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

[Alphakilo]

Even as bets can publicly be tracked on the blockchain, it’s still not enough for those insider traders who are using privileged information to make money off the market. Only a few of them are being caught, while the majority of them are still escaping; they are hiding their trace even more this period.
The more the exposure of some people being caught, the harder it will be for the next person to get exposed; it’s someone who made the mistake of leaving some trace back to his life through the wallet that they can trace back.

You are right Orpichukwu, now that the problem is already hot and some of them are being caught, what they will be doing now, which is what most of them have already been doing, is to start placing their bets on proxy using the proprietary information they have obtained and by betting on proxy, it will won't be very easy to catch most of them. Most of those inside traders that has not been caught have already been betting on proxy just to avoid being caught.

Besides the fact that this news ain't new and have read something similar here, I still have to comment on how insider betting and information can't be totally eradicated even with the use of proxy.

From my findings, some of these platforms are taking up the responsibility of updating their integrity rules which should help curb breach of confidential information. They are also doing so much to partner with Blockchain forensic firms to flag suspicious accounts while they are ensuring the urgent ban of contracts tied to national security, and other concerns with high risk.

[POPOLUV]

If truly an insider place a bet on the games he knows what the outcome will be, then it is a big problem to the prediction market because with such art, a gambler can not consider it to be a prediction, as when one wants predicting the games he doesn't knows on how the result will be like and it will be a totally lost for the companies find how to recover from, i do have such feelings some time that an insider can decide to be selling sure odds to outsider, since he knows that if they should catch him staking on those fix games, he might be arrested, so for that most of the insider don't involves themselves on illegal things that can land in jail.

[qwertyup23]

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.)

This is the sad reality that we have to face- we cannot completely and absolutely remove insider information from these platforms. However, if there is an opportunity to lessen and reduce their numbers, then I'll gladly exercise and exhaust that remedy instead of facing 100 of them.

At any time of the day, I would rather have at least 5-10 people who have insider information compared to like a 100 of them in which that would inure to our disadvantage.

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.”

I definitely agree with you. At the end of the day, we will learn how to embrace this reality given that there's really nothing we can do about it. I mean, we just have to be smart and choose which contracts to utilize instead of the obvious ones that can be the subject of inside-information, like the one you stated.

[blockman]

I am not active in prediction markets but I find it really interesting that there are those who takes opportunity of their position. First, I think that anyone who works for these institutions should sign an NDA that they're not going to be involved with any type of gambling because of their position. Secondly, if they are caught to be a part of it and uses their position for financial gain through betting either with bookies or prediction markets, they'll be punished with long jail time so that it will put a scare to their heads. But I think that even with that punishment, what's on their mind is to just take it with bigger amounts and take care of the punishment later. Lastly, if they have that thought, seizing, freezing of their assets is going to be part of the penalty.

[MRY]

If truly an insider place a bet on the games he knows what the outcome will be, then it is a big problem to the prediction market because with such art, a gambler can not consider it to be a prediction, as when one wants predicting the games he doesn't knows on how the result will be like and it will be a totally lost for the companies find how to recover from, i do have such feelings some time that an insider can decide to be selling sure odds to outsider, since he knows that if they should catch him staking on those fix games, he might be arrested, so for that most of the insider don't involves themselves on illegal things that can land in jail.

Indeed, such leaking of matches negatively affect the purity of prediction markets based on pure randomness. Insider participation in bet placing obliterates trust in the population and leads to huge losses to the open betting exchange providers.

When it comes to criminal prosecution, it is common to sell confidential data to third parties so as to hide direct involvement. Operators of betting exchange have strict digital surveillance which helps to detect unlawful conspiracies and charge offenders accordingly.

[HyperCodexV]

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.

This is scary as hell, imagine people running actual wars are going as far as using the information at their finger tips to place bets on them, making millions upon the pains and tears of others. The purpose of a prediction market is for smart analysis and smart guessing, but these whackos are just shamelessly cheating. The only good thng is the fact that blockchain tracks all activities openly, at least it leaves good trails that can be tracked. Those footprints that is left on the public system will be an easy tool for the government to use to track them and prosecute them accordingly.

