I’ve done some light editing, but otherwise this was entirely Ryan’s essay. If you want to check out his other work, here’s his author page on VoteHub, a PM-powered election forecasting company as well as an election decision desk.

Onions are terrible; they make me cry, and I have never once finished a meal wishing there were more of them. However, there is something that leaves an even worse taste in my mouth than onions: price instability, and even more so, the complete inability to hedge against it.

For any nerds reading this, you may remember this story from a Planet Money episode aptly named “The Tale Of The Onion King”. But I want to rehash it a bit. In 1955, two traders, an onion farmer named Vincent Kosuga and his produce-distributor partner Sam Siegel, cornered the Chicago onion market. They pushed the price to unseen highs and subsequently crashed it so violently that a fifty-pound bag, albeit briefly, sold for no more than the value of the bag itself.

Why manipulate the market just for the sake of creating volatility? How could you possibly benefit? His play was simple: accumulate a mountain of futures contracts while prices were still in the clouds, then reap the rewards once the market swung back in his favour. When Kosuga cornered the market and pushed prices to all-time highs, he sold a number of futures contracts, effectively locking in the high prices that he had artificially created. Then, to make his futures very, very valuable, he literally flooded the Chicago River with onions, which subsequently became plentiful and, for all intents and purposes, free. This caused immense pain for both farmers and speculators who had taken futures positions against him. Reactionary and absent-minded as usual, Congress banned onion futures outright in 1958. The law is still on the books, and onions remain untradeable on any futures exchange. The idea behind the ban was that banning those who wished to corner and manipulate the market would reduce the volatility of the onion market, therefore solving the flashpoint issue of the time: onion price volatility.

For just the briefest of moments, it is worth pausing on what exactly Congress banned, because a futures contract is not some exotic instrument (unless in the hands of a Robinhood day-trader). It is a promise to buy or sell at a set price on a set date, and for a farmer, it is closer to insurance than to gambling: lock in a price at planting (in fact, often before planting, to pay for implements) to protect yourself against a bad market during the harvest.

Futures markets also produce something subtler. It’s a rich source of very accurate public and private information in the aggregate, which creates a public forward price that everyone from growers to grocery chains can rely on. Onions have now gone 68 years without any of the benefits of these contracts, leaving a long and unusually clean, albeit cruel, natural experiment. Here is how it has gone, measured against crude oil and corn, two commodities known in and of themselves for being some of the most volatile on the boards of trade.

Even without consulting the legend, you can likely tell which line indicates onion prices. The spikes observed are not caused by a Datawrapper error (although it often glitches) — onion prices surged about 400 percent from October 2006 to April 2007, then plummeted 96 percent by the next March, and shortly afterward, tripled again. This pattern resulted from an unusually small onion harvest in 2006, combined with the fact that onion prices are highly inelastic (people buy roughly the same amount regardless of price changes). The subsequent March, prices fell sharply because farmers had accounted for the 2006 shortage and planted heavily in 2007. This happened, I will remind you, while cable news spent that same year blaming speculators for what oil was doing, and oil never managed anything half as undignified.

It really is truly impressive how volatile onions are once you strip away the futures contract. To manufacture swings like these in a Robinhood account, you would have to work hard: we are talking zero-DTE, OTM call options (the most dangerous financial derivative most retail traders can touch). The type of exposure people post to r/wallstreetbets right before deleting their life savings faster than they could give it away.1 Nevertheless, an onion farmer gets all of that by default, every season, without ever opening a brokerage account and seeing a gamified options chain on Robinhood. The difference is that the Robinhood trader chose this life.

But one bad stretch does not make a case on its own. So sure, let’s take every year since 2000 on its own terms, and measure the gap between each year’s cheapest month and its most expensive, for onions and for corn, a hedgeable crop. Onions have not lost a single year.

The question of whether the ban worked is not a new one, and the first people to ask it did so with the ink barely dry. In 1963, the Stanford agricultural economist Roger Gray compared onion price behaviour across three eras: the decades before a futures market existed, the years the contract actively traded, and the years after Congress shut it down. His finding, published under the politely devastating title “Onions Revisited,” was that the onion prices were most stable during the period the futures market was open, even considering that market manipulation was rampant. The study is sixty years old now, and onion farming has, I assume, changed plenty since, but the finding has never really been debated, at least on the niche Onion Futures advocacy side of Twitter I live on. Nevertheless, he was directionally correct 60 years ago and is still correct today. Onion futures made onion prices more stable.

The 2008 commodity boom put this to a point once again, this time in a more public, less academic space. While Congress hauled in witnesses to ask whether speculators were driving up oil, Fortune’s Jon Birger noticed that an entirely separate, neglected asset was behaving with far greater instability, a crop that Capitol Hill had effectively abandoned to the winds. Onions had been more volatile by orders of magnitude, compared to all of the futures-based commodities that Congress was mad about: onion prices rose about 400% from late 2006 to spring 2007, crashed, and rebounded, while oil, the supposed “casino” of the commodity industry, was as flat as a table by comparison.

