Can insider betting become a big problem for crypto prediction markets?

[Oshosondy]

We have discussed about this before, and it was not the only insider betting that we have discussed about on this forum pertaining to prediction markets.

I think I have read two different news on the matter after the discussion, and the last was last week or so. They are still on the case in court if I am right.

The one that we discussed are the one that is known, there will be more which are not known.

[AHOYBRAUSE]

The question is not "can it become?", because it already is a huge problem and for that reason several countires are already banning prediction markets, rightfully so!

These kind of markets basically bring out the worst of some people. Sure, it doesn't feel wrong to use insider knowledge to gain an advantage, yet it's against the rules obviously and other players gain a disadvantage because of it and lose the assets. One guy winning like this means hundreds or thousands are losing to him, which is simply unfair. There is a solid reason why there are already criminal investigations are underway against some of these guys using their knowledge to gain a profit.

[asriloni]

Insiders have always been a big problems in the prediction market, but i feel this problem will never be solved. Prediction market doesn't sound care with it, and they still let insiders to rug pulling people money. This sounsd to me the prediction market is just a market dedicate for the rich to rob others money.

Imagine you bet on something, then you lose to the someone who has access to the insiders information. It's obviously unfair and you know how Coinbase was even supporting the insiders trading in the prediction market.

So it's obvious if the market manipulators are not even hiding themselves. These days they do it is on plain sight. So if we're still wanna be involved in the market that has bunches of insiders who try to rob our money, it's another level of stupidity.

[Antotena]

At least there is still a way to trace it because on the blockchain, transactions can be followed from the origin to the final destination. Once one of those wallets gets connected to an exchange account, it could become easier for authorities to identify the person behind it, and jail time could be waiting if they really committed a crime.

But the most important issue here is what Yahoo also raised, it is simply unfair. Honest bettors make predictions based on their own analysis, while someone with insider information does not have to do the same work because they may already know what is going to happen. At that point, it is no longer really a prediction for them.

If you Google search about Polymarket and many players that were sued and arrested between 2024-2026, you will be surprised by the numbers, that platform is full of insiders and think it's because of the manipulation of winnings, some casino have stop involvement with predictions, they are too unreal and some countries have blocked their website from access through normal internet service providers, they are killing the fun of gambling.

One thing about those predictions, they seems to have plenty of liquidity. Look very well to predictions that involves politics and war, there is always one particular user or account that put their life savings and you wonder how some people are so confident about their predictions but people with such amount do have plenty of money and information. There is no way anyone would predict with such a large amount of money without an insider information.

[Alpha Marine]

Have you been living under a rock? We've discussed these things multiple times on this board.
Prediction markets are a breeding ground for insider trading. I used to be concerned about the companies before because I always wondered how much they would lose with the insider information people have, but when I read an article and watched a video that was posted by a forum member about how predicticon market like insider trading and use it to their advantage, I couldn't care less anymore.

Basically, the insider trading helps bring people to their site. According to the article, when people see a bet that is unique, it will make them bet more on that option and also on other options.
So insider trading favours the platform, and that is why they don't make maximum effort to reduce it. I don't know if there is a regulatory body that tries to fight it, but the companies themselves don't mind that much.

[OsaiEmma]

I read this news about a U.S. servicemember who is being investigated after allegedly making more than $1 million on Polymarket. He was betting on military events where he may have information that was not public yet, so basically this looks like an insider job. There is also a KPMG employee being investigated for a similar case.

So I see this as one problem prediction markets could face because of insider information. Normally we bet because it is a prediction game, but what if someone already knows the outcome because of their job or position?

But the funny thing is, everything is on the blockchain. So if there are suspicious betting activities, they can still be traced more easily. In this case, blockchain transparency can actually be very helpful.

source : https://www.wsj.com/finance/regulation/u-s-servicemember-kpmg-employee-are-targets-of-prediction-markets-crackdown-ec7fdd04)

Federal authorities are preparing charges against a U.S. servicemember suspected of placing Polymarket bets on military operations that earned him more than $1 million, part of a coming batch of insider trading cases, according to people familiar with the matter.

