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by Jack Ludkey

At one point during the summer, a drive down Maine’s Midcoast would find Graham Platner’s signature white-on-blue signs dotting front yards. Then the redheaded oysterman was accused of multiple sexual assaults, the signs got pulled down, and the Democrats hotswapped in Troy Jackson, the third place finisher in the recent governor’s primary.

The question I pondered as I cruised down the Maine coast after the switch: where are the Troy Jackson signs?

Yesterday on October 13, Jackson debated incumbent Susan Collins for the third of their planned four debates. This is an unusually high count for a Senate race but not unusual for Collins, who debated her last Democratic challenger five times.

On September 25th an NYT-Siena College poll put Collins 3 points ahead of Jackson, the first time that Collins has led. The Times poll touted her crossover appeal, showing her winning 12% of Kamala Harris voters, while Jackson won a mere 3% of Trump voters.

This single poll seems to be the catalyst that dropped Jackson’s odds from “comfortable favorite” status into tossup territory.

Cringe Force 5

While none of the three debates so far has moved the odds much, they have not helped Jackson make up any of the ground he lost, and have added to a growing sense that Jackson’s rizz levels are nowhere near his predecessor’s.

In a recent Oracle interview, journalist Mark Halperin suggested traders overweight polls versus measures of “candidate quality,” like debate performances or viral social media moments.

So, here, for your consideration, are the five top Troy Jackson moments from the final days of the ‘26 campaign trail:

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Today’s issue of Polymarket Institutional Research looks at the limits of rate hikes across the developed world. To receive future issues, sign up here.

The Polymarket Institutional Desk offers block trades on U.S. and international exchanges, market maker relationships, and enterprise data services.

Contact Brooke Rizzetto at institutional@polymarket.com for onboarding.

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No third hike in 2026

by Terry Lee

On Oct 7th, the Sept FOMC meeting minutes provided details on where the Fed Funds rate is headed by year-end and the members’ reasoning:

Most FOMC members agree that the year-end Fed funds rate should be higher and the summary of economic projections (SEP) median projections puts it at 4.1%, which is +25 bps from the current rate, making the market’s ‘base case’ two hikes in 2026.

Fed fund futures and Polymarket traders largely agree that there will be another hike of 25 bps by year end. However, the Fed has cautioned that they remain “data-dependent.”

Using the basket strategy (more on that here), an interesting play looks to be: buying YES with equal shares on both outcomes (a) YES on 1 (25 bps) and (b) YES on 2 (50

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🦅 2028 contracts are LIVE on Polymarket.us

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Mark Halperin first caught The Oracle’s attention during the Biden dropout saga of 2024, where a deep well of Biden-world sources put his reporting 48-72 hours ahead of the mainstream media.

We spoke with Halperin about the art and science of cultivating political insiders as sources, public vs private polls, and a 2028 dark horse that could be 30x undervalued.

This interview has been edited for length. All answers are his own.

Note: Apologies if you received a clipped version of this email. This is the correct version.

I first became aware of your show 2WAY during the Biden dropout. You were 48 to 72 hours ahead of everyone else on that story. As much as you can reveal, who were those sources? And how long of a relationship had you built with them?

I had 11 core sources for the story, and I’d say I knew most of them for at least a dozen years, some quite a bit longer. Some of them, in terms of their roles, would be obvious if you asked what job someone would have who would know about such a thing. But some of them were far from obvious. Some were the kind of sources I’ve developed over time: people who normal people wouldn’t necessarily have heard of, people who aren’t thought of by most reporters as quote unquote sources, but who are very knowledgeable, are around that kind of information, and are willing to share it with somebody they trust.

Imagine you’ve just hired a rookie reporter straight out of college. How do they get sources?

See people in person. Don’t rely on electronic communication. Develop information that you can trade to people. People who are good sources typically implicitly want to

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Sports trading can be approached in much the same way a value investor approaches the stock market. A stock’s price reflects the market’s perceived value of a company; a price reflects the market’s perceived value of an outcome. The value investor’s job is to get under the hood of the fundamentals and decide whether the thing is priced correctly. Underpriced, buy. Overpriced, short.

Oversimplified, obviously, but it’s the frame one can work in when constructing a trade. Start at the price and work backwards. How did the market arrive here? What is it assuming? Do you agree with those assumptions? Is there information it hasn’t priced, or past play it’s weighting too heavily relative to future play?

That last question is most of the work, because the inputs are rarely clean. A football season gives you a small sample arriving fast, and the task is separating what carries signal — the stuff that’s stable and reproducible — from what’s noise dressed up as a result. Priors, or the assumptions we make coming in, have to move, but only as far as the evidence actually supports.

The trade is downstream of all of that. If the process is right, positive returns follow over a large enough sample. Conversely, consistent positive ROI at scale over time is the validation that the process was any good in the first place.

With that said, 3 weeks into the season we’re at a unique spot in the pricing lifecycle. We have some data to match to our pre-season convictions, but enough uncertainty as to its small sample that there is large disparity for how to price various teams and understand from the first few weeks what carries signal and what is more noisy.

Let’s use one team that has been quite the surprise at 3-0 through 3 weeks, the Las Vegas Raiders as a test case for this process.

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Days before its FDA decision, Telix Pharmaceuticals’ kidney-cancer imaging agent TLX250-CDx was trading at 88% to win approval. The science looked solid: 86% sensitivity, 87% specificity, and a successful Phase 3 clinical trial. But on August 28th, 2025, the FDA rejected it for a second time.

The drug was first denied in 2024 over a manufacturing issue. Telix fixed what they could, resubmitted, and got another rejection. The reason cited was “deficiencies” at two of the drug’s outside factories.

Was this a black swan? A random manufacturing issue that would have been impossible for anyone on the outside to spot?

In fact, there was a clue hiding in plain sight - something within the drug’s timeline that would have stuck out to anyone who had examined a larger FDA drug approval dataset:

TLX250 had already been rejected once, and its second review came barely a year later.

In our first piece for The Oracle on FDA forecasting, we hand-checked 36 resolved polymarkets and found that the most common rejection reason was the factory, not the drug. We also admitted the sample was too small to build real base rates, and promised a follow-up on the full historical record.

Here it is. We pulled the most comprehensive dataset available of 446 FDA Complete Response Letters to find the base rates across several different dimensions.

What we found are several clear trends that will be helpful for anyone looking to forecast future approvals.

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This is a guest post by Alex Keeney. Alex created Star Spangled Gamblers (RIP), the OG prediction markets podcast, and recently launched , news by prediction market traders for prediction market traders.

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If James Talarico wins a Senate seat this November, it would be the ultimate breach of Republicans’ most impregnable fortress: Texas, the Lone Star State, where Democrats haven’t won statewide office since 1994.

But this story is boring.

Everyone already knows it, and no one has much to add. The only thing left between now and Election Day is to find out how real the caricatures of each of these candidates are: James Talarico, the optimistic girly-man running for Senate in America’s most macho state, versus Ken Paxton, who is so scandal-plagued that his own Republican colleagues in Austin impeached him.

Yawn. I’ll see you in November.

The markets have correctly sniffed out that this is a near-50/50 race. And I don’t like trading in markets where my only option to turn a profit is to be right. Better to get ahead of things and make some buys in races where the public hasn’t figured out that the winds are changing.

And in Texas, that place is along the border, all the way from the outskirts of El Paso to the Rio Grande Valley.

Traders would be wise to look at four congressional districts there that Texas Republicans gerrymandered hoping to flip or maintain control of — but where they may come up short. These are:

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The Polymarket Institutional Desk offers block trades on U.S. and international exchanges, institutional market maker relationships, and enterprise data services. Contact Brooke Rizzetto at institutional@polymarket.com for onboarding.

is the President of SemiAnalysis, the Substack-native semiconductor research firm whose analysts hit dozens of technical conferences a year to map every layer of the AI buildout.

The Oracle sat down with O’Laughlin to break down Polymarket’s biggest AI market and discuss why the leading labs may be sitting on their best models.

This interview has been edited for length. All answers are his own.

How does it make you feel when you see Twitter meme coin accounts suddenly rebranding as AI bottleneck guys? And how is SemiAnalysis different?

Let’s put it this way: they’re semiconductor bottleneck guys, but they couldn’t tell you what a semiconductor was two years ago. They don’t understand the difference between a CW and DW laser.

Me and Dylan were obsessed with this space when no one gave a shit about semiconductors, before the chip shortage. We came to the conclusion that it’s the most important technology ever invented, and that after the end of Moore’s law it would only become more important, because making it would become harder. That’s truly the entire bet of my career. In 2018, no one gave a shit about chips, and everyone was talking about software. Now the world’s totally opposite. What’s our edge?

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Historian and geopolitical analyst Walter Russell Mead is a distinguished fellow at the Hudson Institute, the Wall Street Journal’s Global View columnist, and the author of Special Providence: American Foreign Policy and How It Changed the World. His “Jacksonian America” thesis predicted the rise of Trump-style populism fifteen years early.

He caught up with The Oracle to discuss Ukraine endgame scenarios, the key drivers of Trump’s Iran strategy, and why Putin is watching the French polls.

The following interview has been edited for length. All answers are his own.

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How much should someone in the world of geopolitics be trying to make forecasts?

Especially in wartime, if you go back and look at the history of punditry, what you’ll find is that people are almost always overwhelmingly wrong at every moment of a war. In the U.S. Civil War, both sides at the beginning think the Battle of Bull Run is going to be it, that it’s going to be 90 days. Half of Washington is out there with picnic

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In many ways, the 2026 NFL season is defined by the one that preceded it: it’s the Year After the Weird Year.

2025 was marked by such unpredictability — the three-time defending AFC champion Kansas City Chiefs missed the playoffs entirely, while the two actual Super Bowl teams (Seattle and New England) were both below 2% to win before the season — that this year will revolve as much as anything else around which of those surprises represented genuine change, and which will simply regress away toward the established NFL order we thought we knew.

