The surest bet on prediction markets: insider trading

Jesus returning this year is possibly the only prediction market wager that no one can exploit with insider information. That’s why platforms that aspire to harness the wisdom of the crowds to predict whether Little Joe the gorilla will escape the zoo again can’t catch a break from insider trading scandals.

In some cases, there have been consequences for the alleged perpetrators:

• A US Army Special Forces soldier will stand trial for allegedly making $400k on Polymarket trades using his classified knowledge about plans to capture Venezuelan President Nicolás Maduro.
• A Google employee was recently charged with fraud for allegedly placing bets on Google’s most-searched terms, using his access to internal company data.
• Kalshi fined a MrBeast editor $20k for making wagers related to his employer’s videos.

But fishy trades that make experts and the public suspicious do not always result in investigations. For instance, Bloomberg reported that several well-timed Iran war wagers from multiple newly opened Polymarket accounts that seem to be connected generated $1 million in profits.

Platforms are taking measures: Both Kalshi and Polymarket have fined and banned users for insider trading, and Kalshi will soon require users to share their employer information in order to make sensitive trades.

But…critics say that’s not enough. A group of Democratic senators has called on the federal agency responsible for regulating prediction markets, the Commodity Futures Trading Commission (CFTC), to combat insider trading by limiting the types of bets allowed.—SK