The "Bet On Everything" Epidemic Is Actually Even Dumber Than You Think

0:00 Bet on anything markets have just had their best years ever.

0:03 These platforms let you gamble or sorry I mean

0:06 trade on everything from elections to the numbers of starving

0:09 children in active war zones all the way down

0:12 to Jake Paul getting the snotbeat out of him.

0:14 Now as a shock to absolutely nobody the proliferation of these markets

0:19 is already having some questionable impacts on the state of our society.

0:23 But that's easy to ignore when these platforms are bringing in this much money.

0:26 Just call sheet and poly market, the two largest prediction markets right now,

0:30 are on track to handle over a hundred

0:32 billion dollars in trading volume this year alone.

0:35 And other businesses have noticed this.

0:36 The mass adoption of betting on everything has become so widespread that it's

0:40 threatening the thinly veiled gambling facilitated

0:42 by platforms like Robin Hood and Coinbase.

0:45 So they are just starting their own prediction markets as well.

0:49 Within just the last year,

0:51 no less than 12 major organizations, including CME Group,

0:54 Sports Illustrated, and Trump Media's True Social

0:56 have launched or co-hosted their own prediction markets,

0:58 so that no matter what platform you happen to be using,

1:01 you can conveniently bet your rent money on whether

1:03 Aliens will be confirmed before GTA 6 is released.

1:06 Like a lot of modern financial developments,

1:08 it would almost be funny if it wasn't

1:11 going to have such devastating consequences on average people.

1:14 But hopefully by now you already knew all of this.

1:17 What most people haven't noticed so far, though,

1:19 is the businesses that stand to make the most money out of all of this.

1:24 And spoiler alert, it's not the market facilitators themselves.

1:27 People who think they're going to win and literally

1:31 lose all their money and end up driving Uber.

1:33 Going to use prediction markets to figure

1:35 out what's actually happening in the world.

1:37 On eports, on video game items, on slots with those items,

1:40 financial market that prices questions about the future.

1:43 So now I'm here doing Uber Eats on a daily, sleeping in my car.

1:47 So please don't gamble guys.

1:49 Trust me.

1:50 Okay.

1:50 So as a bit of technical housekeeping,

1:53 it's important to understand the mechanical differences

1:55 between modern prediction markets and more traditional bookmakers.

1:58 A traditional bookie or sports gambling operator like DraftKings

2:01 or FanDuel effectively makes bets directly against their clients.

2:04 If you bet on Ohio State to beat Michigan,

2:07 the company themselves needs to pay you if Ohio State does indeed win.

2:11 Now, normally they are going to give you worse

2:13 odds than the true expected value of that bet,

2:15 which is how they make their money.

2:17 If the game is a true 50/50 tossup,

2:20 then they might only pay out $1.95 for every dollar that bets correctly.

2:24 Now, the term bookmaker actually means that for them to operate consistently,

2:28 they should build a book of bets for both sides

2:30 on this game so that no matter which team actually wins,

2:33 the losing bets pay for the winning bets,

2:34 and they get to keep a nice little margin either way.

2:37 Filling up a book of perfectly weighted bets is actually quite challenging.

2:41 If too many people bet on one particular team,

2:44 then that leaves a bookmaker exposed to a potential loss if that team wins.

2:47 So to counteract this, they will try to get

2:49 more people to bet on the opposing side by offering

2:52 better odds to them and worse odds on the team

2:54 that already has lots of people betting on it.

2:56 In the past, this would be done by human traders sitting at a desk

3:00 that looked like a regular stock trader desk in a hedge fund.

3:03 But today, most platforms like this use sophisticated algorithms to manage

3:06 all of the thousands of individual games they take bets on.

3:10 Prediction markets like Khalshi, Poly Market,

3:11 and the dozens of copycats that are trying

3:14 to cash in on this degeneracy are slightly different.

3:16 They never directly take on the bets themselves.

3:19 They just offer a marketplace where people

3:22 can come together and trade on their disagreements.

3:24 You might log into one of these platforms and offer

3:27 20 to1 odds on Atrioc reacting to this video,

3:30 but the platform itself doesn't take you up on that bet.

3:32 It just posts it until someone else comes along and agrees to bet against you.

3:36 It varies slightly from each one of these businesses,

3:39 but they then normally take a small fee

3:41 of around 1% off payoff from whoever wins.

3:44 Now, this slightly different model of just facilitating bets rather than

3:47 directly taking them has allowed them to do a few things.

3:50 The first is skirting around regulations.

3:52 Since they are technically just facilitating trades between two

3:55 separate parties who are agreeing on a financial contract,

3:58 they are regulated by the Commodity Futures Trading Commission,

4:01 assuming they are regulated at all.

4:03 These bets are classified as just buying financial derivatives.

4:07 So, the regulations and even age limits are not as high

4:10 as if they were overseen by a state gaming board.

4:13 Coffeezilla has done a series of great videos on the absurdity

4:16 of how these platforms get around laws that should obviously affect them.

4:18 So, I will leave a link to that below

4:20 if you haven't already seen them already because I'm sure

4:23 at this point with the amount of gambling or gambling

4:25 adjacent ads you have had blasted into your prefrontal cortex,

4:28 none of this is all that surprising to you anymore.

4:31 But the slightly less obvious thing that the business model

4:34 of the bet on everything platforms has allowed them to do

4:37 is to open up their back door to hedge funds who

4:39 can turn this whole thing into their own protected hunting range.

4:42 And it should probably go without saying, but you are the prey.

4:47 So, it's time to learn how money works to find out

4:49 how the real money behind these platforms is really getting made.

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5:55 One of the other less obvious benefits to the prediction market business model

5:58 is that since these businesses don't take on any of the bets themselves,

6:02 the amount of money they need to start these businesses is far lower.