Take Wednesday’s Seahawks-Patriots season opener. The Seahawks won 13-10, but neither team went into the game any higher than 8% to win the championship, with Seattle checking in as a distant No. 2 in the NFC title odds even before QB Sam Darnold was injured, and New England arriving tied for sixth in the preseason AFC odds even before WR A.J. Brown was injured. (Yes, the game was marked by injuries as much as performances on the field.) That puts the pressure on both Big Game teams from a year ago to prove they can do it all over again — and they’re not the only ones with a lot to prove.

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On September 3, Polymarket launched Perps, its perpetual futures exchange. Perps let traders go long or short individual stocks, indices, crypto assets and commodities with up to 20x leverage and no expiration date from the same balance they use for their polymarket.com prediction trades.

After the launch, we caught up with Xtine Fang, Polymarket Perps Lead, to talk what’s next for the perps product and do a little whale watching.

This interview has been edited for length. All answers are her own.

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Why does Polymarket need perps? What’s the open space in the market?

The idea is to have a single house of all finance. We have this killer feature where you can trade stock and crypto perps because we began as a prediction market. We can offer a place for users to trade everything in one place, without having to withdraw funds to another exchange and go through a lot of transaction fees.

The other big differentiator is speed of listing. We listen to what users want, and we list very quickly. Previously it was semiconductor names, then the photonics names, a lot of crypto beta names, as well as crypto stocks like Circle. We’re very much catering to what the user wants. We also have Asia equities like CXMT, which is extremely topical, as well as stuff like Alibaba.

What’s being traded the most so far?

The top ones are still the crypto majors like BTC and ETH, especially over the past week where we saw the market rebounding. But previously, when BTC was stuck in the $62k-66k range, we saw a lot more volatility in the Korea semi names like SK Hynix and Samsung, and other semi names like Micron.

Who are the top perps traders right now? What do we know about how they are trading?

Since it’s a DeFi exchange, all the trading data is open to the public, and there’s a leaderboard where you can see all the top traders.

We have one guy, trader2121 who’s up almost $500k. I tried to email him and get in contact but he never replies. Maybe he’s scared that I’m a CIA secret agent.

The top perps wallet, ShadowPixel47 looks like a large market maker firm, with dozens of trades per day. But they have also had a large Long ETH / short BTC position that has performed very well since late August.

Anything you see the best traders do differently?

The smartest traders generally trade event driven stuff very well: betting into FOMC, positioning into earnings like SanDisk, taking leverage off after the huge semi rally, and then shorting at the right time. I can probably pull up some data for you.

One tool that could be useful for this is Polymarket Calendar. They made a calendar, and for each day it shows which events you can trade. We also have an earnings calendar for public companies on Polymarket.

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Are you noticing people do perps trades along with a corresponding Polymarket event contract? What’s the crossover in user activity between perps traders and OG Polymarket traders?

That is the ultimate end goal, successful cross selling to our Polymarket users. I haven’t seen it yet because perps is so new. But that’s the end goal, and it’s something a lot of our smarter traders have brought up.

Anything surprising you about how traders are using the product?

The more surprising thing was I thought people were no longer interested in trading crypto, but there were still a lot of people asking me to list UNI, AAVE, and Morpho, all those names, even when crypto wasn’t doing very well. You have this diehard crypto native segment that trades almost solely crypto. Even when we’re in a roaring bull market for AI and semi stocks, they’re not trading that, because they think that’s not their edge.

What’s the max leverage you can get? How is it set for the different assets?

It’s different based on each contract. On BTC the slider goes to 20x. Then we go to stocks: Micron’s leverage is 10x. Generally the RWA stuff is around 10x and the crypto offerings are around 20x.

How do the trading fees work with perps?

Our fees are very friendly right now. We’re so new and we want to be competitive, so our fees are better than Hyperliquid, maker and taker.

The way it works: every fill has a maker and a taker. If you place a limit order that rests in the book, you’re the maker, you’re adding liquidity. If you hit an order that’s already sitting there, you’re the taker, you’re removing it. Takers pay more because they consume liquidity.

The fee is charged on the notional of the trade, price times quantity, and it’s paid in pUSD. Everyone starts at 0.04% taker and 0.0125% maker, so a $10,000 taker fill costs you four dollars. From there it’s tiered by your trailing 30-day volume, and tiers get re-evaluated every day. The rates keep dropping as you trade more, and at the very top tier, $1 billion in volume, makers actually get a rebate. We pay you half a basis point to quote. Accounts from the beta are also on the top-tier schedule for now, regardless of volume.

We had the public launch last week. How has the volume been?

I’ll send you some charts.

I know there’s been a lot of requests for leverage on things like “Democrats to win the House” and the traditional events contracts. Have you thought about that? Is that something perps could do in the future?

The genuine answer is I’m not sure, because that’s more on the prediction market side. For the perps side that I’m in charge of, we want to be more like the traditional perp exchanges, where we list the traditional assets and the cryptos.

A unique offering we do have is cross margin, where a single balance collateralizes positions across multiple markets. A lot of the assets that are isolated margin on Hyperliquid, we have cross. Take CXMT, the recently listed ChangXin Memory, a very popular Chinese semi name that IPO’d recently. Other venues would only offer something like that as isolated. We have it cross.

On any market, you pick a market or limit order, choose isolated or cross, and then there’s the leverage slider: how much money you have on your balance, if you want to full port that at 10x and slide it out.

What are you seeing generally in the market? Is crypto winter over?

Let me put it this way. It’s currently still a very fast money driven bounce, and we’re squeezing pretty hard to make it more sustainable. Let’s see if we can keep BTC in the $80s for a while, and if Trump doesn’t say anything silly. Before Polymarket I was at a crypto liquid fund, so I know a lot of funds were literally shorting in the hole. They were shorting BTC at the $62-$67k levels, and they were really caught off guard by this rally. A lot of short covering is sending us higher, especially on the BTC and ETH front. And I think interest has generally come back to crypto. There were a couple of centralized exchanges, tier three exchanges, that were going to shut down in the past month because there was no trading volume. Now at least one, BitMart, wants to resume operations.

What about interest rates? Shouldn’t we have Treasuries, the 10 year, the 30 year? That’s been such a macro narrative.

We could. But I like to think of our current user base as younger degenerates who trade based on following FinTwit, or Reddit, following Citrini, that kind of thing. Interest rate products are another world that doesn’t really interest them that much. They would rather follow an SK Hynix bull post and just long SK Hynix at 10x.

Hugo Martingale asked me to ask when we’re listing Fartcoin?

Fartcoin, that’s a good one. Fartcoin is Sol beta, but not a lot of people are trading Fartcoin anymore. People treat Pump as the Sol beta now. Pump has a lot more traction, so we have Pump. I looked at volume on Fartcoin. Previously, whenever the market recovered, Fartcoin would bounce so hard, but now that’s not the case. I think the market just lost interest in Fartcoin.

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Polymarket Perps tldr:

Leverage. Up to 20x on major crypto pairs and around 10x on most equities. Max leverage is set per asset.

Cross-margin. A single balance can collateralize multiple perps positions, including assets that other venues restrict to isolated margin.

Fees. Fees are charged on a volume-tiered structure by trailing 30-day volume and calculated daily. Taker fees start at 0.0400% and fall to 0.0200% at the top tier. Makers start at 0.0125%, and the top tier earns a 0.0050% rebate. Full fees info.

Exchange. Central limit order book (CLOB) with funding payments that anchor contract prices to the underlying index. Margin and liquidation run on a mark price that tracks an asset’s price across multiple venues. All trading collateral is in pUSD, Polymarket’s native stablecoin.

Always on. Markets trade around the clock. Price feeds shift across trading sessions (regular trading hours, overnight, weekends).

Transparency. Every account’s positions and trade history are viewable on its public profile, the same way other DeFi perps exchanges work.

Builders. An API supports trading bots, market making systems, portfolio dashboards, and risk monitors.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

This is a cross-post from Polymarket Institutional Research. To receive future issues, sign up here.

The Polymarket Institutional Desk offers block trades on U.S. and international exchanges, institutional market maker relationships, and enterprise data services. Contact Brooke Rizzetto at institutional@polymarket.com for onboarding.

Elon Musk has a long history of rolling up his companies. X.com and Paypal (2000), Solar City and Tesla (2016). xAI and X.com (2025) and SpaceX and xAI in February of this year.

For nearly a decade, Elon has insisted that there was “not a strong rationale” to merge Tesla with SpaceX. But in November we started to hear a different tune. “My companies are, surprisingly in some ways, trending towards convergence” Elon posted in November of 2025.

Will 2027 be the year of the Elon giga-merger?

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Alexander Muse aka (@amuse on 𝕏) is one of the largest political accounts on the American right: half a million followers on 𝕏, a daily op-ed habit spread across (at least) three Substacks, and sources inside the administration, Congress, and the Texas statehouse.

Elon Musk has replied to his posts more than 25 times by PolitiFact’s outraged count, Karoline Leavitt and Donald Trump Jr. are among his followers. Combined, his channels reach around ten million Americans a month.

We caught up in late August to discuss the Texas Senate race and who could be voted off Trump Island next.

This interview has been edited for length. All answers are his own.

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Let’s establish first who you are, and where you sit in Republican politics.

I’ve been on 𝕏 since 2007. In a previous life I was a tech entrepreneur, and in the startup world being a conservative was the kiss of death, so I just didn’t tell anyone where I stood. After January 6 I was banned. Elon bought 𝕏 and restored my account, and I grew it from maybe 200,000 followers to half a million pretty quickly. Now I do 𝕏 full time: daily op-eds, a newsletter I send to GOP donors. And people from the administration, from Congress, from state politics start contacting you. They give you leads, they give you scoops, and you build a bigger and bigger base of sources. I don’t consider myself a journalist. I’m a commentator with opinions on policy, and I try to share them in a format that’s easily consumed by policymakers. One in a hundred pieces I write suddenly makes a difference.

