The Breakdown - A Google Engineer Made $1.2M Insider Trading on Polymarket

Episode Date: May 28, 2026

A Google engineer allegedly profited $1.2 million on Polymarket betting that d4vd would be Google's most-searched person of 2025 — using Google's own internal data. Plus: Blockworks' new Token Transparency Alliance, and an OpenZeppelin co-founder telling friends and family to exit DeFi. TIMESTAMPS: (00:00) Intro (01:03) Polymarket Insider Trading (10:39) Transparency Alliance (21:56) DeFi Unsafe? FOLLOW THE SHOW › David — https://x.com/dcanellis › The Breakdown — https://x.com/TheBreakdownBW › The Breakdown Newsletter - https://blockworks.com/newsletter/the-breakdown Get top market insights and the latest in crypto news. Subscribe to the Blockworks Daily Newsletter: https://blockworks.co/newsletter/ DISCLAIMER As always, remember this podcast is for informational purposes only, and any views expressed by anyone on the show are solely their opinions, not financial advice.

It is Thursday, May the 28th. This is The Breakdown. I'm your host, David Canales. We've got stories for you this morning to get you ready for the pre-Friday ahead. We're looking at insider trading at Google on Polly Market. How did a Google engineer make $1.2 million by insider trading on Polly Market? We're going to find out. We'll also be looking at the Token Transparency Alliance.

Blockworks has formed together the largest crypto exchanges and market makers in the biz to try and bring more transparency to the token market. We're going to be taking a look at that. We're also going to be looking at this tweet from Open Zeppelin co-founder and former CTO Manuel, basically saying that he's advising people to get out of defy is too risky in the age of AI. So without further ado, this is the breakdown.

Let's get to it. Nothing said on the breakdown is a recommendation to buy or securities or tokens. This podcast is for informational purposes only and interviews expressed by anyone on the show are opinions, not financial advice. Host and guests may hold positions in the company's funds or projects discussed.

Yeah, so let's tick off with this story about a Google engineer making a million bucks by placing bets on polymarket using confidential info. A Michelle Spagnullo, a 36-year-old Italian citizen living in Switzerland, use insider information to bet senior David would be Google's most search person of the year in 2025, according to prosecutors. The NBC notes that this is the second significant criminal case tied to trades on polymarket. An Italian citizen living in Switzerland is charged with one count each of commodities fraud, wire fraud and money laundering, according to a federal complaint unsealed in New York City.

The bets were from October to December last year. Unlike the counterparties to his trade, Spargnuolo knew the outcome of these wages before the trading public did because he had access Google's confidential, commercially valuable internal data. Spagnu'll her under the username Alpha Raccoon. It's fantastic. Earned over $1.2 million after he correctly wagers. that David, the senior accused of killing a teenage girl,

would be Google's most searched person of the year in 2025. When Spagnullo bet on David, the prediction market assigned a near zero probability to the seniors being the top search person on Google. Once he won, Spagnullo then took deliberate steps to conceal his unlawful use of non-public information by attempting to obscure the source and ownership of his unlawful proceeds. A Google spokesperson did not reply to a request for comment.

And here we have Jay Clayton, the US Attorney for the Southern District of New York. That's, of course, former SEC Chair Jay Clayton. He derided greed-driven insider trading saying it compromises the integrity of our markets. Today's charges reinforce a decades-old message. Corporate insiders cannot use confidential business information to turn a profit in our markets, he said. Okay, interesting. So I've actually got the polymarket up here, so you can see exactly how this played out.

let's just see here so yeah as you can see that the market was mostly blindsided by this move for the longest in Pope Leo the 14th had a more than half

probability that he was going to be the most search person on Google last year followed by Donald Trump and Elon Musk and then let's see around December and just before Yeah, so 0.1% chance David would be crowned the number one search person in November 28. And then he immediately shot up to 4%, 6%, 8%, and then, of course, the market resolved.

Just before the market resolved, though, David had a chance of about a 10% chance of winning before it was done. So 90% of the betters were essentially wrong, if my... if my read on that is correct. What's also curious is that I found this to Crypt article from December when the market did actually resolve. And it speaks about one polymarket user turning $3,000 into $125,000 with a single prediction. And it was a different person. So this username, the user, the user Betwick had predicted yes for David with approximately three grand when David was at a 2% likelihood.

