Will the Ethereum ETF be approved? This is about a $13 million bet

Original title: "A $13 million ETF "squabbling" incident"

Original author: Azuma, Odaily Planet Daily

In the early morning of May 24th, Beijing time, the U.S. Securities and Exchange Commission (SEC) officially approved the 19 b-4 forms of all 8 spot Ethereum ETFs applied by BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark Invest, Invesco Galaxy and Franklin Templeton, opening the door for ETH to enter the traditional financial market.

It should be noted that although the 19 b-4 forms of the above-mentioned spot Ethereum ETFs have been approved, the ETFs still need their S-1 registration statements to take effect before they can officially start trading. Given that the SEC has just begun discussions with issuers on S-1 and needs time for consultation and revision, it is unclear how long this process will take - Bloomberg ETF analysts speculate that it may still take several weeks.

With the release of the SEC's announcement, the well-known prediction market Polymarket's bet on "whether the spot Ethereum ETF will be approved before May 31" also closed, and it was determined that it would be executed with a result of YES ("will be approved"), which means that users who choose YES will take away all the $13.22 million rewards in the bet, and those who choose NO ("will not be approved") will lose all the funds invested.

In the supplementary explanation on the execution result, Polymarket stated: “According to the documents released today, the SEC has approved eight proposals to allow the listing and trading of Ethereum ETFs. The documents also mentioned that “this is hereby approved in an accelerated manner”, so the final result of this bet will be YES.

However, this execution result has caused great controversy in the Polymarket community.

The party raising questions mainly came from users who chose NO. Below the bet, a large number of users are expressing their dissatisfaction with Polymarket’s execution result, and even bluntly stated that Polymarket was “manipulating the market” and they were “robbed”.

Based on the questions raised by these users, users who chose NO generally believed that Polymarket’s execution result was not rigorous, because the approval of ETFs requires the approval of both 19 b-4 and S-1. The result of S-1 is currently undecided, and the approval of 19 b-4 alone does not mean that the ETF has been fully approved, so it should not be closed directly with YES.

In response, some users called for the market to be restarted and a decision would be made when the bet deadline of May 31st arrived; some users believed that the Polymarket rules were not rigorous, so a 50/50 refund should be made directly.

Objectively speaking, in this case, Polymarket clearly had loopholes in its rule design. It failed to provide sufficiently clear criteria for judging the results before the bet was initiated (or during the effective period), and failed to fully explain the specific conditions for "approval" - that is, whether 19 b-4 and S-1 needed to be approved at the same time.

As for the potential reasons for Polymarket's mistake: first, the turnaround in this ETF approval was too sudden. Just a week ago, the market generally believed that it would be difficult for the spot Ethereum ETF to be approved at this juncture. Therefore, the SEC had not previously conducted sufficient communication with major applicants and exchanges. However, as the Biden administration suddenly changed its regulatory attitude towards cryptocurrencies due to vote pressure, the SEC had to work "overtime" urgently. However, the time window was too short, so the SEC could only finalize 19 b-4 first, and the approval of S-1 still needed to wait for more time; second, because a similar approval process has no precedent in the history of cryptocurrency ETFs, the spot Bitcoin ETF at the beginning of the year approved both the 19 b-4 and S-1 documents, so Polymarket may not have expected that there would be a time difference between the two.

As a result, Polymarket can only choose a result that is relatively more acceptable to the market under the imperfect rules. Combined with the supplementary explanation, Polymarket may have considered that the industry generally believes that the approval of 19 b-4 means that S-1 will only be a matter of time, so it chose YES as the final result.

But on the other hand, users who chose NO will find it difficult to agree with this more vague answer, especially when they have lost real money.

As of this writing, Polymarket’s official channels have not yet responded to this matter. Odaily Planet Daily will continue to keep an eye on it for you and keep up with the latest developments.

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