Bob Debruyn, whose father was among the Michigan growers who originally lobbied for the ban, told Fortune that “there probably has been more volatility since the ban” and that a futures market for onions would make sense today. When the farming family that asked for the law starts wondering aloud, the law is polling badly.

And if a story about 2007 feels like cherry-picking, a very valid critique, stretch the exposure out. Measure the volatility of monthly price moves on a rolling four-year window, so no single year can dominate, and run it from, let’s say, the 1970s up to today, checking both onion and corn prices. The gap between the two is not an episode. It is a property of what onion trading has become.

The fair objection is that onions were always a hard market to trade, as many food and produce-based commodities are. They rot; they cannot sit in a silo for two years the way corn can, and to top it off, the market is not a hegemon of our financial system; the whole US onion crop is small enough that a determined pair of traders once bought most2 of it, which is how we got here.

Maybe a revived onion contract would be thin, and maybe it would fail for the reason most contracts fail, which is that nobody needs it. But, I really believe, there is a difference between letting a market die of natural causes, rot per se, and artificially killing it. Futures now trade on plenty of things more perishable than an onion, milk and lean hogs among them, and cash settlement has long since solved the problem of nobody wanting a boxcar of sprouting Vidalias, on a contract they forgot that they held until delivery.

The 1958 objection is a 1958 objection.

However, not all hope is lost. Recently, fellow onion stability enthusiasts from the University of Chicago launched a campaign called “For Our Futures.”, Lately, their efforts have been largely confined to campuses like the University of Chicago and Northwestern. However, I am convinced that cultivating awareness among the American student body is a vital lever for elevating this neglected, yet deeply significant, legislative oversight to the national stage.

The single commodity future that has ever been banned from speculation has spent seven decades as the most unstable item in the produce aisle, more volatile than oil, out-swinging corn, and the stability the ban promised shows up nowhere in the data, not in 1963 when Gray went looking and not in the fifty years of price history aforesaid. Repealing it would cost next to nothing, give onion growers the same insurance every corn farmer takes as God-given, and would close the books on the strangest law in American financial history. It is a rare legislative opportunity: a bill that fixes a broken market and, quite literally, makes it less likely for anyone to cry.

Perps had been experimented with before in the crypto industry, but for the first time, they’re regulated in the United States by the CFTC. The first ever regulated perp, BTCPERP, was approved on May 29 and listed on KalshiEx shortly after.

A new class of financial products is now available to (almost) everyone in the United States. After diving in, I realized the mechanism is well-designed, and could potentially be a larger industry than prediction markets.

Let’s take a look.

What is a perpetual future?

Read more

The Bill

What exactly are they banning? The term “prediction market” is vague and could mean any number of things.1

The bill defines it as “a system that allows consumers to place a wager on the future outcome of a specified event that is not determined or affected by the performance of the parties to the contract.”

I read this clause for the first time at 6:30am on Thursday morning, and my tired brain’s first thought was “if it is affected by the performance of the parties, that means it’s fine!” Did I just find an insane loophole to insider trade legally? I shortly remembered that the CFTC is a thing.2

Insider trading is not the only thing I could do to land myself in a Minnesotan prison. Here’s what else is going to become a felony in the North Star State:

1. Simply “creating a prediction market.”

   1. What does this mean? Do I have to create a full-fledged exchange? What if I just create a market on Manifold with play money?

   2. Technically, the bill defines the term “wager” as “a contract… whereby the parties… agree to a gain or loss by one to the other of money, property, or benefit.” I consider my “mana” on Manifold to be an asset that could reasonably classified as a benefit.

2. Advertising prediction markets.

   1. Minnesotans will no longer be able to indulge in the “Kalshi Rule #1” ads.

3. Providing data to a prediction market knowing that the information will be used to settle event contracts.

   1. Among the organizations that violate this rule include the Associated Press (!), who has a partnership with Kalshi to provide them “gold standard elections data.” I doubt the Minnesota legislature would actually want to prosecute AP in this case? But who knows…

4. Anyone involved in the infrastructure to support the exchanges — including identity verification services and payment processing.

Not surprisingly, the bill excuses insurance from these prohibitions.3 This could theoretically allow someone to list a market about their own death on a platform like Augur that allows for permissionless market creation.4

Other excused wagers include regulated futures/options, as well as the state lottery.5

The Response

Within 24 hours of the bill being signed into law, Chief Hero of the United States, The Honorable Michael S. Selig, sued the state of Minnesota!

Many prediction market experts expect that the CFTC’s lawsuit will be a walk in the park.

