Is the prediction market about "truth," or is it a "money laundering" venue for insider trading?

Author: Thejaswini M A

Translation: Baihua Blockchain

Whenever market predictions become controversial, we always circle around one question but never ask directly: Can prediction markets truly be about “truth”?

This is not about accuracy, usefulness, or whether they beat polls, journalists, or Twitter timelines. It’s about truth itself.

Prediction markets price events that have not yet occurred. They are not reporting facts but allocating probabilities to an open and sometimes unknowable future. Somewhere along the way, we began to treat these probabilities as a form of truth.

For most of last year, prediction markets enjoyed their “speed victory parade.” They outperformed polls, victory news, and experts with colds and PowerPoint decks. During the 2024 US election, platforms like Polymarket reflected reality more than almost all mainstream prediction tools. This success created a narrative: prediction markets are not only accurate but also rational—they gather signals of truth that are purer and more honest.

Then, one month happened.

A new account appeared on Polymarket, betting about $30,000 that Venezuelan President Nicolás Maduro would step down before the end of the month. At that time, the market priced in a very low probability, and adding to that, it looked like a bad trade.

But hours later, police arrested Maduro and included him in criminal charges in New York. The account closed with a profit of over $400,000. The market was right. And that’s the problem.

There’s a comforting story about prediction markets: they aggregate dispersed information, people support their beliefs with money, prices fluctuate as evidence accumulates, and crowds converge toward truth.

This story assumes a premise: the information entering the market is public, noisy, and probabilistic. For example, tightening polls, candidate mistakes, storms changing course. But “Maduro trade” doesn’t feel like inference; it looks like precise timing.

At this moment, prediction markets are no longer just smart forecasting tools—they become something else: a place where those with proximity to information can gain an advantage through analysis and reading.

If markets are accurate because someone has access to information others cannot obtain, then markets are not discovering truth—they are monetizing “expensive information.” This distinction is more important than the industry is willing to admit.

Accuracy can be a dangerous signal

Supporters of prediction markets often argue: if insider trading occurs, markets will move earlier, helping others. “Insider trading accelerates the truth.”

This theory sounds appealing but collapses in practice due to logical flaws. If a market becomes accurate because it contains leaked military operations, classified intelligence, or government schedules, then it’s no longer an information market but a shadow trading platform for secrets.

Rewarding better analysis and rewarding proximity to power are fundamentally different. Markets that blur this line will eventually attract regulatory attention—not because they are inaccurate, but because they are “too accurate” in the wrong way.

From fringe to mainstream

The Maduro incident is unsettling not just because of the payout but also because of the backdrop of prediction market explosion. Prediction markets have shifted from niche entertainment to an ecosystem taken seriously by Wall Street.

Trading volume surges: platforms like Kalshi and Polymarket have annual trading volumes reaching hundreds of millions of dollars. Kalshi alone processed nearly $24 billion in 2025.

Capital commitments: shareholders of New York-based exchanges have provided up to $2 billion in strategic investments in Polymarket, with a valuation around $9 billion. Wall Street is convinced these markets can compete with traditional trading venues.

Regulatory battles: Representatives like Congressman Richie Torres have proposed bills to ban trading by insiders, arguing that these are more about “front-running” opportunities and uninformed speculation.

“Zelensky Suit”: an overlooked warning

If the Maduro incident exposed internal issues, then the “Zelensky suit” market revealed a more core problem.

In 2025, there was a market on Polymarket asking whether Ukrainian President Zelensky would wear a suit before July. It attracted hundreds of millions of dollars in trading volume. It seemed like a joke but evolved into a governance crisis.

When Zelensky appeared publicly, he wore a black jacket and trousers designed by a famous designer. The media called it a suit; fashion experts called it a suit. But Manhattan’s oracle (oracle machine) voted “no.”

Because a few large token holders faced enormous risk exposure on the opposite outcome, they had enough voting power to enforce settlement results that favored their interests. Corrosion indicated that the oracle’s cost was lower than the payout.

This is not a failure of decentralization but a failure of incentives. The system operates exactly as designed: the profitability of the human-governed oracle depends on how high the cost of lying is. In this case, lying pays more.

Prediction markets did not discover truth—they reached settlement.

It’s wrong to see these events as “growing pains.” They are the inevitable result of the combination of three factors: financial incentives, ambiguous language, and unresolved governance.

Prediction markets do not discover truth; they reach “settlement.” What matters is not what most people believe but what the system decides counts as “the result.” This intersection of image, power, and money becomes very crowded when large sums are involved.

Removing the disguise

We have complicated this matter.

Prediction markets are places where people invest in outcomes that have not yet happened. If the event occurs as expected, they make money; otherwise, they lose. All other embellishments are secondary.

It won’t become more sophisticated just because the interface is cleaner, probabilities are clearer, it runs on blockchain, or economists are interested. Your reward isn’t because of insight but because you bet correctly on “what will happen next.”

I see no need to insist that this activity is noble. Calling it “foresight” or “information discovery” doesn’t change the reason you take risks or bear risks. To some extent, we are reluctant to admit that people just want to gamble on the future.

In fact, this “disguise” is the real source of difficulty. When platforms claim to be “truth machines,” every controversy becomes an existential crisis; but if we admit it’s a high-stakes betting product, then disputes over settlements are just disputes, not philosophical crises.

Conclusion

I do not oppose market prediction. It is one of the most honest ways to express beliefs under uncertainty. It reveals signals of unease faster than polls.

But we should not pretend they are something more convenient than reality. They are not “epistemological engines,” but financial instruments tied to future events.

Recognizing this actually makes them stronger. It helps create clearer regulation, more precise, and more rational ethical design. Once you admit you are operating a betting product, you won’t be surprised when betting behaviors occur.