Can you think of a story where you’ve been really ahead of the curve, either from your own sourcing or your political instincts?

The cabinet selection process, between the election and January 20. I had really good sources in the room, and there was a relatively small group of people gaming out who was going to be picked for each role. What shocked me was the political consultants, the people who run the campaigns and the super PACs, and the outsized influence they have on picking who runs the country. I watched consultants torpedoing their own clients.

Why would someone attack their own client?

Say you’re on the short list for Attorney General of the United States, and you’re currently the attorney general of some state. Your consulting firm wants you to run for Senate in the midterms instead, because a consultant makes a huge percentage of the spend on a Senate race. So they go out and say our own client isn’t confirmable, he’s got all these problems. They’ve done the opposition research, so they’re using their own oppo against their own candidate. The sausage is pretty ugly.

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This is a cross-post from Polymarket Institutional Research. To receive future issues, sign up here.

The Polymarket Institutional Desk offers block trades on U.S. and international exchanges, institutional market maker relationships, and enterprise data services. Contact Brooke Rizzetto at institutional@polymarket.com for onboarding.

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The Fed’s annual Jackson Hole Summit is a time honored tradition in the central bank community. Customarily, the Fed Chair delivers a speech, which is closely watched by markets as it is often a tone setter for the final three FOMC meetings of the year.

This year will be Chair Warsh’s first speech and it is coming at a very interesting time. Not only is the new Chair finding his footing in the job, but it is a time of great debate at the Fed. At the July meeting, the central bank decided to hold interest rates steady.

This was meaningful as the market priced in close to a 40% chance that the central bank would hike rates by 25bps, and 3 members of the FOMC dissented against the decision to keep rates on hold, the highest number of dissents since September 2016. So not only is this Warsh’s first Jackson Hole, but it comes at a time when the committee is at odds with how to proceed in the current economic backdrop. This tension came across quite clearly in the minutes of the July meeting that we received last week.

Traditional markets are debating whether tomorrow’s speech will be hawkish or dovish. Will it move the pricing of the September meeting, currently priced at 9bps or 35%?

What is interesting to me now is, on Polymarket we can now trade the speech itself. I.e. Instead of looking for which side of the “family fight” Warsh is on, or if there is a tip at all for the September meeting, we can trade the actual words he is going to say. What is so interesting about this to me is, Warsh is famously not a big believer in forward guidance, as we have seen with his first two FOMC press conferences. This means there is a high chance that the answers the bond market is looking for are not actually present in Warsh’s first Jackson Hole speech.

Nevertheless, Polymarket’s “What will Kevin Warsh say during his speech at Jackson Hole?” has some very interesting options to trade.

These are the type of markets we want to bring awareness to on Polymarket Institutional as they are fundamentally differentiated from traditional markets. And between block trades and organic growth, we expect the depth of these markets to expand.

For macro traders that are laser focused on what Warsh will say tomorrow, these markets offer a very good venue to trade on that directly.

With that said, some of the options listed are:

• Task forces 5+ times

• Stable 5+times

• Too late

• Productivity

• Independence

• Capex

• Integrity

Using AI, I built a tracker to help me with the concepts and words that Warsh has used most in his press conferences, congressional testimony and public appearances as Fed chair.

One trade that screens as interesting based on this, and empirically feels right based on watching Warsh’s press conferences closely, is that “task forces” 5+ times at 38% feels too low. Jackson Hole is a venue to discuss big picture topics, and Warsh has come in with a big reform initiative that is highlighted by the work of the task forces he has appointed. I expect a big theme of the speech to be the early findings of these task forces but also what he hopes to accomplish with them in general. I think 5+x below 50% is good EV for something that from a thematic perspective will likely be the main part of his speech.

In terms of markets like September hike, which is a very close call right now on Polymarket, I think there are two key things to be looking at.

1. A big tension on the committee right now is the debate between the spot data and the balance of risks. The hawks are of the view that the balance of risks around inflation has not improved in recent months, while the doves point to more dovish data on inflation and employment over the last 6-8 weeks. If Warsh gives any indication where on this debate he is, that will be meaningful for the September meeting odds.

2. Post the July meeting, there has been a lot of pressure on Warsh to actually show the key metrics he is looking at in a way that is different from “forward guidance.” Jackson Hole is a good venue for him to list a few, and the ones he lists will be a sign of where his reaction function is at the moment.

It is Warsh’s first as chair and it is coming at a time of big debate on the FOMC. An interesting angle to play this from is trading on what he is going to say on Polymarket instead of relying on the speech being “impactful” in traditional market terms.

Related Polymarkets

Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

Werner K. Zagrebbi is a board-certified Superforecaster (TM) who writes about politics and economics at Right Rationalism.

GMU professor Robin Hanson arguably invented modern prediction markets. Here’s part two of his interview with The Oracle (read part one here!).

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Your logarithmic market scoring rule from 2003 is the ancestor of every automated market maker in existence, including the crypto ones moving billions of dollars. And Polymarket runs an order book, not your subsidized market maker. How should people trade it?

There are different trading strategies. The simplest: ask what’s true about the world, compare that to the price, and ask where you think the price is wrong. Then ask, what’s the chance other people don’t know this thing that I know? You shouldn’t just compare the world to the price, because maybe the price is based on things other people know that you don’t. Look for pieces of information you have that other people are not likely to have, so it’s an addition to the price, and trade on that.

Another strategy, very popular, is to look for deviations from random walks and move prices toward a random walk. A third is to be a market maker, which is what Polymarket and others pay people to do: pay attention to the market microstructure, sit on both sides with buy and sell offers, and take profit on the difference. My simple automated market maker was just giving up on that. I designed a market maker that doesn’t lose too much money, not a clever one, because if I made it clever, people more clever than it would take advantage of it. These professional market makers are smart enough to be clever.

And the actual finance game is this: if you set a really strong academic reluctance to believe, by the time you’re finally convinced there’s a pattern, somebody else will have used it up and there will be no profits left for you. So professionals have to be more aggressive, which means they’re wrong a substantial percentage of the time, and then it’s all about judgment. When finance companies hire people, it’s all about whether they trust their judgment to decide when there’s enough evidence to act. That’s what we’re all betting on.

Would we have a better world of ideas if more places gave status to contrarianism?

I doubt it. But I think I have found a secret to being a contrarian who’s usually right. The world is full of intellectual silos. The people in each field roughly know the newspaper version of other fields, and they learn the expert version of their own field. And often the expert versions of different fields are just in conflict. You only learn that if you study multiple fields at the expert level. When you find the conflict, there are usually not many ways to resolve it, and usually you can tell who’s right: who has dug into more detail, who has more solid theory. If you embrace that resolution, you are contrarian with respect to the field you’re saying is wrong. And your edge is that they refuse to listen to the other field. When a field hears its results conflict with another field, they deny the conflict. So this is how you can be consistently right and contrarian. There’s intellectual progress just waiting: combine different fields, notice when they’re in conflict, resolve the conflict. That’s something LLMs have a real potential for in the coming years.

This may be kind of annoying, but how would you use this to trade? Because you probably could, right?

Later on, when we have prediction markets on many more topics, you could go look for these intersections and trade on them. Unfortunately, the current range of prediction markets is pretty narrow. But if the people trading in a particular market are all from one discipline, you might ask: what other discipline has expertise relevant to this, and has it been consulted? You’re typically asking: the market has some information in it. Where is that from? And what information could I find that’s not in the market? Look for unusual sources of information that other people in the market haven’t been looking at. That’s one way to have an edge.

Joe Weisenthal wants to know: how important is it that a forecaster can show their work? Broader version: do prediction markets incentivize you to hoard your information instead of publicizing it? You used to get a status reward for writing the article. Now you can just get a payout for silence.

Prediction markets most directly give you incentives to trade, and that’s not a direct incentive to explain your reasons. But the simplest way to make money on information is: you have a piece of information, you trade on it, you reveal the information, the price comes to accept it, and now you can undo your trade and go on to another trade. The major cost of trading is the opportunity cost of the assets you trade. To minimize that, you want the shortest possible time between when you trade on the information and when you get to undo the trade because everybody else agrees. So mostly you want to reveal, not hoard.

The exception is when there’s a big distance between your piece of information and any market you can trade in. Then you’re tempted to hoard it. The more directly you can trade on the information, the more you want to just reveal it and get on to the next thing. This is a reason to like combinatorial markets: a stronger, more direct relationship between the information you have and the markets you trade in. And all information has a duration: the expected time before other people get it. The longer you have it exclusively, the more money you can make, but the longer you have to lock up your money too. So what you really want is to trade as much as you can on your information, reveal it, and be done.

Could you explain combinatorial markets?

An ordinary prediction market gives a probability or expected value for some particular event. In principle, what you really want is a full joint probability distribution over all possible events. That’s what statisticians use, what game theorists use, what decision theorists use. These markets are only giving you marginal distributions, not all the correlations and connections between everything. Hedge funds generate their own joint distribution in the background, their model of the world, and use it to decide where to trade in these particular markets. But it’s actually surprisingly possible to just have a market that represents a full joint distribution over everything.

The key thing is that the full joint distribution has an exponential explosion in the number of parameters. So you need a reduced-form representation. One common representation is a Bayesian network. Roughly ten years ago, I and some colleagues here at Mason made a combinatorial prediction market with over a thousand variables connected in a Bayesian network. It was called SciCast, and DAGGRE before that. And a key theorem I proved early on: if you have a set of base markets with some liquidity, and you introduce all possible combinations of them, how much more liquidity do you need for all the combinations? The answer is zero.

