In brief
- A Polymarket user won $436,759 after betting on the removal of Nicolás Maduro, prompting one U.S. lawmaker to draft legislation forbidding the use of insider knowledge in prediction markets.
- Industry figures argue that prediction markets operate differently from traditional markets, and that insider knowledge can help them function more effectively.
- While acknowledging that regulation is likely coming, some figures suggest that guidelines should take account of the difference between prediction markets and stock markets.
The role of insider trading on prediction market platforms has come under scrutiny after a Polymarket user won $436,759 predicting that former Venezuelan President Nicolás Maduro would be removed from power before January 31.
The timing of the user’s bet—coming only hours before U.S. special forces apprehended Maduro—prompted Representative Ritchie Torres (D-NY) to draft a bill that would prohibit federal employees from using prediction markets when in possession of relevant insider knowledge.
A feature or a bug?
However, figures working within the industry argue that “insider trading” can help prediction markets fulfill their purpose more effectively.
“Academically speaking, prediction markets are one of the most effective tools for rooting out inside information and maximizing the efficiency and speed of information transmission,” explained Loxley Fernandes, the CEO and co-founder of DASTAN, which owns prediction protocol Myriad (and also an editorially independent Decrypt).
Speaking to Decrypt, Fernandes suggested that insider trading is a serious issue for prediction markets, but mostly because such markets have been mistakenly lumped together with more traditional financial markets.
“To date, we have looked at modern prediction markets as alternative casinos—and I believe this framing is incorrect,” he said. “When viewed through the lens of real potential—capital and information efficiency—insider trading can actually function as a feature, not a bug.”
While Fernandes has an obvious financial interest in prediction markets, more disinterested commentators have expressed analogous arguments, including George Mason University economics professor Robin Hanson.
Speaking to Decrypt, Hanson said that there’s a tradeoff between quantity of investment and accuracy of prices in markets, and that insider trading is discouraged in the context of traditional stock markets to encourage greater investment from outsiders.
“If what I care about in [prediction] markets is the accuracy of their prices, there isn’t such an issue here,” he said. “To get more accurate prices, we want people with lots of info to trade.”
Decrypt has reached out to Rep. Torres and Polymarket for comment, and will update this article should they respond.
Regulation incoming?
As Rep. Torres’ drafting of the Public Integrity in Financial Prediction Markets Act of 2026 would suggest, such views certainly aren’t universal, and it may be the case that the recent Maduro bet on Polymarket makes the arrival of regulation more likely.
“I believe that it could result in enforcement and I believe that it should result in regulation,” said Fernandes.
However, Fernandes qualified his prediction by arguing that any resulting regulation should be balanced, and shouldn’t simply equate prediction markets with traditional stock markets.
“There is a level of education and innovation required in the regulatory frameworks and rails that we apply to prediction markets that instead don’t neuter them and render them alternative casinos, but rather allow users to participate in them for the informational value that they can provide knowing that the democratization of inside information is a key innovation in the proliferation of the information age,” he said.
Prediction markets are broadening their scope by the day, with Polymarket launching real estate prediction markets Monday, enabling users to place bets on median house prices in U.S. states.
But as the platforms become increasingly ubiquitous, avoiding specific regulation may become more difficult, with prediction markets already banned in several European countries (including France, Belgium, Poland and Italy).
The platforms are growing fast; Polymarket was valued at $9 billion as of October of last year, having received a $2 billion investment from NYSE operator Intercontinental Exchange, while rival Kalshi hit an $11 billion valuation a month later, following a $1 billion funding round.
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Source: https://decrypt.co/353611/polymarket-trader-400k-bet-maduro-ousting-insider-trading-controversy