6:06 Even under the most accommodating state gaming boards,

6:09 regular casinos or bookmakers are legally required to have enough cash

6:12 in reserve to cover all bets and cash withdrawals at any given time.

6:16 For big operations, this can be billions of dollars,

6:19 which is a significant barrier to entry

6:21 for any startup that wants to disrupt the gambling, sorry, prediction market.

6:25 The prediction market model means that people are betting against each other,

6:29 which means the business itself can directly be liable for any payouts.

6:32 Now, this has made it a lot easier for every

6:35 app in your phone to launch their own micro casino.

6:37 But it does present another problem.

6:40 For people to uh trade predictions, they need someone to trade against.

6:44 And nobody is going to put up money on a platform to trade

6:48 against someone else if there is nobody there in the first place.

6:51 Even the big established incumbents often struggle for liquidity across

6:54 the thousands of potential markets they host every single day.

6:57 So, the solution is a market maker.

7:00 In regular investment markets,

7:01 a market maker will offer to both sell and buy a given security

7:05 at a slightly offset price to make a little bit of money on the spread.

7:09 They are essentially scalping cash off regular investors,

7:11 but they are still seen as a welcome participant in the process

7:14 because it means if you ever want to buy or sell a stock,

7:17 you will almost always have a buyer

7:18 or a seller there to instantly buy or sell to.

7:21 In the most basic terms, they are the people that stand around in the Grand

7:25 Exchange all day flipping items for a small markup.

7:27 In real financial markets,

7:28 this job is a little bit more complicated because they

7:31 are not only offering bids and offers for regular stocks,

7:34 but also to a wide array of derivatives like

7:36 options and futures that can change very quickly and unpredictably.

7:40 Today, firms like Citadel Securities and Gain Street

7:42 derive a large portion of their revenue from marketmaking

7:45 and the significant rise in uh let's call it undisiplined

7:49 retail speculation has been one of their all-time biggest opportunities.

7:53 Highly risky financial instruments like zero data

7:56 expiry option contracts can generate huge returns.

7:58 But they also present enormous risk.

8:00 Making a market for these kinds

8:02 of financial derivatives has allowed the quantitative analysts

8:05 at these firms to systematically extract value

8:07 out of people who are effectively just gambling.

8:09 The more reckless their counterparty is,

8:11 the easier it is for their algorithms to create markets where if it's heads,

8:15 they win and if it's tails, they also win.

8:18 prediction markets take the reckless behavior

8:20 of these retail traders and completely get rid of the pretense that this is even

8:24 in any way something that could be considered investing.

8:27 Unsurprisingly, major hedge funds have jumped in to serve these markets.

8:32 In their extensive advertising,

8:33 companies like Khi and Poly Market would love to make you think that you are

8:37 betting against some other Joe Sixpack who just

8:39 happens to have a different opinion to you.

8:42 In reality and in the best case scenario,

8:44 you're betting against this guy or more often than not,

8:47 you're betting against, sorry, trading against someone with inside information.

8:51 Now, at the moment, these platforms are actually so desperate

8:55 to scale as quickly as possible that behind the scenes,

8:58 they are offering direct incentives to firms who can

9:00 provide them with liquidity in as many markets as possible.

9:02 Other prediction market facilitators like Crypto.com

9:05 have taken it one step further and set up internal marketmaking teams

9:09 to trade directly against their own customers, which might make you think,

9:12 hang on, doesn't that mean they have gone all

9:14 the way back around and become a bookmaker again?

9:16 The business's official answer to that question is, don't worry about it.

9:21 It's not great.

9:22 But it gets worse.

9:24 Around 5 years ago, you may have remembered

9:27 the controversy surrounding the practice of payment for order flow.

9:30 A firm like a big hedge fund would pay

9:32 a broker like Robin Hood a fee and in return

9:34 they would get to be the first in line

9:36 to facilitate any customer trades if and when they were made.

9:39 The same kind of process doesn't directly translate to these markets.

9:42 But the preferential treatment can and does.

9:45 All of these exchanges have back-end trading interfaces with a range

9:49 of features that are not available to regular users like broad market data,

9:52 low latency connectivity, bulk order management, drop copy, and IP whitelisting.

9:58 Naturally, these programs are only available to institutional partners,

10:01 although you are technically welcome to ask for access to them.

10:04 In regular investment market exchanges like

10:06 the NASDAQ and the New York Stock Exchange,

10:08 they have actually tried really hard to curb the advantages that big

10:11 hedge funds can gain through tricks

10:13 like highfrequency trading and darkpool market.

10:15 They have done this because if a market becomes too unfair,

10:18 then regular investors are not going to participate in it.

10:21 These prediction exchanges have gone the opposite way though and have basically

10:25 created a perfect playground for sophisticated

10:27 market makers to profit off regular traders.

10:29 Now you might be thinking, who cares?

10:32 Most people opening up culture or poly market

10:34 are happy to acknowledge what the regulators aren't.

10:37 This is just gambling.

10:38 Nobody goes into it actually expecting to make money, right?

10:42 Well, this should be true.

10:44 But the underhanded way that money is being extracted

10:47 out of these markets separate from firms themselves is going

10:50 to make them even harder to regulate and even

10:53 more lucrative to push onto as many customers as possible.

10:56 I hope in whatever way it can, this little video helps to expose the way

11:01 that this industry is really cashing in on desperate people.

11:04 Now, if you want to see how bad this could all

11:06 really get if we let it go on for long enough,

11:09 go and watch this video next to see

11:11 how Australia became the gambling capital of the world.

11:14 I want to end this video by saying thanks to all of you

11:16 for supporting my team and I this year by watching our videos.

11:19 We will see you in 2026 to keep on learning how money works.