How do you not need any more liquidity to run this market times that market?

Think about the worst case. When you fund a market maker, the worst-case loss is the price going from the middle all the way to an extreme and never coming back. Say you have N markets with the same liquidity: your worst case is N times that. Now make it a full combinatorial market. The worst thing that can happen is you go to the corner of the combinatorial space, which is exactly the corner where each individual market has gone to its extreme. And that turns out to be exactly the same total loss. The problem of combinatorial markets is the computation, not the liquidity.

So a fund with a full model of the world could just trade the whole thing directly.

Once the markets are combinatorial themselves, you can take your combinatorial belief and just directly go trade on it. That’ll be a thing. I do think in the long run there will be combinatorial financial markets, and typical hedge fund practices would change a lot in the face of them.

Let’s play overrated or underrated: play money prediction markets.

They were overrated, but now they’re probably correctly rated. Once Polymarket and others showed up, the demand for play money markets went way down. Which is roughly correct.

Sports as the gateway drug to prediction markets.

Sports betting is one of those things where, once they had legal permission, they went for it because they knew there were a lot of customers there. It’ll lower infrastructure costs and set legal precedents and make customers familiar with things, all of which is good for the other things prediction markets will want to do. It’s not my priority, but I don’t mind it, and it will help the things I’m working for.

The GMU econ intellectual culture.

I’m too close to that to rate it. Mason is a collection of contrarians who have somewhat different contrarian takes. When I’ve been contrarian on issue X, other people at Mason say: gee, we don’t want to be associated with X, that’s not how we’re contrarian. A coalition of contrarians each wants the others to be less contrarian, to give them room to be more contrarian. Most contrarians’ stance is: those guys really are contrarians, I’m really not. The world is going to come over to agree with me, but not with them. And as soon as the world recognizes me, I’m leaving them.

Base rates.

It would be hard for them to be overrated. We can’t rate them highly enough. Most of the time, base rates are what gives you your answer. Most of the time, people are trying to add some correction to a base rate, and they’re overcorrecting. Just the base rate, guys.

One of the central questions about contemporary prediction markets: why is there so little real hedging yet? Is it culture or something structural?

A few decades ago, regulators said: we don’t want to allow prediction markets because they’re too small to support hedging. Markets need to be big to hedge, and if they’re big they need heavy regulatory oversight. That’s why the world just did not legalize prediction markets in the early part of my life.

I do see lots of opportunity for increasing hedging, but I still think the total demand for hedging in the world isn’t that large. And here’s the thing: jobs are a form of insurance. If you as an employee were just paid your actual productivity every week, you would face a very uncertain and often negative payment. When we give you a job, that’s insurance. The company is taking on your risk and you get paid a salary. It’s probably the biggest form of insurance we have in our world, and it doesn’t show up in the insurance markets. It’s not called insurance.

And famously, people face a lot of big risks they don’t want to insure. Career risk. Marriage risk. Risks about whether they’ll be proud of their kids. When life insurance first rose up in the late 1800s, it was kind of a random marketing trick: you’re an irresponsible husband if you don’t have life insurance to cover your family if you should die. It was sold as responsibility.

Well, it’s not hard to figure out. There’s a massive first-mover status disadvantage to being the guy who hedges his divorce risk.

Signaling is often at odds with insurance. People want to signal confidence, and they want to signal that they have prospects. That’s often a good explanation for why people don’t insure. But then all the insurance we do have, you wonder: why didn’t signaling block those? Why aren’t you ashamed to be an employee, not showing confidence in your own productivity?

That one seems clear: in most industries you can’t assess productivity that easily.

Do you expect AI superforecasters to go dramatically past the human frontier?

I don’t actually much care. Prediction markets should be robust to participants. The cheaper participants can be accurate, the more the price of information falls, and the main attraction of this institution is that it plausibly has a lower price of information than the alternatives. But if AI has an advantage here, it probably also has an advantage elsewhere. So it’s not obviously going to make this institution better than the alternatives. It’s going to make them all work better.

You’ve said you pick your battles where adoption of prediction markets is likeliest. I’ve thought of a new application: the futarchic interview. A market on each question, conditional on this one being asked, how many likes on Substack?

To get scale, I would want to advise a whole process rather than each interview. Marc Stiegler had a science fiction novel [Earthweb] where an alien ship is attacking Earth, we sneak some people aboard, and we have betting markets on Earth telling the team on the ship where to go left or right and what to do next. That’s the model: betting markets advising a team making individual choices. The hard part is that any one interview isn’t worth enough to have a big audience for it. You’d want something with high enough attention that people could specialize in advising it, like markets advising the choices in a high-level chess game.

But it’s not one of the first applications I’d advise. What I look at first in the world is: where are we making decisions where other people nearby say, those are bad decisions? People grumbling that whoever’s making the decision has no idea what they’re doing. That grumbling is a hint that there’s a failure to aggregate information. I don’t know that we hear that about interviews. We should smell a problem. Something should stink a bit.

In some sense you’re complimenting me. It’s not as bad as CEO hiring.

Actually, when people do podcast interviews with me, I typically tell them: you’re not challenging me enough. You’re not disagreeing with me enough. This is boring. They have their list of questions to get through, and we’re not arguing over things.

What’s your most underrated idea? You should have a view. Who’s in a better position to judge?

In my mind, the most underrated thing is what I’m doing right now, cultural drift, because I’m an obsessive person, focused on what I’m obsessed with at the moment. But I’d say my best idea is futarchy, decision markets. That just obviously has the biggest potential to make the world better.

Is anyone actually running one?

There are crypto companies being run with decision markets now. So far they’ve done great. I’m excited for that and I try to help them.

Final words of wisdom? Anything you want to say to our readers?

When I was young, at this project trying to make the World Wide Web, we succeeded in influencing the World Wide Web, and I was just a junior person on the project. But what I saw was that the people who had actually taken a chance, had a vision, and succeeded in implementing it and making the web happen, they didn’t win much in the world. They weren’t famous. They didn’t make money. They just had the satisfaction of knowing that they made a big difference. And if my old friend Hal Finney made Bitcoin, he also did not make money on it. Maybe he’ll get fame, maybe not. But he had the satisfaction of knowing that he had a big impact.

I was warned early in life that it’s actually more possible than you might think to have a big impact, mainly because the people who have the big impact don’t actually get that much out of it. That’s the trade-off. It’s easier than you might think to have a big impact on the world, exactly because you might not get much from it personally.

To what extent is your whole intellectual project trying to let people internalize more of the gains for making an impact?

People who make bigger, better things happen should get more gains from it. Prediction markets are certainly a part of this, a way to try to make that happen. But they have to happen in a world that doesn’t yet reward that so much. That’s my high-level advice. But in any case, I can be proud of what’s happened, and of having had an influence.

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On July 31 at a Camp David meeting, Scott Bessent had only one item written down on his to-do list: “Buy Japanese Yen (JPY) $5-10 bil.”

One day earlier, the yen had just hit its weakest level against the dollar since 1986, and Washington and Tokyo responded with the first coordinated currency intervention since the 1998 Asian Financial Crisis. This intervention saw USD/JPY pull back from 164 to 155. In the two weeks since, the $88 billion effort looks misspent, as the yen has slid back above 159.

Polymarket traders are now considering the risk that Bessent was trying desperately to avoid: could the largest funding trade in the world be starting to unwind?

Borrowed time

The yen carry trade is simple: borrow cheap yen, convert to dollars, buy higher yielding assets, pocket the difference. Japan’s policy rate is 1%; the Fed’s upper bound is 3.75%. Traders have gorged on levering up this trade as the yen continued to weaken.

But the setup is precarious: when the yen strengthens, borrowing gets more expensive and leveraged traders get margin called. Covering means selling dollar assets and buying yen back, which strengthens the yen further and forces more selling, creating a vicious cycle.

The yen has steadily weakened since 2011 under Japan’s ballooning debt load and the widest rate gap with the US in the developed world. The Iran war and higher oil prices have accelerated the Yen’s decline, since Japan imports nearly all of its energy.

Polymarket traders have priced the ongoing slide in the past month. When the USD/JPY rate hit its peak of 164, odds of it topping 165 by year-end ran to around 77%. The US and Japan intervention knocked those odds to 30% in two days. But just two weeks later, they are back to 43%. Traders essentially shrugged off the intervention as merely buying time to avoid confronting an inevitable further decline in the yen.

Trigger warning

This is not the first round of jitters about a carry trade unwind; there was a similar episode in the summer of 2024.

When the Bank of Japan hiked to 25bp on July 31st, and jobs data on Aug 2 pulled US yields lower, the yen surged ~6% in just a few days. Margin calls went out on August 5th, crashing the Nikkei 12.4%, its worst decline in nearly 40 years and dragging U.S. stocks down with it.

The trigger in 2024 was the BoJ hiking rates 25bp off a floor of zero. Today, a BoJ hike is the market's base case. While traders priced a September hike only at 8% a few weeks ago, the intervention spiked the odds and sped up the repricing, now trading at 68%.

A September BoJ hike would take Japan’s policy rate to 1.25%, the third hike since December, and a pace not seen since 1989. With the Fed also expected to hold rates in September (75% odds), the carry trade spread would further compress.

Wall Street shrugs?

The stock market has not yet been thrown off by yen carry risk.

As we saw in 2024, equities are the first casualty of a carry trade unwind. Today the S&P sits around 7,800, and traders give 34% odds it tops 8,200 by December. In late July, the equities forecasts held steady even as the yen intervention collided with the Situational Awareness margin call. As both stresses faded, the market resumed its climb, even as the yen resumed sliding.