[Jubilee58]

Insider betting can actually become a problem in the cryptocurrency prediction market, and many times the information is not usually made public, but the information will be revealed to one or few individual who has very close contact with an insider. This kind of gambling, and prediction that took place in the polymarket also happens in other fields of gambling, and when gamblers receives such information, they likely make huge stakes that ordinarily they would not be able to make such stake. I have read similar story like this before, but that was in football, where a goalkeeper gambled on himself to commit a particular offence, but unfortunately for him, he was discovered, and heavy penalty was placed on him. Insider gambling is really a big challenge in cryptocurrency gambling, and I don't think it can be totally avoided.

[Coyster]

First, I think that anyone who works for these institutions should sign an NDA that they're not going to be involved with any type of gambling because of their position.

There are already rules in certain jurisdictions prohibiting certain officials, particularly government officials from participating in prediction markets, or profiting off of undisclosed state information.

It is even possible that some of them use these information without knowing it is wrong.

No chance, they definitely know it is wrong, can it be more obvious. But as long as money is involved, many people would be able to take the risk, and TBH, if some of them who were caught did their homework well, then maybe they would have gotten away with it.

[kawetsriyanto]

Normally we bet because it is a prediction game, but what if someone already knows the outcome because of their job or position?

It is no longer a fair betting if someone place his bet after he knows the outcome. Of course he will win the bets, other will only lose their money. This can be called as cheating the betting system. Anyone who is trying to cheat the betting, they must be arrested. Well, this will depend on how serious the authority to handle this case.

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.

Of course, blockchain offers the transparency. So, anything can be tracked through the blockchain. Sure, blockchain technology is really helpful for many aspects, it is including the betting field. Logically, blockchain should decrease the cheating cases.

[blockman]

First, I think that anyone who works for these institutions should sign an NDA that they're not going to be involved with any type of gambling because of their position.

There are already rules in certain jurisdictions prohibiting certain officials, particularly government officials from participating in prediction markets, or profiting off of undisclosed state information.

Because in my country, it's a rule but still many of these government officials and staff have been violating it due to there's no strong conviction of that rule and the punishment isn't severe. And there's a need to take an oath for it so that they're going to follow it wholeheartedly that they're not going to violate against the rule and won't do something that has a conflict to their interest.

[Orpichukwu]

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.

Even as bets can publicly be tracked on the blockchain, it’s still not enough for those insider traders who are using privileged information to make money off the market. Only a few of them are being caught, while the majority of them are still escaping; they are hiding their trace even more this period.
The more the exposure of some people being caught, the harder it will be for the next person to get exposed; it’s someone who made the mistake of leaving some trace back to his life through the wallet that they can trace back.

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.

I’m also concerned about that, as many have pointed in that direction here in this thread, and the insider trader sees it being punished enough if we are to also look at it from what a common bettor faces with their own skill and time being spent only for some with information to take it all; they should also be compensated, but it’s not going to happen, as it’s a risk bettors take once they approve their staking.

[terrific]

Insider betting can actually become a problem in the cryptocurrency prediction market, and many times the information is not usually made public, but the information will be revealed to one or few individual who has very close contact with an insider.

No insider will make their information public.
That's the essence of it and only a few knows what's exactly going to happen they're there for that reason.
Only it will be known if someone exposes it or if the prediction market or some lurkers able to verify through evidence.

[STT]

I'm not sure its a problem exactly but it seems these platforms are relying on the wider governance and legal system to uphold the rules of the game.   If that is true then the government wants their tax is the most likely outcome, you are bound to the laws and taxes of that particular nation.   I can see why this might make the rise of prediction markets to be popular with government for tax revenue purposes.

[acroman08]

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?

They are already facing this issue, and I'm sure the people mentioned in the article you shared and the ones I've seen on the news are probably the ones that got caught. Anyway, this might be a little off-topic, but if you haven't read this thread(Prediction markets are incentivizing insider knowledge) yet, I suggest you check it out and the videos shared in it, I think you'll find it interesting.

[alani123]

Insider knowledge is incentivized by the very existence of a prediction market.

If you don't like insider knowledge being monetised against your lack of edge, you should simply not play there. This is how these markets function.

Don't try to play it otherwise. Polymarket and any prediction market will do jack shit against insiders unless the cases are very very blatant.

So I'll just say, if you're bothered by insiders earning at your expense, which is always a possibility there, just don't play.

