Prediction markets are a scourge on society, creating perverse incentives that could undermine everything from professional sports to elections, critics say.
Vitalik Buterin isn’t having it.
The Ethereum co-founder gave another impassioned defence of the booming industry over the weekend, arguing critics’ fears are overblown.
“The worst thing these markets could do in theory, is create incentives for people to cause harm by making it easy to profit,” he wrote on social media.
But that danger already exists in the stock market, he continued.
“If you are a political actor with a ‘CAUSE DISASTER’ button, then you could be motivated to press it simply by shorting all the stocks,” he wrote.
Buterin’s defence comes as prediction markets find themselves caught in a heated legal battle with several US states, which have sought to regulate them as gambling platforms.
Prediction markets, in turn, have argued their products aren’t gambling platforms that need to seek state licensure, but derivatives exchanges that fall under the purview of the Commodity Futures Trading Commission, a federal regulator.
The industry first caught fire in the lead up to US elections in 2024, as users bet millions on the outcome of the presidential race. Since then, they have become more popular with sports bettors — sports events now make up more than 90% of Kalshi’s volume, for example.
Earlier this month, National Football League executive Jeff Miller told lawmakers prediction markets pose “substantially greater risks to contest integrity” than do existing sportsbooks, ESPN reported.
He cited event contracts that allow users to bet on whether phrases such as “concussion protocol,” “late hit,” or “roughing the passer” would be mentioned during game broadcasts.
For critics, an even greater concern is the perverse incentive they supposedly create when they let people bet on geopolitical events. On Polymarket, users can bet on the ouster of Venezuelan strongman Nicolas Maduro or US monetary policy.
Critics fear that such bets could give government officials an incentive to invade Venezuela, for example.
Last year, the CFTC, motivated by these concerns, proposed amending regulations that govern prediction markets, also known as event contracts.
The agency argued that the creation of betting markets for events like terrorism, assassination, or war was morally “offensive” and could, however minutely, create financial incentives for people to, say, assassinate a president.
But supporters such as Buterin argue those fears are mostly overblown — especially in light of the benefit they provide. (Buterin has said he is staunchly opposed to assassination-based markets.)
Economists have long argued prediction markets provide a useful lens through which people can understand current events by crowdsourcing expert sentiment.
“The thing to compare them to is social media,” Buterin wrote.
On social media, prognosticators have an incentive to spread fear and misinformation. Even mainstream media have a tendency to sensationalise otherwise humdrum events, according to Buterin.
“I can personally report a few times reading a news headline, feeling scared, then checking Polymarket prices and feeling calmer,” he wrote.
“The people who have experience on that topic know what’s going on and the probability of anything unusual happening is only 4%.”
As an example, he pointed to Tesla CEO Elon Musk saying in a 2024 post that civil war in the UK was inevitable. Polymarket bettors that year placed the odds at just 3%.
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.