So while yen stress and AI stress hit the same index as leveraged players sold off, there is still optimism in the short-term resilience of the S&P. The tail risk that the S&P touches 6,200 by December has a 17% chance. If a September hike sends the yen sharply higher, the first signal may be a repricing of the S&P forward strip.

Treasuries impact

But a carry trade unwind would also have second-order effects beyond stocks.

Japan is the largest foreign holder of US Treasuries. By selling Treasuries to buy yen, Japan pushes US yields higher. Odds of the 10-year yield hitting 4.8% before 2027 reached near 70% the week of the intervention. Notably, Bessent funded his part of the intervention by selling Euros, knowing that the US Treasury market couldn’t absorb any more selling.

The yen intervention was supposed to protect the Treasury market. But every round of yen defense means Japan is selling more Treasuries to prop up its currency.

As the 10-year Treasury forecast creeps higher, Polymarket traders are forecasting the slow exit of the most reliable buyer of US debt.

The risk for the equity market is that Japan’s exit pushes US interest rates higher, squeezing the equity risk premium that thinly supports the stock market’s valuation.

September showdown

Polymarket forecasts for BoJ rates and US debt see a carry trade squeeze coming. Stock traders not so much.

These narratives will collide at the September meeting. A BoJ hike, if it snaps the yen sharply higher, would hit equities first and trigger cascading margin calls in a replay of the summer of 2024. A hold buys the carry trade another quarter, but how much lower can the BoJ let the yen slide?

Anton Wagner is studying Applied Math and Philosophy at Harvard University and is an intern on the Growth and Partnerships team at Polymarket.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

Werner K. Zagrebbi is a board-certified Superforecaster™ who writes about politics and economics at Right Rationalism.

If you take the trip from DC down into that intricate amphibious Northern Virginia region, there could often be seen sauntering across Fairfax a very interesting old man, like a wizened sage—portly—with a glint in his blue eyes and lightness on his feet testifying to a glorious twinkhood lost.

In the words of his colleague Bryan Caplan: “When the typical economist tells me about his latest research, my standard reaction is ‘Eh, maybe.’ Then I forget about it. When Robin Hanson tells me about his latest research, my standard reaction is ‘No way! Impossible!’ Then I think about it for years.”

It could be argued Hanson originated modern prediction markets: If he gets the Nobel Prize (Manifold put his odds at 20%), it’s expected to be for prediction markets.

I came across his work in his capacity as one of the first niche internet microcelebrity bloggers, and I saw in him an intellectual hero worth idolizing. Beginning in High School, I often took the pilgrimage to George Mason’s campus, and faced him over games of Dungeons and Dragons. This month, I went back with a recorder.

Here’s our conversation, condensed and edited for clarity.

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Thanks a lot for doing this, Professor Hanson.

Well, you know, prediction markets just boomed in the last few years, and all of a sudden lots of people want to talk to me. That’ll probably go away when it becomes less of a novelty. But at the moment, it’s a novelty.

Why don’t companies run these markets internally? They need the information, and they have the money.

Once you realize you want the people who value the information to pay for it, the obvious first place you’d go is companies. They need the information, they’ve got money, and their decisions are valuable. That’s what people tried to do. In the aughts there was a lot of effort to get companies to do these markets. And what we learned is this: most managers present themselves to the world as scientific decision makers. They’ve got a spreadsheet, they’re trying to fill in the numbers so they can make the best decision for the company. Under that model of who they are, they should want these markets. But that’s not who they are. They’re actually politicians. They have an alliance and they’re trying to support it. They’re trying to recruit allies to support decisions, and they don’t want some random neutral source weighing in that messes up their ability to control the narrative.

Is this what got you interested in the economics of status?

My longer-term history is: I learned the usual points of view in economics as a student, and then I noticed lots of puzzles, things that didn’t make much sense. This is one of them, but it’s only one of many puzzling things about the world. My book The Elephant in the Brain is the realization: what if people are just wrong about their motives? Then you can explain a lot of things. And I think that works here too. Managers’ motives aren’t actually to be the scientific decision maker filling in the spreadsheet.

I have this hypothetical of the autist in the C-suite. You put a really smart person there who understands the company really well, and every time a subject comes up they just spew out lots of relevant, important things about it. They would not be allowed to sit there, because other people can’t rely on them to support their agendas. They would be disruptive. But that’s what a prediction market is. Something that speaks the truth without any sense of who wants to hear it.

Isn’t that kind of the self-image of McKinsey?

The most common scenario with consulting is that somebody wants to make a decision but doesn’t have enough internal support, so they hire McKinsey to be the outside support for what they’ve already pre-decided to do. McKinsey isn’t actually doing that much original analysis. They’re offering their support. It’s credible in part because there’s only so far they’re willing to go. If you bet wrong that McKinsey will support what you want, you lose out. But that is the main thing they do.

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You built the Policy Analysis Market at DARPA, markets on geopolitical instability to inform policy. Two senators held a press conference calling it a federal terrorism casino, and it died. What was that day like?

There was this guy Poindexter, of Iran-Contra fame, very famous, who was in the hierarchy above us at DARPA. Some reporters said: how can we find dirt on him? So they looked at projects under him, and they found our project. To get him fired. He wasn’t fired for Iran-Contra or whatever. He didn’t have much influence over the project, but he was nominally in charge of it, so that was the basis.

They made sure to have their press conference when the DARPA PR person was unavailable. It was a Monday morning, and by the next morning the Secretary of Defense said our project was killed. They did not have much time in 24 hours to assess the situation. They killed it on the basis of: we don’t want to be associated with this bad publicity. And they did not check whether the accusations were even correct.

The other people on the project just wanted to hunker down and hide. I was the one person willing to talk to the press, so I went through several months of talking to the press, and I learned a lot about how these sorts of issues play out.

The power of bad publicity is really strong in our culture.

There’s also the power of accusing norm violations. If you’re associated with an accused norm violation and you say, let me get back to you on that, I need to look into it, that looks bad. You’re supposed to have an automatic response. A norm violation is supposed to be so obvious, and your position on it so obvious, that you don’t need time to react. This is of course not true. In reality almost all norm violations have details you might not understand, and we don’t always agree on what the norms are. But we have this norm that we DO agree on the norms and that their application is obvious. That’s why, when you’re accused, you don’t have time to look into things.

Should it be made again?

It did happen, ten years later. IARPA, a related but different government organization, funded prediction markets, and my team’s pitch was: we’ll do the combinatorics. That was SciCast, roughly a thousand markets, starting with geopolitical events in the East and moving to science and technology. We did it ten years later without much publicity, because Poindexter wasn’t in the hierarchy above us.

Was this useful for the government? Maybe they have a more secret version now.

For a while, maybe ten years, the CIA had internal prediction markets, and they were useful to them. But they were only allowed to exist because of one rule. The coin of the realm in the US intelligence community is white papers. White papers cite other white papers. What you aspire to do in that world is write white papers that get cited. So the rule was: the markets can’t be mentioned in white papers. They were allowed to exist as long as they didn’t get credit. Individuals could participate, look at the prices, let them influence their opinions. But in the white paper they presented themselves as having thought of all these things themselves.

And then that norm ended, and that killed it?

I don’t know what killed it. My guess is that eventually people higher up heard about it, and when they see a white paper they say: what does the market say? Now it’s getting credit. You can’t let that happen.

What should this lesson tell us about the prospects of prediction markets as an institution in broader society?

Institutional innovation is just more difficult, because you’re threatening people’s status and power. People are much more okay with innovation that happens in a lab: if the lab succeeds, they change the production process of a product, and the whole organization stays the same, except now they’ve got more money. Innovation of institutions, of who gets rewarded and what we believe, is much more threatening. So you should expect it to be harder to get experiments started, harder to get them to last, harder to produce innovation. And you can’t patent institutional structures. It’s a basic fact about the world: we are much more eager for innovations in computation and physical devices than in innovations of social practices. The biggest social innovation of the last few decades was social media, which was presented as a technology. People were okay with introducing it as a technology, and then it had social implications as a side effect.

You were very early to a lot of social phenomena. The web, AI, prediction markets. Is there anything you’d add to the list?

The world of people I was hanging out with in Silicon Valley in the late 80s. I left in ‘84 to go out to Silicon Valley, and I went away in ‘93 when I went to grad school. In that world there were lots of big ideas for the future that people were throwing around, and I was trying to contribute to that. In retrospect we could say I added prediction markets to that world, and that was successful. Other people were doing other things. Hal Finney, of Bitcoin fame, was one of my friends in that world. He’s my best guess for at least part of Satoshi. Eric Drexler, who many people thought was more likely to be the harbinger of the future, for nanotech. That turned out not to be such a thing yet. There were people trying to make social media at the time. There was cryonics, which I got into eventually.

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Prediction markets as they exist now, what percentage of that vision do we have? They do reference Polymarket prices in WSJ now.

When I first came to the subject, I was imagining: let’s just have legal markets on the questions we all argue about in public policy and politics and the media, and that would be enough. That’s the initial vision, and I think it’s the vision most people start with when they come to the subject. Every few years more people come to the subject, and that’s where they start.

There are three things I think people should eventually come to realize. First, the world has far more topics that matter than the topics that show up in the news. Second, the markets we’ve had so far are mainly a side effect of traders who are there for risk hedging or entertainment reasons. What we want is to switch to a model where the people who want information pay for it. Then we could unleash a much bigger market. And third, decision markets: if we want to make things relevant for decisions, we make the markets right next to a decision.

But even on the first milestone, look at the number of news articles that show up in a year and the number of markets that show up in a year. We’re still less than one percent. We have a long way to go even to reach that milestone, and that milestone is still much smaller than the bigger long-term vision.

So is it, in a weak social science-y way, inevitable that we eventually get more futarchy, because the firms that do it outcompete the ones that don’t? Maybe the AI firms of 15 years from now?