The serviceman, who has been under scrutiny since the spring, made successful bets related to military strikes in Iran and Venezuela on the prediction market, the people said. It is one of several investigations that have looked at members of the armed forces who traded war contracts that referenced the timing and outcome of military operations.

I'm having a sort of deja vu here. This post and article looks like what I've come across in the forum before; if it is not, then this is not the first time something like this has happened.

Previously, I really didn't understand why the U.S Fed is getting involved, so I made some research on it. Polymarket is basically against insider trading; so, every suspicious wallets are reported to federal agencies like the DOJ and CFTC (commodity futures trading commission). These agencies treat the polymarket event contracts as financial derivatives.

CEA section 6(c)(1), entitled “Prohibition Against Manipulation,” is the statutory basis for final Rule 180.1, and provides that:

It shall be unlawful for any person, directly or indirectly, to  use or employ, or attempt to use or employ, in connection with any  swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered  entity, any manipulative or deceptive device or contrivance, in  contravention of such rules and regulations as the Commission shall  promulgate by not later than 1 year after the date of enactment of  the [Dodd-Frank Act], provided no rule or regulation promulgated by  the Commission shall require any person to disclose to another  person nonpublic information that may be material to the market  price, rate, or level of the commodity transaction, except as  necessary to make any statement made to the other person in or in  connection with the transaction not misleading in any material  respect.

source
And also the Eddie Morphy Rule says the same thing

In summary, it is unlawful to use insider information in trading financial derivatives/swap. So this is beyond just the violation of TOS of the polymarket platform, it is a federal crime and thus, very wrong.

When military personnel engage in such activities, they're indirectly revealing their hands to an enemy country. This is against the military code of conduct, so yeah, appropriate discipline and punishment should be issued.

[bitbollo]

This is just "hot water"... nothing new and are already a " well known problem" in the gambling industry.
Don't be fooled if they are just "washing" this concept here for prediction market.
Probably they are just trying to justify some regulation meanwhile some users can take advantage of it.
Or maybe they are just noticing that the scale of amount stolen in this way and people involved are not easy to hide.

[SatsPH]

We have discussed about this before, and it was not the only insider betting that we have discussed about on this forum pertaining to prediction markets.

I think I have read two different news on the matter after the discussion, and the last was last week or so. They are still on the case in court if I am right.

The one that we discussed are the one that is known, there will be more which are not known.

And most likely there were be more cases in the future. Although it looks like Kalshi or Poly is not yet affected for now.

But in the future if more countries are going to ban them, their market could really take a big hit and so it's already a problem for them as later another cases of inside trading will appear, but this time, they can't stop it.

Prediction markets are "threading the needle between innovation and risk".

[avp2306]

I read this news about a U.S. servicemember who is being investigated after allegedly making more than $1 million on Polymarket. He was betting on military events where he may have information that was not public yet, so basically this looks like an insider job. There is also a KPMG employee being investigated for a similar case.

So I see this as one problem prediction markets could face because of insider information. Normally we bet because it is a prediction game, but what if someone already knows the outcome because of their job or position?

But the funny thing is, everything is on the blockchain. So if there are suspicious betting activities, they can still be traced more easily. In this case, blockchain transparency can actually be very helpful.

source : https://www.wsj.com/finance/regulation/u-s-servicemember-kpmg-employee-are-targets-of-prediction-markets-crackdown-ec7fdd04)

Federal authorities are preparing charges against a U.S. servicemember suspected of placing Polymarket bets on military operations that earned him more than $1 million, part of a coming batch of insider trading cases, according to people familiar with the matter.

The serviceman, who has been under scrutiny since the spring, made successful bets related to military strikes in Iran and Venezuela on the prediction market, the people said. It is one of several investigations that have looked at members of the armed forces who traded war contracts that referenced the timing and outcome of military operations.

If that issue is been confirm then this is really a big problem, because those insiders can actually manipulate the result of those matters. This is why its good to see them doing an action and try to investigate to penalize those person involve on this controversy.

Aside from its bad from Polymarket, this one also posses security risk on US knowing that maybe they can share sensitive information's to random people.

Much better for people to pay attention with this cases, because this situation indicates if its still good to bet on this matters or not. Since betting field is not equal if there's some powerful entities manipulating the results.

