How Prediction Markets Raise Insider Trading And Credit Risks
Prediction markets may be providing a way of turning opinions into financial products, but they may also pose financial risks and opportunities for insider trading.
Prediction markets like Kalshi and Polymarket are growing, generating billions of dollars in volume. But some observers are concerned about the ethical problems and potential credit risks posed by major prediction betting platforms.
Last week, Polymarket saw a notional volume of over $1.2 billion, according to Dune Analytics. Media giant CNBC has entered into a partnership with prediction market Kalshi to integrate prediction data in its TV, digital and subscription platforms.
On the back of this success, Kalshi co-founder Tarek Mansour has mentioned creating “a tradable asset out of any difference in opinion,” stating that prediction markets could soon surpass the stock market in size.
Regulators in some jurisdictions are taking efforts to curb their activities. Concerns over wash and insider trading have surfaced in recent weeks, and some analysts believe it’s making credit risks worse.
Prediction markets have opened up a range of possibilities for setting wagers on events. These can range from a specific element of a sports match to the outcome of a war. In some instances, this has led to insider manipulation to resolve a market in a certain way.
This is what may have happened in November, when the Institute for the Study of War (ISW) announced an unauthorized edit to its map of the Russo-Ukrainian War. The map is used by media organizations worldwide to track changes to frontline positions.
The edit concerned the ISW’s map of Myrnohrad, where Ukrainian troops have been defending the city against the Russian Pokrovsk offensive since July 2024. The unauthorized change to the map of the city coincided with the resolution of a bet on Polymarket, “Will Russia capture Myrnohrad by…” and then a series of dates.
The market resolution was triggered if Russia held an intersection between two streets, Vatutina Vulytsya and Puhachova Vulytsya. According to 404 Media, on Nov. 15, someone edited the map to show Russian troops had taken the intersection. Just minutes after the market resolved, the edit disappeared.
The ISW announced the unapproved edit on Nov. 17. It noted that, “The map does not represent battlefield changes in real-time, and all adjustments made during our workday are subject to review and change over the course of the day.”
Source: CoinTelegraph