That’s the key open question. Years ago I wrote a blog post listing 21 ways firms seem inefficient. You might think that for each of them competition will eventually force the more efficient thing. But it’s an open question. I still hope, and there’s a chance that’s worth pursuing even if it’s not obvious it’ll happen. If you know the literature on innovation, the world just has far less innovation than would be possible. We’re proud that we innovate much faster than people did three centuries ago, and that’s true. But compared to what seems possible, we’re still way below.

Now, before the web existed, you worked at Xanadu, Ted Nelson’s legendary hypertext project: the people who invented the link and spent decades trying to build a smarter internet before the internet. I’ve heard you say prediction markets are in some sense part of the same intellectual project. To cleanse the world of ideas.

That’s where I got my inspiration. Other people had this idea of the World Wide Web, and I thought that was cool. I went to Silicon Valley in part to work with them on that idea. They had a vision: they thought making criticism easier to find would help conversation. And I had doubts. I thought, is that really going to work? It probably has helped, but it’s not nirvana. That’s when I asked, well, what else could we do? And that’s when I started to think about prediction markets. In that context of big, grand things we could do with new technology to change the world.

Random thing I’m curious about: does LessWrong, the forum the rationalist movement grew up on, owe anything to Xanadu?

The LessWrong community has a lot in common with the Xanadu community. Similar sorts of people, a generation apart, trying to do similar sorts of things. The Xanadu people thought of themselves as thinking rationally about which technologies would be beneficial and how, and as better able than other people to see possibilities. That’s what the rationalists have seen themselves as, too. I don’t know that one caused the other, but whatever forces caused one probably caused the other.

The only org chart overlap was you.

There were other people associated with Xanadu who were also in that community. Still around, still having influence.

The FOOM debate, 2008. Famous, sort of. Eliezer said one AI project suddenly explodes past everyone. You said growth will be broader, slower, more like normal economic growth. Seventeen years and one revolution later, I think both of you could claim partial credit. Could you imagine four cells: what did you get right, what did Eliezer get right, what did you each get wrong? Ems, the whole-brain emulations your book The Age of Em predicted would come before AI, do seem wrong, right?

People inspired by Eliezer are still predicting FOOM [explosive acceleration in AI ability]. Soon, to happen in a few years. They say it hasn’t happened yet, but it’s about to happen. So to settle this bet, we just wait a few years and see if it happens. Ask me again in ten years. Then I’m going to look pretty right. They will not have seen the FOOM happen in the next ten years. Of course, they may say it’s still coming then.

On ems: if AGI shows up in the next five years, then it shows up before ems, most likely. There are people working on ems right now. But obviously a lot more attention has gone to the usual kind of AI. There are many orders of magnitude more money in AGI than in ems.

Okay. I won’t give you the L on that one yet.

I see Eliezer’s argument as: it’s possible for a very basic algorithmic change to have this huge impact, where it allows the machine in the basement to take over the world on the weekend. And if that’s true, we need to prepare by giving all the AIs good values through that transition. My critique was that the sudden explosion is not very plausible. It’ll happen slower, we’ll have more chances to react, and it will be less concentrated, spread across the whole world economy, not just one machine in the basement. He has been saying lately: see, Robin, you were wrong, because look how algorithms matter. And I say: we do have algorithms that matter, but they matter when paired with lots of data. The big ventures take pretty widely known algorithms and combine them with specialized implementations and data to be the leaders in these industries. The difference between the leaders is often data advantages, hardware advantages, market position advantages. Not just algorithm advantages. Algorithms matter, but not in the way that a machine takes over the world in a weekend matters.

If you re-ran the debate today with bets, are there sub-claims where you could find a price?

There have been forecasting efforts over the last decade where groups tried to get people to forecast different aspects of AI predictions, and then asked whether that helped resolve differences. It apparently did not. When people break the argument into pieces and argue over the pieces, that hasn’t reduced the difference between the groups. And in a way it did for other topics. There was one study with several topics, and on the other topics, breaking things down and engaging the details brought the groups together. Not on AI. They had subject matter experts and general smart superforecasters engage on the details, and on the other topics they came closer to each other. On AI, the superforecasters said: no, we don’t believe it. Sorry. So the AI debate is somewhat different from these other debates. The technical details just don’t make a big difference

Generally, who should have status as a good forecaster? The actual superforecaster people, Polymarket traders who do well, or literally you?

Our world is too much structured by status as the default organizing principle of institutions. If you don’t have a prediction market and there’s some topic we’re uncertain about, the usual thing is: who’s highest status here? What do they say? That’s how we handle hard questions. I would rather replace that. I want status to matter less as the way we run parts of our world.

In my world as an intellectual, I hear people getting status for doing impressive things. And I go: no, I want to give status to people who made an impact, who actually made a difference, not just did something impressive. A lot of academic work is impressive but not very useful. People tell me I’m smart, and I go: I wasn’t trying to be smart, I was trying to accomplish something. If you’re impressed with what I’ve accomplished, I’ll own that. I deserve the status when I did something that mattered. But I don’t want to hand out status for potential, or impressiveness, or way with words, or the way he holds himself and commands authority. I want actual accomplishment. I’ve met Elon Musk. He’s not that impressive as a person. For real. But damn it, he deserves status, for what he’s done in the world. I don’t know who deserves more. So hand out status for actually doing stuff, not for how someone holds their head when they’re standing next to you, or talks fast, or uses a big vocabulary. In a prediction market, people who trade and make money because they moved the price in the right direction: that’s a real accomplishment. Give them status.

If you’re reading this, go give a high five to the winning Polymarket trader near you.

The one who’s made money.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

This is a cross-post from Polymarket Institutional Research. To receive future issues, sign up here.

The Polymarket Institutional Desk offers block trades on U.S. and international exchanges, institutional market maker relationships, and enterprise data services. Contact Brooke Rizzetto at institutional@polymarket.com for onboarding.

On July 30, margin calls forced AI hedge fund Situational Awareness to sell its $16 billion public-equity book to Citadel after the fund cruised into July’s AI selloff at a reported 4X leverage.

This article examines how this episode played out on Polymarket, in particular the “AI bubble burst in 2026” contract, which is a near-perfect proxy for the market forces that no doubt made Leopold’s pre-wedding investment “colloquium” far more stimulating.

But were Polymarket traders simply responding to the news headlines? Or anticipating them?

Drawdown gauge

Polymarket’s AI bubble burst contract resolves YES if at least three of six conditions occur within a 90-day window before year-end.

The criteria are a mixture of equity drawdowns, compute pricing, and AI lab corporate events (eg bankruptcy) that would result from significant market pressures:

These are the exact moves that would also push a highly leveraged AI fund like Situational Awareness to its breaking point.

By comparing the movement of this AI stress index to the news flow around Leopold’s fund, we see that this Polymarket contract anticipated many of the key developments in the saga.

The above chart plots the Polymarket AI burst odds alongside the VanEck Semiconductor ETF, a widely cited proxy for the AI trade.

Notice that the Polymarket contract didn't move higher until the Situational Awareness stress emerged in late July, while the VanEck Semiconductor ETF had been falling all month.

In this instance, the Polymarket contract arguably reflected the acute stress around the fund unwind more directly than one of the most-watched AI proxy ETFs.

What moved first?

Prior to the Financial Times announcement on the evening of July 29 that Situational Awareness was seeking capital, Polymarket traders had already anticipated that the fund was in trouble.

For the two weeks leading up to the margin call, the market sat in a narrow 15-to-17% range, even as the semiconductor index was already rolling over. Then, on July 27, traders broke this range, bidding the odds to 20%. By the afternoon of July 29 the market had repriced to 22%; the FT’s report that evening only took it the rest of the way, to its 28% peak.

Right now, the AI bubble burst market is priced at 12%, aligning more with its pre-Situational odds.

Another market also seemed to anticipate this event. NVIDIA's odds on Polymarket of being the world's largest company at the end of August fell from 78% on July 24 to 36% on July 30. This anticipated the dip in the AI hardware equities that Leopold was so highly leveraged on.

Containment or contagion?

Within a week, Polymarket’s AI stress contracts had round-tripped the entire move and kept going. By August 6, the AI bubble market sat near 15%, below the range it held before the margin calls. The largest AI-fund blow-up of the cycle just happened, and the priced odds of an AI bubble burst are lower than before. Instead of treating this sale as a forewarning about the future of AI, Polymarket traders seem to be pricing this event as a risk isolated to a single overextended fund.

NVIDIA’s end-August dominance odds, which had cratered to 36% on the day of the sale, are back above 93%, higher than before the unwind. Even the broad US recession contract barely twitched, holding at 10–12% throughout. The polymarket on whether the fund itself winds down is priced at just 5% by year-end.

On August 5, Situational Awareness announced it was closing a $400 million private investment in a Sequoia-backed company, on top of $100 million it had put into the same company a month earlier.

Polymarket traders reacted early

Across a handful of Polymarket contracts, you could watch as systemic risks to the AI trade were repriced in real time. Equities markets repriced the AI complex in the days before the margin call, jolted when the sale broke, and have climbed steadily back since, capped by the fund’s own return to investing. But while equities gyrated wildly as traders hunted Leopold’s troubled trades, Polymarket moves were more modest, never pricing the AI bust scenario above 30%.

For both retail traders and institutional desks, this case study shows the value of looking at event contracts as a contra-indicator to index proxies to sort the signal from the noise during periods of market dislocation.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

is the chief political analyst for Israel’s top rated Channel 12 news outlet, and a columnist for Israel Hayom. In English, he writes It’s Noon in Israel on Substack. The Oracle caught up with Segal to discuss why he thinks the October 27 Israeli election is mispriced, the state of the Trump-Netanyahu relationship, dark horse coalition scenarios, and how the Iran war will end.

This interview has been edited for length. All answers are his own.

