first, even whether the the show’s sponsor would let the loser of the gladiator bout live. Graffiti and chants backing named fighters show how popular and noisy this gambling culture was: part bragging rights, part pocket money, all spectacle.

Why are people gambling today?

People in Ancient Rome at the peak of the empire clearly had a desire to escape the underclass through speculation rather than labor. But where Rome differs from today is the regulation on speculation amd its scale. In Imperial Rome, not everyone in the public could own shares in the publicani and speculate on grain prices. Gambling and gladiator bets were a minor, social spend; they were heavily regulated and very few cases show lasting fortunes made purely at the dice table.

People have a lot of explanations for why the world is now gambling. Financial nihilism, rising housing prices, a feeling like people can’t escape the underclass with labor, wage growth stagnation, lack of community, cultural rot, among others.

But this sentiment has existed many times over human history, usually at the height of empires: the Roman Empire in the 2nd century AD, the Dutch Republic during the Tulip mania of the 1630s, the British Empire during the South Sea bubble of the 18th Century, and the American empire during the roaring 1920s. In all these periods, there was an underlying sentiment that financial speculation yielded better results than hard work. Yet, it still didn’t result in mass, consumer scale speculation. Less than a thousand people participated in the Tulip mania but hundreds of millions of people are regularly engaging in financial speculation today.

So what is the primary reason? De-regulation. It used to be difficult for businessmen to run gambling businesses and for people to gamble. Now, it’s easy. The Unlawful Internet Gambling Enforcement Act of 2006 cracked down on online gambling, but explicitly carved out fantasy sports as a “game of skill”. PASPA, which banned sports betting in 1992, was overturned by the US Supreme Court in 2018. Thirty eight states now allow sports betting. In 2005, the SEC approved the listing of short dated options, which are effectively gambling instruments for retail traders. Crypto assets would’ve been treated as unregistered securities and been banned in the 20th century, but they are permitted today. State lotteries, which were banned or tightly restricted till the 1970s, are now legalized across nearly every US state.

Part of the reason for the increase in speculation is smartphones, but the main reason is gambling de-regulation, which allows founders to launch and advertise slot machines delivered through mobile apps.

A casino in every town and in the pocket of every individual wasn’t legal or morally acceptable for almost all of human history, including Ancient Rome. Today, it is.