And then that turned into 125,000 when it resolved. So it wasn't just the Google Insider that was able to make a bunch of money with this call. There was also others who had taken the odds as well, which I found super curious. But of course, the article said that this is the second instance of a serious criminal complaint occurring because of insider trading on Polymarket. But it's not the only time that we've seen some weird behavior on Polymarket. I mean, I have a list here of different instances. There was, I mean, the other indictment, of course, they're referring to is when a U.S. soldier had bet that the U.S. forces would be able to capture Nicholas Maduro.

And based on information that they knew that the operation was going to happen to remove Maduro, and he made more than $400,000 in profit. that case is still ongoing as far as as far as I'm as far as I'm aware he was charged in April but I mean there's a bunch of others I mean the Israeli authorities charged a reservist and civilian with allegedly using classified military information to profit from polymarket bets tied to Israeli military operations it involved the timing of Israel's opening strikes in June 2025 against Iran apparently they made $150,000 in profit Yeah, I mean, there's also, I mean, Mr. Beasts editor was caught trading on Kaushi for something related to what would happen in a, in a Mr. Beast video that he already knew the outcome of.

He apparently made $5,000 profit there. There's also Kalshi penalized former California gubernatorial candidate Carl Langford after he bet on his own race and promoted it. Apparently, he's been banned for five years and faced a $2,000 fine. I mean, there was also this story from, from, from, CBS in 60 Minutes that worked with someone at bubble maps who had kind of pieced together at 98% win rate for certain accounts on US related military actions on on markets for Polymarket as well. So I mean, Polymarket seems to be very, very tempting for anyone who is

connected to any information that it seems to be valuable enough and because we have this proliferation of various types of markets and that it's only, it's only common sense. that we would have an increase in insider trading as well. I mean, I just wanted to highlight as well that, you know, insider trading, I mean, Jay Clayton had very strong language when it comes to when it comes to that technically, I suppose you can say that the markets were, that something unfair did happen.

Even if we just focus on this case at Google, that, okay, because if the insider, had information that they were trading on that they knew would make them a bunch of money. And it is a market. So they are essentially buying cheap tokens from somebody else. So I mean, of course, like as prediction markets get bigger and as the net widens with what you can essentially bet on, then of course we're going to have a wide range of obscure and absurd stories about insider trading on polymarket.

And I mean, you know, I'll leave it. it to you to decide how right or wrong insider training is and how and how steep some of these punishments should be. I have up on my screen is great newsletter from Byron Gilliam of Blockworks published in September last year. It's the breakdown newsletter. If you're not subscribed to the breakdown newsletter, please go and do that. This one in particular is worth reading it. The title is Let Insiders Trade. And Byron makes the case. I mean, he says, I'm going to read this verbatim. Proponents say prediction markets can provide a real service to the world by providing it with better information about nearly everything.

I think they might too, but only if insiders are free to participate. Yesterday, for example, Polymark announced new betting markets on company earnings reports with a promise that it would improve the information that investors have to work with. Instead of waiting three months to find out how a company is fairing, investors could simply watch the odds on Polymarket. If the probability of an earnings beat is rising, for example, investors would know at a glance that things are going well. But that won't only happen if enough of the people betting actually know how things are going. If company insiders were allowed to bet, however, prediction market odds

would offer a real-time barometer of a company's fortune. That would be an excellent replacement for quarterly earnings reports if President Trump decides to ban them. So, I mean, he starts insider trading is something of a victimless crime and the anarcho-capist in me is inclined to agree with that. but I can't help but think to someone who, I mean, you don't necessarily have to be on the other side of the trade, but hypothetically if someone on the other side of the David trade that had sold their tokens to our insider trader at Google for very cheap, because they figured that their bet was bunk and then finds out that, hey, I sold my position to this guy that knew exactly how it would turn out. That does feel a little bit unfair, but considering the long list of incidents, I mean, not just on Polymark, but it on Kaushi as well, of insider trading.

