- Some bettors called attention to the fine print that defined the wager on whether the Titan had been found.
- The argument was handed over to Polymarket partner UMA, a DeFi protocol that aims to settle others’ disputes.
It was a $2 million question: What does it mean to “find” something?
Crypto-based betting platform Polymarket drew a record number of Google searches, more than $2 million in wagers, and some negative press last week when it asked users: “Will the missing submarine be found by June 23?”
At the same time, a separate but related controversy was brewing.
After the US Coast Guard announced on June 22 that it had found pieces of the submersible on the ocean floor — evidence of a “catastrophic implosion” that killed its five passengers — Polymarket users who had bet “yes” won.
But users who had bet “no” cried foul, pointing to the fine print of the bet. The argument was handed over to Polymarket partner UMA, a business that aims to settle others’ disputes the crypto way — with tokens.
UMA tokenholders vote to settle questions of fact, with the idea being that collective wisdom is the best way to get at the truth. UMA’s website calls it a “decentralised truth machine.”
UMA voters sided with those who had bet “yes,” prompting a new flurry of complaints — this time, that its process couldn’t be trusted.
In an interview with DL News, Hart Lambur, a former Goldman Sachs trader and the founder of UMA, pushed back against the critics.
“I get offended by accusations of collusion,” he said, “because [critics] don’t understand the system or the game theory.”
At the same time, he acknowledges that the protocol could do better in terms of attracting voters.
“How many voters do you need before you consider it decentralised?” he wondered aloud.
‘Barbie’ or ‘Oppenheimer’?
The viral news event of the Titan disaster — combined with criticism of making money from the fates of the doomed passengers on the submersible — catapulted Polymarket into the spotlight, with Google searches for the betting platform hitting an all-time high.
Polymarket creates betting markets with simple, binary options: “ETH above $2,000 on June 30?” Or: “Will ‘Barbie’ or ‘Oppenheimer’ gross more on opening weekend?”
It’s quick to capitalise on current events, creating betting markets even if the betting windows are slim on time or offer no hope of a final resolution, something experts attribute to the fact that it sits in a regulatory grey area.
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“That might give them a bit more license to do whatever they want, such as create a bet on the outcome of a court case,” Matthew Shaddick, former head of political markets at UK-based betting exchange Smarkets, told DL News earlier this year. “Most regulated betting sites wouldn’t touch those sorts of things.”
The CFTC fined Polymarket $1.4 million early last year on the charge that it allowed people to make bets without being registered. Polymarket has since blocked US citizens from accessing the site.
The fine print
Shortly after the Titan submersible went missing — prompting speculation as to when it might run out of oxygen or whether it had imploded — the betting market on its discovery went live on Polymarket.
Savvy bettors would have noticed the fine print further down the page: “For the purposes of this market, the vessel need not have been rescued or physically recovered to be considered ‘found.’ If pieces are located, but not the cabin which contains the vessel’s passengers, that will not suffice for this market to resolve to ‘Yes.’”
Polymarket bettors buy shares whose price reflects an outcome’s odds at the time of purchase. In the case of the Titan submersible, bettors were, at first, confident it would not be found, with “no” shares hovering around $0.90. Those shares would be worth $1 if they were right when the market closed, and $0 if they were wrong.
Do you follow the spirit of the question?
— Hart Lambur
But on June 22, when the US Coast Guard made its announcement, the market flipped, with people buying “yes” shares for $0.80.
Was the vessel “found”? Search crews didn’t have to rescue the submersible or tow it back to land for it to be considered “found,” but finding “pieces” rather than the “cabin which contains the vessel’s passengers” wouldn’t cut it.
The controversy kicked the question over to UMA, to which Polymarket outsources dispute resolution. Other entities that use UMA include DAO voting platform Snapshot, crypto insurer Sherlock, and Ethereum staking research website Rated.
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“This process has been used to resolve thousands, maybe tens of thousands, of Polymarket markets,” Lambur said.
This time, however, some slammed the UMA vote, claiming it had been decided by a handful of whales, voters with an outsize number of tokens. Some alleged that whales had conspired to vote “yes” despite their better judgement because they had bet the submersible would be found.
Game theory
Lambur said such criticism was off the mark. First and foremost, any evidence of collusion would destroy the value of a token that powers a “decentralised truth machine.”
Beyond that, the protocol uses game theory to discourage bad actors.
“The entire purpose or point of the system is to have people not collude, and to come to reasonable outcomes,” Lambur said. “They’re incentivised to be a credible, unbiased thing.”
Votes are cast in secret and only revealed after voting ends. And if the majority of tokenholders vote that A is true, those that said B is true get penalised — a way to discourage voting for obvious untruths.
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Moreover, UMA voters got this one right, according to Lambur.
“If you went and asked 100 people on the street … ‘Hey was the sub found?’ I think you’d likely say that most of them would say, ‘Yeah, it was,’” he said. “Do you follow the spirit of the question, or do you have some super technical debate around the rules?”
Still, he called the controversy a learning experience.
While he said that outcomes are not decided by fewer than a dozen so-called whales, only about 100 UMA tokenholders, “with an unequal distribution” of tokens, vote consistently.
Does that count as decentralised?
“That’s a tricky and hard question,” he said. “We’re not going to have 2 million voters all with equal distribution voting on this thing. It would be amazing, and I would love that, but it’s not realistic right now.”
Update, July 3: Lambur’s misspelled name in one instance was corrected. UMA’s description in the second bulletpoint was changed from a “business” to a “DeFi protocol.”