S2E16 — Polymarket, Kalshi and the People Who Knew First

A US Army sergeant bet roughly $33,000 on Polymarket on an arrest he had just been briefed on, and turned it into the price of a house. A Google engineer read his own company's unpublished data and moved about $1.2 million into a private wallet.On a public blockchain, both men left a trail the FBI could follow to the cent. That is the paradox at the centre of prediction markets: the transparency that makes them exploitable is the same transparency that makes them honest. Between September 2025 and April 2026, combined monthly volume on these prediction markets climbed from under $5 billion to about $24 billion, and in October 2025 the parent of the New York Stock Exchange committed around $1.6 billion to the largest of them.Aman Narain and Zubin Vandrevala break down how prediction markets went from a forgotten Wall Street betting ring to information infrastructure, and the harder question beneath the boom: when a market knows before the news does, is the system working perfectly, or is it being robbed?Key takeaways:1. The transparency that makes these markets exploitable is exactly what makes them honest: the engineer who hid behind a wallet was traced by the same chain he trusted.2. The political framing is a myth. On Kalshi, 80% of volume is sports and just 4% is politics.3. ICE bought the data, not the casino: roughly $1.6 billion for a live probability feed it can sell to every bank and hedge fund on its network.4. Volumes ran from under $5 billion a month to about $24 billion in seven months, with Piper Sandler projecting $8 billion in annual revenue by 2030.5. A prediction market is not an oracle but a mirror, only as honest as the room it is in.Topics covered:- The two cold-open exploits: a Fort Bragg sergeant and a Google engineer who bet on what they already knew- The intellectual lineage: Hayek on price as information, Hanson's futarchy, Tetlock's superforecasters- Wall Street's unregulated political betting ring, and the $10m wagered on the 1916 election- The modern revival: the Iowa Electronic Markets, Intrade's collapse, and the fall of PASPA- How a prediction contract actually works, and the passport-versus-wallet divide between Kalshi and Polymarket- The full board: Polymarket, Kalshi, PredictIt, Manifold, Metaculus, Robinhood, Interactive Brokers and DraftKings- The data that reorders the story: prediction markets are now mostly a sportsbook in a derivatives licence- The three forces behind the 2024-2026 boom: the KalshiEX ruling, the GENIUS Act, and a presidential endorsement- ICE's ~$1.6 billion move on Polymarket, and why it bought the data and not the gambling- The prosecution: four insider cases, reflexivity, and gambling at derivative scale- The bull case in three layers: parametric insurance, macro hedging, and information infrastructureChapters:Referenced in this episode: US Army Master Sergeant Gannon Ken Van Dyke and Operation Absolute Resolve; the Google engineer "AlphaRaccoon" and the Year in Search exploit; the Israeli Air Force major and the June 2025 Iran briefing; the MrBeast editor's $4,000 Kalshi trade and $20,000 fine; Friedrich Hayek, Robin Hanson and futarchy, Philip Tetlock and the Good Judgment Project; the Wall Street curb-market and Tammany Hall betting ring, the 1896 and 1916 elections, and Governor Charles Evans Hughes; the Iowa Electronic Markets and their 1.34-point average error; Intrade and John Delaney; Murphy v NCAA; Polymarket on Polygon and Kalshi as a CFTC-designated contract market; PredictIt and Victoria University of Wellington; Manifold, Metaculus and Augur; Robinhood, MIAXdx and Susquehanna; Interactive Brokers and ForecastEx; DraftKings, Railbird and DKeX; KalshiEX v CFTC and CFTC chair Michael Selig; the GENIUS Act; ICE / Intercontinental Exchange and Jeffrey Sprecher; Piper Sandler's $8bn-by-2030 estimate; Boaz Weinstein and Saba; the 12 January 2026 single-day record of $701.7m; the Arizona pre-emption ruling and Minnesota Governor Tim Walz's ban.Related episodes: S2E14 — Machines with Wallets, for the stablecoin-rails and GENIUS Act thread; [TBD — the Mastercard / BVNK stablecoin episode, confirm number].Hosted by:Creators & Guests Aman Narain - Host Zubin Vandrevala - Host Aman Narain writes at amanwhoblogs.substack.com. Zubin Vandrevala is your payments provocateur.Enjoying A2Z Fintech? Leave a rating and review on Apple Podcasts. It is the single biggest signal to the Apple algorithm and how new listeners in our world find us.For information and entertainment only. Not financial advice.Transcript:Click here to view the episode transcript.