I think that you should almost know what you're getting into when some of these markets are, it's very easy to draw the line between, hey, this would be very easy to know if only I was an insider at this company or at this protocol or what have you. But I suppose at this point it is a little bit part of the fun and a part of the chaos of prediction markets that, hey, maybe you will be betting it at someone who knows a lot more than me, but at least you can get exposure to to silly stuff like who's the most who's the most searched person in the world right now. But anyway, okay, something to watch. I think this is not the last we'll see of insider traders on polymarket. But in any case, on to the next one.

Okay, so yesterday was a big day for tokens for Blockworks and for the industry in general. Because the Blockworks has introduced the Transparency Alliance and it's an evolution. of the token transparency framework that we'll talk about in a little bit. And it is a real push to create a standard for token market disclosures, similar to what you would see in the stock market. When you buy a stock, you own the business. When you buy a token, ownership can sometimes be difficult to identify. The token transparency framework fixes that.

The transparency alliance drives TTF adoption across every major layer of token capital markets. We see the founding, the founding collective includes exchanges, custodians, market makers, stablecoin issuers, funds, protocols and launch platforms. It includes Coinbase, Cracken, Binance US, Falcon X, Grayscale, GSR, Securitize, BitGo, Franklin Templeton, MoonPay. And the list goes on Bitwise, Van Eck. And not only that, there's also Ripple, Arve. I mean, you can see it on screen here. There's framework, V, V, are into it. The idea is to have disclosures, all key information about how your token was sold, the market maker agreements and so on. This be reinforced at the app layer, at the exchange

layer, at the investment layer, so that funds might underwrite tokens and projects that have token transparency, value those higher than what you would tokens without, because the transparency really does mean something material when it comes to eliminating the information asymmetry that we all know exists within the token space. I have the token transparency framework website up here, just to give you an idea. So at the moment, there have been 42 tokens that have completed the token transparency framework. 29 of them still have some gaps in their transparency filing. So we're going to see more information come out from some of them. In terms of which tokens are actually complete, there's been 13 of them and that

includes stuff like Umbra and Turtle and Superform. Meteora is another one. And to give you an idea of what is involved in the token transparency framework, projects can self-disclosed but also blockwrest has been very proactive and going out and collecting information from what's publicly available and then and then grading that for how complete it is and then requesting that the teams give more information as well so you know you need to provide the known project team any Dow structure any foundation structure who is the primary developer company in terms of token supply when the framework would like to see the initial allocation of those tokens and then whatever air drop process and how that works.

But also critically, like stuff like market maker agreements and deals, like who is market making for you? What is the deal there? Do they receive? What is the percentage of allocation that they receive personally that they can hold on to? How does that work? Also, any information about paying for token listings.

All that kind of stuff is rolled into the token transparency framework. And then there's also like financial disclosures and risks. So who did you sell the token to before it was listed? What is the vesting schedule and all that kind of stuff? And in each case, you can view the filing. It's all public. So here I have the meteor transparency filing. And you can see how exhaustive it is.

They received a 40 out of 40 score for token transparency, being forthcoming with information and quite detailed. So here in the market maker agreement, you can see who the market maker was, the token allocation committed, how long the market maker agreement was, and what is the classification of that deal. Same thing with listings on centralized exchanges and decentralized exchanges. So this is really the first big push the industry has ever seen at a uniform blanket framework for what makes efficient and clear disclosure from team insiders to retail. And it is not being date kept.

It is all made public. And there's two different times of filings. There's a B1 which can be made, which is designed to be filed around a token generation event. So when a token is first made, you would file a B1 that explains the structure of the token and the plans for it and who and who and who's behind the token and what it's for. The second one is a B2 that would be for mature protocols that might have had a token generation event maybe years ago, but can still provide updated information about the status of the

token supply and who has received what and what it's for. So this is the very start of this. It is enormous that we have so many crypto exchanges and really key figures. in the token market on board with making this the standard for the projects that they work with. And it will be especially important moving into when we have regulations from the US government and that will dictate what are the demands of token issuers in order to keep markets fair and rational. And I know it's quite ironic to have this back to back with the discussion that we just had about polymarket inside of trading.