[retreat]

It will be more difficult to eliminate insiders from the prediction market, because there will always be people who want to gain extra profit by using information that they obtain exclusively. Especially in fields like politics or other areas where someone can possess important information that gives them a significant advantage over everyone else, there is a big chance that a contract event is manipulated by insiders.

That's why it's better to avoid events that have a high chance of being manipulated and instead choose to participate in events like football betting or other sports where the outcome is more difficult to manipulate.

[Smartprofit]

Have you been living under a rock? We've discussed these things multiple times on this board.
Prediction markets are a breeding ground for insider trading. I used to be concerned about the companies before because I always wondered how much they would lose with the insider information people have, but when I read an article and watched a video that was posted by a forum member about how predicticon market like insider trading and use it to their advantage, I couldn't care less anymore.

Basically, the insider trading helps bring people to their site. According to the article, when people see a bet that is unique, it will make them bet more on that option and also on other options.
So insider trading favours the platform, and that is why they don't make maximum effort to reduce it. I don't know if there is a regulatory body that tries to fight it, but the companies themselves don't mind that much.

I'm sure most ordinary players aren't thrilled about the rampant insider trading on the Polymarket platform. As a result of insider trading, the probability of winning an ordinary player's bet is no longer 50 percent, but significantly lower (down to zero). In this situation, the insider acts as a wolf, and the ordinary player as its prey... Not exactly a happy place! 🙋

However, I'd like to point out that we may be missing the true purpose of online prediction platforms. They are essentially free markets. It's just that these markets don't set prices for individual assets, but rather the truth or falsity of various propositions. The insider knows exactly whether a given proposition is true. Consequently, the presence of insiders on prediction markets makes these platforms efficient.

Yes, we (ordinary players) typically view prediction platforms as gambling platforms. However, other stakeholders see things quite differently.  Intelligence agencies, generals, politicians, and heads of investment research firms (like BlackRock) actively monitor the work of prediction platforms. In my opinion, prediction platforms play a very important role in our world. They allow us to separate truth from falsehood, and that's huge business. 🧑‍💻

[AVE5]

I read this news about a U.S. servicemember who is being investigated after allegedly making more than $1 million on Polymarket. He was betting on military events where he may have information that was not public yet, so basically this looks like an insider job. There is also a KPMG employee being investigated for a similar case.

Enough of all these nonsenses that can't be proven to be true about officials and insider's always being cheating whenever they places bets and wins huge sums.
Why don't the jurisdictions that carries out these investigations also drag these so insider's even when they loses? Of course they won't because they're not going to get any share as the bettor also looses the bet. That's extortion at its peak because all the agencies are after of are those who wins and after sanctions should pay them fine.
Well they've this power because it has earlier bee warned of government officials not to place bets in the poly market because they believe they can use the medium as insider's to cheat.

[Tetu100]

Better to stick on sports and don’t feed those inside traders with money.

I swear bro. That is just the Best and peaceful thing to do as a gambler.  Else, you will be bend on losing money every now and then since the insider are more steps ahead of you in all you does.  However, what they're freaky doing is stepping on people's toe and and i pretty hope the law caught up on them some day.

I find this really challenging and I'm sure this will discourage many people that has plan for it. Probably this is one major reason people mostly patronize sports betting I can see.

[Ashawowo(OS)]

We would still see more of these, people would still exploit inside knowledge for financial advantage because a lot of them are corrupt. The more people are caught, others would take more precaution to avoid being caught, maybe to the extent of making the bets through close friends, and other  proxies.

What if this is more than just betting on insider information, I mean what if this service man is secretly linked to Iran military and uses his bets to send a signal to them before US hits? I'm just thinking aloud.

[qurbanshah02]

We have discussed about this before, and it was not the only insider betting that we have discussed about on this forum pertaining to prediction markets.

I think I have read two different news on the matter after the discussion, and the last was last week or so. They are still on the case in court if I am right.

The one that we discussed are the one that is known, there will be more which are not known.