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Netanyahu has dissolved parliament ahead of the October 27 election. Polymarket has Netanyahu, the ultimate political survivor, at just one-in-three to be prime minister after the election. Does that surprise you?

First, an introduction crucial for Polymarket investors.

Unlike in the US or UK, an Israeli election might end in a draw. It can also end in a rotation government, one figure serving as prime minister for two years and another for the next two. Or in an outright majority.

Here’s the thing. Netanyahu, as the incumbent, can enjoy a hung parliament. If there is no clear winner, he stays in office in what we call a transition government. So any chance of a draw adds chances for Netanyahu, the only outcome that can come of it. And if a rotation government is possible, that also increases Netanyahu’s odds, as he’s the leader of the right wing.

I look at Polymarket every day, and I’m quite surprised by Netanyahu’s low chances, and by the very low chances given to Avigdor Lieberman.

In Israel, the decision on the next prime minister is in the hands of the parliament, not the people. It is neither a beauty contest nor a popularity contest. In 2021, Naftali Bennett became prime minister with 5% of the popular vote. The lesson is that in Israel, kingmakers can become the kings themselves.

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How could Lieberman become prime minister?

Eisenkot is the front-runner in the opposition, leading every poll since April or May. But Avigdor Lieberman can make his way to the prime minister’s office, because he is not a natural part of the opposition. He is a settler living in a settlement. He is not exposed to pressure from center-left news outlets. His political base is Russian immigrants. He is a maverick.

Second: he is 68, so he knows this is his last round. And third, he’s a kingmaker. He belongs to the right on diplomacy and the Palestinian question, but to the opposition on domestic issues, liberalism, the economy. So he can come to Eisenkot the day after the election and say, “I’m one of only three people in Israel ever to serve as defense minister, treasury minister, and minister of foreign affairs. Give me the chance to be prime minister first.” What can Eisenkot do? The only guy you have to convince after the election, if not the voters, is Lieberman himself.

So I think Lieberman is heavily underrated and written off. He is somewhere around 4%, 4.7% on Polymarket. I would give him something like 20%.

Also: we have two types of polls. In the mainstream media, Netanyahu is heading toward his worst defeat in 20 years, 51-52 seats for his bloc out of 120. But according to Channel 14 and Channel 24, more affiliated with the right wing, he is heading toward the best victory of his career. Statistics cannot explain that gap. Margins explain 3% or 4%, not 12% or 13%.

And I want to give you the magic number: 55. We have 10 Arab Knesset members who do not take part in coalitions: they do not sympathize with the Zionist state, and the Zionist parties do not want them. Post-October 7, there is almost no legitimacy, especially in the center, to base a coalition on non-Zionist, sometimes anti-Zionist, Arab parties. So if Netanyahu gets 55 seats, he does not lose to Eisenkot in terms of Zionist seats.

The average of the polls has Netanyahu around 52 and a half, and we know the shy voter phenomenon, the inability to really poll right-wing voters, from the US, UK, and Israel. So even trusting the mainstream polls, Netanyahu is two and a half seats short of ending this election without Eisenkot being able to form a stable coalition. That leaves two options: a new election, meaning Netanyahu stays prime minister, or a rotation government, in which Netanyahu most likely goes first.

Remember: 61 seats are enough for a victory speech, but 59 does not force you to concede. That’s what Americans fail to understand about Israeli politics. One can get away with 52, 53, 55, 57 seats. The sitting prime minister deserves a premium simply for sitting as prime minister.

So I would give Netanyahu 45%, Eisenkot 35%, and Lieberman 20%. Netanyahu is still under 50% because of some 100 consecutive very bad polls. Eisenkot is still the one with the best chances in the center-left. But Lieberman is there, and Netanyahu has a higher chance than on Polymarket now.

As we record this, the US headlines say ‘Netanyahu visits DC amid tensions with Trump’. Are they really tense? Or is this a media invention?

Tension did exist. But as a general rule, the relationship is always better than meets the eye in the press. It is based on four to seven people from the two sides of the pond: Netanyahu, Ron Dermer, Trump, Kushner, Witkoff, and maybe Susie Wiles. Seven out of seven belong to the right, while most of the media covers it from a center-left point of view. That means lack of information, and a natural bias towards saying the situation is worse.

The relationship has cooled a bit since March, for two reasons. The war was less successful than hoped, and this administration has become more closed, with decisions taken by fewer people, so it’s harder for the Israelis to penetrate. But I would not write off Netanyahu’s chances to talk Trump into something.

Big picture, what does Israel want out of Iran? Did they already achieve their goals with getting rid of Khamenei?

No, not at all. There is no shortage of lunatic fundamentalist leaders in Iran. There are two goals.

The deliberate one is the nuke. Specifically, the 440 kilograms of uranium enriched to 60%. Israel and the US destroyed the nuclear facilities, but as long as Iran holds this uranium in underground bunkers, it has the theoretical option to relaunch nuclear production in a way Israel is not aware of, or unable to respond to. So extracting the enriched uranium, one way or the other, is the spoken goal of the war.

And if the Iranian regime collapses, the next regime is necessarily way friendlier. That’s the unspoken goal, because it’s way more difficult to extract regimes than to extract enriched uranium.

Odds that Iran agrees to end enrichment or surrender their existing stockpiles are way down.

To be honest, I wouldn’t give it even 1%. Unlike North Korea, for the Iranian regime the nuclear program is not only a means to ensure survival. It’s almost a religious principle. Iran is not only a country, but an idea: to spread the Islamic revolution, first within Iran, then the Middle East, then the world. Giving it up in return for lifting sanctions would mean the formative idea behind the revolution is dead. They’ll word it in different ways, but they’ll never agree to stop. Unless there is a regime change, of course.

So how does it end?

For Trump, there are three options. One is extracting the uranium with boots on the ground. Second, an agreement. And third, regime change.

Israel does not believe in an agreement, because we know our customers. Once Iran has the first Muslim nuclear bomb, it is no longer vulnerable. It is on the world stage. So for Israel there are only two options. The failure of the Epic Fury operation came from Israel wanting to extract the enriched uranium, whereas Trump said, “Let’s wait, we can reach an agreement that will give us the uranium. Why bother?”

In my mind, a ground operation to seize the uranium is a 1%, crazy idea. How likely do you put it?

It was on the table at the start. There are no big secrets: we all know where the uranium is, and we know the abilities of the US and Israel. Former defense minister Yoav Gallant, himself a former commando commander, said that while it was possible three, four months ago, he is not sure it still is, because the Iranians have prepared many obstacles on the ground.

I still think it’s feasible. The main obstacle is psychological, for the Republican Party and this very Republican president. Sending American combatants to Iranian soil is boots on the ground, even if temporary, even if a few hundred people rather than hundreds of thousands like in Iraq. For a president whose raison d’être in 2015 was to be the first Republican ever to speak out loud against the Iraq War, it was too much. The obstacles are more political than military.

Does the war just continue in phases, fight, pause, fight, pause, until something happens with the uranium?

We keep talking about it in a binary way: war or no war. We should adjust to the idea that it’s going to be non-binary, something in between.

And there is something else: the Iranian economy. The assessment in Israel three months ago was that without an agreement, the regime collapses by the end of 2026. At the end of 2025, millions of protesters stormed the streets of Tehran, Qom, and Bushehr over a devastating economic situation. It has only worsened since. The damage from the Epic Fury operation alone is estimated around $400 billion.

One might say the barrier of fear went up after the massacre of some 7,000 to 32,000 protesters. But fear and having nothing to lose are competing in Iran as we speak. Say the one-month MOU postponed the collapse to January 31, 2027. Watch the streets of Tehran closely.

For Israel, no war, no deal is the perfect solution: no casualties, international flights, and the regime slowly fading away. But Israel is not an actor in world energy prices. President Trump is, and for him that means fights over the Strait of Hormuz.

So you’re more bullish than the market on regime change. What’s your number by the end of the year?

I would give it 30%. There are two options: top-down or bottom-up. We have the image of the velvet revolutions in Eastern Europe, but even the Islamic Revolution in 1979 began with mass protests and ended with a faction of fundamentalists taking the regime. We now know that Israel and the US work simultaneously top-down, with former President Ahmadinejad, and bottom-up through propaganda warfare. The main idea is that protests would lead parts of the regime to acknowledge the gloomy reality and come to terms with the United States.

Israel is not being targeted and not shooting in this round of fighting. What could pull Israel back in?

Three options. One, an Israeli-American decision to attack Iran’s energy facilities. Two, the same decision on the uranium. Three, the regime feeling its end is near and seeking legitimacy by attacking the Zionists. The first two are more probable than the third.

Polymarket recently listed markets on Qeshm, Hormuz, and Kharg islands. Will Iran keep control over Hormuz, regardless of what happens with the regime?

No matter which regime is in Iran, the Strait of Hormuz is going to be international. The world has seen the effects of taking over a relatively small strait, and no one is going to let it happen again. This is the conclusion of every US ally in the region, mainly the UAE, Saudi Arabia, and of course Qatar, whose economies took amazing damage.

Two processes are coming. One is alternative routes, be it Jordan-Israel-Mediterranean, Syria-Turkey-Mediterranean, or Syria-Turkey-Europe. And second, even a new regime in Iran will go through what Venezuela went through: you can keep your sovereignty, but your oil is controlled by us.

Could a naval operation unblock Hormuz?

I think it is considered. I’m not an expert here, but I keep hearing rumors about it. Such an operation would not include Israel, which has no interests in the Strait of Hormuz, unlike the uranium question. It could happen even without any Israeli knowledge.

Follow Amit Segal on X and on his Substack, It’s Noon in Israel.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

By Andrew Asani*

Today, odds on Polymarket for the Houthis to close Bab el-Mandeb by 30 September 2026 stand at just 14%.