But there's a clear difference between polymarket markets or prediction markets. and, you know, structuring tokens in such a way that relies on, that relies on a lack of transparency standards across the industry and that, well, why should we be transparent if this token and that token aren't transparent either? We don't really need to do anything like that. This is about having a collective understanding that tokens are effectively broken. We have known this for a long time,

I think even the Bitcoin Maxis in the audience were probably rolling their eyes that we knew this 10 years ago. But we, the crypto market has learned through tokens going down, losing a bunch of money, investing in projects that on paper seem to be doing quite well. But for whatever reason, it might be two quick vesting cliffs or it might be too many tokens allocated to the wrong type of insiders. or it might be really predatory deals with market makers that just make no sense in terms of allowing for retail participation and retail upside after a token generation event. All that, this is a step in a direction that will see, you know, sunlight be the best disinfectant when it comes to,

I'm saying a lot, but predatory tokenomics. So obviously we, what the token market, is going to look like in five, 10 years, we don't know. But at least this is a way to start cleaning it up right now. And I mean, to me, the best case scenario, in five or 10 years, if internet capital markets really do take off and tokens become the best and primary way for startups and companies and other ventures to raise capital and manage capital, at that point, the level of transparency that will be available to the wider market compared

even to the stock market will be, it's almost uncomparable. Because we, I mean, like Byron said in the newsletter, that investors wait for quarterly earnings reports and all that kind of stuff. And we do get steady streams of filings from insiders at companies who are selling stocks. We don't have anything like that related to tokens. You might be able to label certain tokens on Arkham or something like that and piece together which insider owns which blockchain address. But it's not an industry standard that you would be able to see

when the CEO or the founding teams of this token protocol, of this protocol are offloading their tokens for some reason. We don't have any infrastructure that supports that. And that stuff, while it isn't in the token transparency framework right now, I can see that over the next few years, once there is an understanding that token transparency is important and it leads to a healthier market overall, why would we stop at simply, why would we stop at disclosing market maker relationships or paying for exchange listings? Why would we stop there? why can't we have real-time monitoring of insiders at companies who might be offloading their tokens?

You know, more information is better. And it is, again, tied to the prediction market stuff. If you have really good information or if the existence of a prediction market incentivizes you to go out and find better information to give you an edge, there is no reason why anyone would want otherwise unless you. are that insider that is trying to profit on the information asymmetry that exists within the crypto space. So for one, beat up to Blockworks, but even bigger big ups to the exchanges, market makers, venture capital funds, everyone else that joined the token transparency alliance to kick this off. It's a big deal for the crypto space. And again, if you're a Bitcoin maxi in the audience

or if you are still holding the token market at arm's length, okay, totally fine. But please go and check out the token transparency framework and understand what these initiatives are trying to shoot for and just have a little bit of optimism that there is a better way to convey the investability of different tokens. And hey, perhaps that's why the token market is down, because nobody trusts. that they can, one, have access to complete information, but also that projects and teams are forthcoming about providing that information at all.

So what we're saying is that projects and teams are quite forthcoming, not all of them, but many of them are, and it's starting to feel like those teams and protocols, what have you, will have an edge over their competition because of the transparency that they're showing. So that's enough for this particular one, but just go and check it out on blockworks and see what you think. All righty, what have we got next?

So you have this tweet from Manuel Arios, who is co-founder of Open Zeppelin, a smart contract platform for Defi. He says that PSA, I now consider all of Defy unsafe. Cody agents are superhuman at finding vulnerabilities and smart contract security is too asymmetric. Defenders need to fix every bug while attackers just need one exploit to steal funds.

I've been privately advising friends and family to exit all defy positions, including low-risk blue chips like Ave, Mata Dow and compound. I mean, brutal. And this has really been making the rounds. And I mean, if you stroll through the threat, I mean, some people are agreeing with him and some people are not. We have, I mean, Mark Zeller, who has super outspoken crypto developer. He says, what a moronic thing to say. Less than 10% of past year defy issues are due to code base.

It's mostly bad parameter configuration. collateral blowup and poor OPSEC. He says, calm down. Second, I never said the problem with smart contract code, but security, which includes parameter configuration mechanism, design, and OPSEC. Coding agents are superhuman at finding those vulnerabilities too, and my point holds.