This form is quite big so there is a lot of confusion on one issue so you have discussed it before but now you have started it again so we can have a new discussion with a new issue. I think it depends on the services under which we are making predictions we have seen many prediction apps for crypto market before and here many casinos also work every week for bitcoin prediction. There will be no problem in crypto prediction market because before that people used to play physical gambling but now digital casinos have come so it will be the same way slowly everything will become digital and if there is a problem then it will be a trend for it slowly. Till now we have seen many things working in this way so it should not be much of a problem for crypto prediction

[TedMosby]

Insider trading is inevitable in prediction markets. If I am not mistaken, the Polymarket CEO also admitted it. He said insider trading is a positive thing for prediction markets. Insider trading helps the platform better align with reality.

Anderson Cooper: But predictive markets do rely on someone having some inside information.

Shayne Coplan: Uh-huh. Yeah. I think that people going and having an edge to the market is a good thing. Obviously, you need to curate them and you need to be really clear and stringent on where the line is drawn and, like, sort of ethics and we spend a lot of time on that. But it's sort of an inevitability that this will happen, and there's a lot of benefits from it. And, you know, people will adapt.

The site still has critics. Some worry certain questions could lead people to commit crimes to win a big enough bet. Polymarket was criticized for some of their markets about the L.A. wildfires earlier this year.

I don't know, but the more I think about insider trading on Polymarket, the more I feel like it's okay because, in the end, bettors are also the ones who take control of whether to bet or not, follow the majority or not, follow the insider or not.

I am a bit okay with insider trading only if they are not directly involved in the event and can't manipulate it. But if they can manipulate the market, like changing the outcome just because they think more money can be won if they bet against the majority, then it's a big problem. CMIIW.

[$crypto$]

People who will use insider information in prediction markets will always exist. Even if such people are exposed and face criminal penalties, this will not stop others from like them in the future. (In China, corrupt officials are executed, yet corruption persists. And in prediction markets, insiders will be endless.)

But this is not a reason for ordinary people to avoid prediction markets. We just need to be more careful when choosing event contracts. Avoid those where the outcome is highly likely to depend on a very narrow number of factors (or decision‑makers). In other words, don’t place bets like “the color of Trump’s tie tomorrow.”

A few months ago we already saw some news about the alleged insider and in the fair as a result of information leaked to the betting market, now this new news is certainly not old events, as we know most of this confidential information in the US government.

Ordinary people, the same as other people who already have information will be difficult to avoid contact betting events, precisely there are those who use this to get more profit, whatever their way I myself do not like betting on such events.

[cryptoaddictchie]

I read this news about a U.S. servicemember who is being investigated after allegedly making more than $1 million on Polymarket. He was betting on military events where he may have information that was not public yet, so basically this looks like an insider job. There is also a KPMG employee being investigated for a similar case.

So I see this as one problem prediction markets could face because of insider information. Normally we bet because it is a prediction game, but what if someone already knows the outcome because of their job or position?

Its literally a problem since most bettors or those who have inside info are taking advantage of the platform. Ofcourse thats likely not to be disclose but everything is onchain like a random new wallet betting big on an unusual event then suddenly he will be up fue to a new coming news.

This kind of movement is obviously an insider which the platform should make a clear and very conservative approach cause many other users might lose money on this.

[YellowSwap]

Blockchain contains the transaction details but it can be tied to nobody if the one placed the bet under someone else so these are hard to investigate and to be honest they will always exists but it will not affect the entire prediction market because the market is so big and the platform also keep increasing their strength to protect themselves from the insider jobs all the time.

Someone will talk, that's the case with prediction market, many people who are expected to be making money from it are seeing their challengers making the same move and they aren't happy about it.

Why are the complains all coming from popular figures? Politicians? And so? I expected politicians and powerful people to be the most secretive, but once that isn't happening it's because they don't want someone as big as they are to make money the same way.

[Nrcewker]

Earlier some Big 4 employees were known for insider trading. They acquired information about their clients and based on that information they traded in the stock market and made profits.

Now something similar seems to be happening in prediction markets as well. Yes I agree with OP that blockchain makes everything transparent and that betting activity can be traced. But what if someone engaging in insider betting in a prediction market doesnt follow a regular pattern? For example they could knowingly lose some small bets or even tip their friends or family so that they can place the bets on their behalf. I think the transparency aspect still needs to be evaluated carefully. And yes this could become a major problem in the near future. It would be really unfair to other gamblers if this continues.