[Chibit01]

If truly an insider place a bet on the games he knows what the outcome will be, then it is a big problem to the prediction market because with such art, a gambler can not consider it to be a prediction, as when one wants predicting the games he doesn't knows on how the result will be like and it will be a totally lost for the companies find how to recover from, i do have such feelings some time that an insider can decide to be selling sure odds to outsider, since he knows that if they should catch him staking on those fix games, he might be arrested, so for that most of the insider don't involves themselves on illegal things that can land in jail.

For the prediction market, I think the people who actually lose money there are those other bettors who did not win and not the company itself, since their major source is from percentage and fee from both sides, but the person with inside information makes more unfair money, which is totally different from match fixing which you are referring to also here, those with inside information for an event might actually sell it but in most cases they prefer to stake highly on it than to give it out make on the cases of people already being caught

[Hispo]

I'm not sure its a problem exactly but it seems these platforms are relying on the wider governance and legal system to uphold the rules of the game.   If that is true then the government wants their tax is the most likely outcome, you are bound to the laws and taxes of that particular nation.   I can see why this might make the rise of prediction markets to be popular with government for tax revenue purposes.

It is actually a problem, though.
It is similar to what happens with the stock market and people who have privileged information to profit consistently off of it.

It is basically a battle between well connected and resourcesul people who are part of an elite and the common joe who just wish to have some good luck in order to pocket some money.

The Government of the USA already take taxes from people based on the income, regardless where the money came from. It only varies on the percentage of the tax itself.

[Yablee0]

If truly an insider place a bet on the games he knows what the outcome will be, then it is a big problem to the prediction market because with such art, a gambler can not consider it to be a prediction, as when one wants predicting the games he doesn't knows on how the result will be like and it will be a totally lost for the companies find how to recover from, i do have such feelings some time that an insider can decide to be selling sure odds to outsider, since he knows that if they should catch him staking on those fix games, he might be arrested, so for that most of the insider don't involves themselves on illegal things that can land in jail.

Then what difference does that make. Isn't it the same thing with when he would have play the game himself? The fact still remains cheating and should be punishable by the law for cry out loud. Whichever way they try twisting the fact or try to make it look good, it's still very wrong. Perhaps, such individual isn't surposed to work in that kind of place because if he can sell off a very vital information of such magnitude just for his own personal gains then he's a threat and capable of unleasing greater damage in future.

That said. Any person or chain's of person's that is involved in such act shouldn't be spared, he should be subjected to face the full wrath of the law so that if by chance he's out, he wouldn't repeat such not in his next world

[Samlucky O]

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?

Insider information is a very deadly strategy to loot the polymarket, and this information has been used to win countless times. Sometimes I keep wondering how people where able to win that huge but the answer where never coming. I guess the polymarket should avoid including political or government cases in prediction. Adding real life event may be a risk to them because it's can easily be gotten from an insiders and used against the polymarket. Using Blockchain to track such thing maybe medicine after death, but rather avoiding event that can be used to hijack wining should be avoided.

[viljy]

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.)

This is the sad reality that we have to face- we cannot completely and absolutely remove insider information from these platforms. However, if there is an opportunity to lessen and reduce their numbers, then I'll gladly exercise and exhaust that remedy instead of facing 100 of them.

At any time of the day, I would rather have at least 5-10 people who have insider information compared to like a 100 of them in which that would inure to our disadvantage.

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.”

I definitely agree with you. At the end of the day, we will learn how to embrace this reality given that there's really nothing we can do about it. I mean, we just have to be smart and choose which contracts to utilize instead of the obvious ones that can be the subject of inside-information, like the one you stated.

Exactly as you rightly noted. We cannot influence the situation with insiders in prediction markets as a whole, but we can adapt to this circumstance at our small level as an ordinary bettor. After all, what does an insider make a profit from? From the careless, and to some extent even frivolous, people who are prone to taking unjustified risks.

By the way, even Kalshi notes the high risk associated with "insider" markets: "2. Outcome concentration risk: Risk lower for broad, decentralised processes or physical measurements, and higher where markets turn on a decision by a single individual or opaque group with broad discretion." (quote from: https://news.kalshi.com/p/kalshi-market-integrity-updates-risk-scoring-employment-verification-whistleblower)