I mean, okay. For more context on this, it's worth going back and looking at a former breakdown episode with Nick Bax, who is Seal 911 first responder. for the defy space and crypto in general. That will give you a lot of context about the state of of crypto security and DeFi in terms of like the North Korean hacks

and stuff like that. It does seem to be a little bit of domerism coming out from Manuel. What I found interesting is that Open Zeppelin found it appropriate to comment because Open Zeppelin says, recent post by Manuel on AI and defy security have been widely circulated and customers have asked whether they reflect Open Zeppelin's position. They do not. Manuel co-founded Open Zeppelin and served as the company's CTO until 2019 when he left the company.

So it's been six, seven years since, since Manuel was at Open Zeppelin. I mean, they go on to say that Open Zeppelin is secure. AI is a real threat, AI is a real threat vector, but it is also one of the most powerful defensive tools we have if used with rigor and expert human judgment. Our researchers use AI daily to catch more issues in edge cases. The answer to AI risk is not to retreat from DFI. It is better security. The last month has been a hard one for the industry.

Yeah, I mean, we have secured Defi for a decade, blah, blah, blah, blah, blah. So, yeah, I mean, the Open Zeppelin makes a good point that if you are essentially worried that AI is going to hack all of DeFi and all the kinds of stuff, why can't you just use AI to protect defy and it was something that nicknick said on on the show that right now attackers do seem to have the advantage when it comes to when it comes to crypto and hacking defy and all that kind of stuff but the pendulum should should swing especially once once everyone kind of understands how to use AI super effectively to defend against these kinds of attacks you know so I mean if we don't have smart contract bugs as as a real attack vector and the main thing

is obsequent and so on then, I think that the biggest thing is how wide is your definition of defy, how wide is your definition of decentralized? And if you really restrict yourself to only using the most decentralized protocols that aren't just relying on a two or five multi-segal or what have you, then perhaps you might have less to worry about than what Manuel is projecting. But that said, I mean, it is quite difficult to justify using, you know, for instance, getting defy yields of one or two percentage points more than even what your Fiat bank account would, even though you're taking on all the risk of self-castity and so on. And I do worry that, that, I mean, Manuel's tweet is just a symptom of anxiety that everybody

has about using crypto in the age of AI. I do worry, however, that this sentiment really just pushes people to use centralised exchanges and the yield that they offer. And then you're essentially reducing your attack vector down to your own Opsic for your passwords and your keys to those crypto exchange accounts rather than relying on, I guess you're damned if you do or you're damned if you don't, rather than relying on the obsec of the multi-seat holders in whatever setup related to the protocol that they were thinking of using. But still, that said, I mean, Manuel knows what he is talking about.

And Open Zeppelin is really huge in terms of smart contract security and the protocols that they work with. It's a huge percentage of DeFi space works through Open Zeppelin or at least touch Open Zeppelin. But, I mean, really the biggest moral of the story here to me, is that, you know, there was a lot of talk over the past month that, that, that again, like the yields in defy are just not worth the risk. And when you think about the greatest applications of, of, of, of, of, of blockchain and crypto right now in 2026, DeFi is really right up there. And if we lose defy to the AI, the superhuman AI hackers or whatever, if we, if we give up

defy, then I'm not too sure whether crypto space is meant to go from here. I mean, it's a rather somber note, I suppose, but defy is worth defending. If I had $100 million in defy, would I be sitting happy and feeling secure today right now, knowing that mythos is around the corner and so on? I mean, I'm not too sure. But this is obviously something that the whole space needs to, needs to needs to come to terms with. And if the quantum threat or whatever is so real that that Bitcoin has to prepare or Salana has to prepare or what have you, then it feels like this matter is particularly more pressing. But that said, if everyone did pull out of defy because they weren't feeling so secure, then that might actually be the kick in the pants that the crypto space needs

to finally take OPSEC in particular super seriously. if they're not already. But in any case, this is about it for today. I hope you enjoyed. But as always, take care of yourselves and we'll see you next time. Goodbye.