The logic behind this is straightforward. States like Nevada and Arizona are trying to simply ban prediction markets, and they’ve been relatively unsuccessful in their lawsuits so far. Therefore, why should Minnesota, who is not only trying to ban but criminalize prediction markets in a hazily-worded clause of a mega-bill, have any easier of a time in court?

But if it there’s some world in which the CFTC loses, I know a lot of people who are getting banned from the great state of Minnesota.

While they claimed to be “investigating” Polymarket, the actual video was mostly just a compellingly narrated retelling of all common criticisms of prediction markets.

When The Supercycle investigated the nature of these extortive claims, we found that they were based on mountains of n=1 studies, propaganda, misrepresented data, and sampling errors from hell.1 Below is the complete investigation into MPU’s outlandish claims.

Only around 30 seconds in, the video’s narrator, Trevor Hayes, criticizes Polymarket CEO Shayne Coplan and Kalshi co-founders Luana Lopes Lara and Tarek Mansour for making supposedly false claims about the utility of their respective platforms. They roll a clip of Coplan speaking on 60 Minutes and saying “A diverse group of market participants is more accurate than any given expert.”

The context portrays Coplan in a negative light, and the framing makes the claim seem absolutely preposterous.

In reality, data backs up Coplan’s claim. Studies as far back as the early 2000s, before prediction markets were even somewhat liquid, the Iowa Electronic Markets outperformed polls around 70-75% of the time, according to Berg et al., 2008. Similar studies include Wolfers et al., 2004 and Arrow et al., 2008.

He goes on to explain the basic concept of prediction markets including the design of binary options. He correctly overviews that the price of a contract represents the probability of the event occurring, and even explains, albeit skeptically, that a financial incentive is a filter to separate out signal from noise.

But he immediately proceeds to undermine his recently established credibility by stating that “to get the most accurate predictions, they actually kind of need insider trading.”

In a strongly efficient market, it would theoretically be nearly impossible for a non-insider to make consistent profit. This is clearly not the case. If prediction markets thrived on insiders, there would be no opportunity for “non-informed” traders, who would be systematically losing and therefore exiting the markets, leaving behind degraded liquidity and eliminating the markets altogether. This creates adverse selection, and if this scenario was actually the case it would mean Kalshi wouldn’t be worth $22 billion right now.

Trevor and Dustin Gouker both state that the exchanges can’t possibly police all of the activity, but that implies that humans are examining every trade, which is impossible at this scale. It’s entirely automated, and with 10-15% of Kalshi’s team devoted to improving market surveillance, the algorithms that are being designed are getting more advanced over time.

They develop these algorithms by running market simulations and changing their models to account for behaviors heavily associated with insiders including:

• abnormal trade sizing

• abnormal timing

• large taker trades

• prior trader activity

While these algorithms can’t claim to be perfect, they are certainly better than nothing and they continue to improve over time. MPU (and, I’m sorry to say, Robin Hanson) overstate the necessity of insider trading.2

After pivoting from insider trading, Trevor interjects with “here’s the real kicker: prediction markets aren’t even as accurate as they advertise.” Their main citation for this is a paper written by Vanderbilt University students. The paper claims that prediction markets were hardly more accurate than a coinflip.

As the above comment notes, their methodology focuses on one macro event (the 2024 U.S. election cycle), while masking the n=1 nature behind nearly 2,500 derivative contracts.

Looking at more accurate data from brier.fyi,3 we see that real-money prediction markets have excellent calibration.

The latter half of the video primarily focuses on Reddit posts by disgruntled and possibly addicted Kalshi traders venting about their substantial losses.

I am not going to downplay this because PM addictions are causing harm to people, but many of these folks would turn to other gambling outposts such as sportsbooks (which are arguably more harmful) or iGaming to satisfy their urge. These people need to get help, but banning these markets all together is not the answer.4

Other quick claims he makes:

• Claim: Kalshi does have a house — Kalshi Trading, LLC.

  • Reality: Kalshi Trading and KalshiEx are entirely different entities that operate in different areas and are not allowed to communicate with each other. Kalshi Trading only exists to supply extra liquidity to the markets, not to become a middleman.

• Claim: Sportsbooks have to provide mental health support to addicted participants, but prediction markets don’t.

  • Reality: Kalshi offers multiple ways to protect the mental health of its market participants, including a partnership with Birches Health to provide a crisis hotline for prediction market traders. There are also ways to set unchangeable trading breaks, self-exclusion periods, and deposit limits.

While I believe MPU was well-intentioned, I wish they had put more thought into where their data was being sourced from and tried to create something that was a more accurate representation of reality.

Prediction markets exist to move us closer to reality. If narratives surrounding them ignore that, we end up moving farther away from the truth.

The standard must be higher. There is no More Perfect Union without a baseline understanding of reality.