In my last piece for The Oracle, I argued that the Houthis were unlikely to close off this critical Red Sea chokepoint due to their increasing financial dependence on Saudi Arabia.

Things have changed.

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Based on my recent conversations with several Houthi insiders, I believe Polymarket is significantly underestimating the odds for a Bab el-Mandeb closure today.

Despite the potential risks, closing the waterway remains the cheapest and most effective way for the Houthis to achieve their primary aim of forcing the US and its allies to de-escalate against Iran, at a time when most other options have been exhausted.

The Houthis support de-escalation as US-Israeli strikes on Iran have severely weakened the logistics infrastructure of the country’s Islamic Revolutionary Guard Corps (IRGC), the hardline paramilitary that oversees Tehran’s proxy network and serves as the Houthi’s top arms and fuel supplier, financier and patron. Without IRGC support, the balance of power within Yemen would shift in favor of the Saudi-backed Yemeni government, as the Houthis are currently too weak to confront their domestic enemies by themselves.

The Houthis previously sat out prior rounds of US-Iranian warfare in June 2025 and February-April 2026 as the stakes then were not as high. Following a ceasefire on 02 April 2022 that ended the 7-year civil war between the Houthis and Saudi-backed Yemeni government, Riyadh quietly began providing the Houthis monthly payments of roughly $100m to ensure quiet on its border. The Houthis became dependent on these transfers and in June 2025 were reluctant to launch attacks against US and allied forces that could provide Saudi Arabia a pretext to cut off payments.

At the time, the Houthis were caught between two rival patrons: Saudi Arabia, which they relied on for financing, and Iran, their main weapons supplier.

However, the expansion of US airstrikes in Iran to include energy and civilian infrastructure along with steps taken by the Trump administration signaling intent to seize key Iranian islands and even carry out a ground invasion—which the White House has instructed the Pentagon to develop plans for—have shifted the Houthis’ calculus and made the group more responsive to Iranian demands for assistance.

A member of the Houthi Political Bureau told me that Iranian operatives have deployed across Yemen and are driving the current escalation in the Red Sea, adding that the Houthis are following IRGC requests because continued aid is contingent on meeting certain Iranian directives.

That said, should the United States continue to prosecute the war and remain undeterred by Iranian counter measures the Houthis will likely resume attacks on commercial shipping as a measure to help protect Iran and ensure continued access to IRGC patronage.

A relative of the Houthi’s Jihad Council—the group’s top decision making body—claimed that in the event of an expanded US-Israeli campaign in Iran, the Houthis would escalate their attacks to include shipping in Bab el-Mandeb as deterrence to prevent further US strikes and the collapse of IRGC logistics networks.

That the Houthis would do so appears plausible in light of reports that IRGC operatives in Yemen have begun preparations to develop a Red Sea “authority”—similar to Iran’s newly created Persian Gulf Strait Authority —to extract tolls from ships in the Red Sea.

Shuttering the Bab could trigger the opposite response: a vicious US counter campaign which the Houthis would not be able to withstand. However, opinion polls showing overwhelming opposition to the war within the United States and reports claiming that American interceptors and munitions stockpiles have been depleted below levels previously thought cast doubt on such a prospect.

That said, closing Bab el-Mandeb remains a low-cost method for the Houthis to force the United States to de-escalate against Iran and pressure Saudi Arabia to hold off support for anti-Houthi forces that have recently increased their attacks on the group. Beginning on 20 July 2026, the Houthis attempted to deter Saudi-backed anti-Houthi forces in Yemen by imposing a blockade on Saudi ports and conducting symbolic strikes on energy infrastructure.

However, these strikes failed to achieve the desired effect, instead triggering violent Saudi and Yemeni government reprisals, the first major act of hostilities between both sides since the 02 April 2022 ceasefire. The Houthis have responded by deploying large-scale reinforcements across the country, including to the southwest coastal province of Ta’iz, overlooking the strategic waterway.

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Cracking at the Seams

My senior Houthi contacts describe a group unable to afford renewed full-scale war with Saudi-backed Yemeni forces, following renewed pressure placed on the group by the second Trump administration. The 2025 US-UK Operation Rough Rider and subsequent Israeli strikes degraded Houthi leadership, weapons stockpiles, and port infrastructure, prompting the Houthis to reduce their Red Sea shipping attacks—especially after the October 2025 Israeli-Hamas ceasefire—and cutting the group’s revenue.

Expanded US sanctions further squeezed the group’s income from customs and limited their access to fuel needed for missile production. Financial strains in early 2026 triggered several waves of mass defections and three leadership purges from April-June 2026 over alleged Saudi espionage. Tribal unrest, including July 2026 clashes with Daham tribesmen in Jawf governorate over land disputes, further destabilized Houthi control and prompted defections.

These pressures have made the Houthis more receptive to Iranian escalation calls, hoping for greater support. On 17 June 2026, the US provided Iran a temporary sanctions waiver to sell petroleum products, enabling Tehran to net roughly $5bn-6bn before US-Iran hostilities resumed on July 11. During this period, Iranian funds flowed to Hezbollah and the Houthis, including at least two Iranian arms shipments intercepted by Yemeni government forces on 29 June and 14 July 2026—the first in 2026—that contained heavy drone/missile manufacturing equipment.

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What To Watch

After more than a year of electing to sit out fighting between US and Iran due to fears of antagonizing Riyadh, it now appears the Houthis are leaning closer towards Tehran. As the group becomes more desperate, it will continue to do so. However, the Houthis still seek to avoid the type of escalation in Iran and Yemen that can degrade the IRGC and Houthis themselves enough to embolden Saudi Arabia and invite a resumption of full-scale war.

That said, for the foreseeable future, Houthi attacks against Saudi Arabia will mirror US escalation in Iran itself. Should the United States follow through with plans to seize strategic Iranian islands, prepare a ground invasion or expand its target list to include a wider range of civilian and energy infrastructure, the Houthis will likely have little choice but to play their final card and close Bab al-Mandab.

The best sources to follow for updates include the daily “Iran Report” by the American Enterprise Institute’s Critical Threats project, which does a great job at cataloguing every kinetic strike in the region. For minute to minute updates, great X accounts to follow include @OSINTdefender, the Yemeni @SanaaCenter think tank, and Times of Israel correspondent @manniefabian.

* Andrew Asani is the pseudonym of an OSINT-HUMINT researcher who tracks extremist patronage networks across the Middle East, including Syria, Yemen, North Sinai, Libya and Sudan. He advises clients performing strategic advisory and litigation support, and his work has been featured in numerous academic journals and news outlets.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.

This is a cross-post from Polymarket Institutional Research. To receive future issues, sign up here.

Polymarket’s Institutional Desk is facilitating block trades for JetBlue bankruptcy event contracts on both our U.S. and international exchanges. Contact Brooke Rizzetto at institutional@polymarket.com for onboarding.

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Warren Buffett famously said that airlines have devoured capital since the Wright Brothers:

Since the 1970s, the US airline industry has produced almost 160 bankruptcies. The problem with airlines from an equity or credit perspective is that they are thin margin businesses with high fixed costs and volatile variable costs. The business model is very dependent on scale. Which is why, for these past few decades, the airline industry typically cannibalizes itself, as the acquirer aims for increased scale and the acquired is in financial trouble from not having it.

JetBlue, over the last couple of years, tried to execute this rollup strategy. Up until last year, they put in a good-faith effort to buy Spirit Airlines. That was struck down by antitrust regulators and Spirit went on to declare bankruptcy in 2026.

This failed move by JetBlue has left them in a very awkward place. The financial markets are saying this with 5y CDS on JetBlue bonds (chart below) trading near 1000bps, but the left tail on Polymarket is still quite cheap. Which is interesting in light of a very tricky backdrop for JetBlue.

Without the Spirit acquisition, JetBlue is stuck in between the big guys (Delta, United) and the budget airlines. They are too big to be a discounter but they are not big enough to compete with the network economics (pricing, routing etc.) of the big guys. And the big guys have been able to move up the pricing power curve with premium traffic.

This imbalance can be seen in the recent labor talks going on at JetBlue. United and Delta crews just landed deals that were 34% bigger than what JetBlue is currently offering its crews. That shows that JetBlue cannot match the market.

The financial picture right now is hairy for JetBlue. They have $9.3B in outstanding debt, with most of the fleet already pledged as collateral and a CCC credit rating. Their interest costs alone are running at $800m a year. They have very little room to maneuver, and it doesn’t seem like a sale is viable now.

Within this very tight operating window, the headwinds to the business more tactically have increased in recent months. Jet fuel prices have surged following the war in the Middle East. They have negative pressure from Pratt and Whitney engine issues disproportionately impacting JetBlue’s Airbus-heavy fleet. And, they are the most exposed large carrier to fall weather disruptions, as they have a heavy Florida/Caribbean fleet concentration.

This could bring forward some interesting tactics around managing their debt position. It is possible that declaring chapter 11 early, could make it less likely that they have to declare chapter 7 later on. This would keep the company operating instead of it being forced to liquidate like what happened to Spirit.

An interesting trade on Polymarket right now is that this left tail of JetBlue, that financial markets are pricing quite seriously with CDS near 1000bps (10% notional per year to insure against default), is only modestly priced in prediction markets. In “Which airlines will announce bankruptcy by December 31, 2026?” “Yes” for JetBlue is around 4%. That seems like an interesting opportunity in a relative value sense to traditional credit markets but also given the left tail dynamics in the business over the second half of the year.

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Disclaimer

Nothing in The Oracle is financial, investment, legal or any other type of professional advice. All odds are time-sensitive and subject to change. Anything provided in any newsletter is for informational purposes only and is not meant to be an endorsement of any type of activity or any particular market or product. Terms of Service on polymarket.com prohibit US persons and persons from certain other jurisdictions from using Polymarket to trade, although data and information is viewable globally.