Money Laundering in Prediction Markets: The Dangerous Reality Hidden Behind the Name "Truth Discovery"

Prediction markets are financial products that involve investing funds in future events and earning profits or losses based on the outcomes. However, in recent years, these platforms have increasingly been suspected not just of serving as venues for probability calculations but also of functioning as means to launder insider information. While platforms like Polymarket are praised as “truth discovery engines,” underlying structural issues are hidden behind this praise, and the very “accuracy” of the markets is signaling new danger signals with a different meaning.

The Structure of Laundering Exposed by Maduro Transactions

In the 2024 U.S. presidential election, Polymarket demonstrated accuracy surpassing mainstream media and opinion polls. This success led to a widespread perception that prediction markets are sophisticated mechanisms for uncovering truth. However, a case that emerged immediately afterward revealed the dangerous implications of this “accuracy.”

This was the trading on Polymarket regarding the resignation and arrest of Venezuelan President Nicolás Maduro. A new account wagered nearly $30,000 that Maduro would resign by the end of the month. At that time, the market price assessed this possibility as extremely low, but just a few hours later, police arrested Maduro and criminal charges were filed against him in New York. That account closed its position with profits exceeding $400,000.

Superficially, the market was “correct.” But the underlying problem is serious. If this trade was based on non-public information and internal intelligence rather than public data, then the market’s “accuracy” was merely the result of laundering through insider trading. In other words, the market isn’t “discovering the truth,” but rather enabling privileged knowledge to be cash-converted through trading by those with limited access to information, in a manner akin to money laundering.

Zelensky Market Dispute: The Mechanism of Governance Breakdown

If Maduro’s case highlighted issues with insider information, the “Suit Market” involving Zelensky reveals a more fundamental flaw in governance.

In 2025, a bet appeared on Polymarket asking, “Will Ukrainian President Zelensky wear a suit by July?” which gathered several hundred million dollars in trading volume. When Zelensky appeared publicly wearing a black jacket and trousers from a famous designer, media and fashion experts called it a “suit.” However, Manhattan Machine, the oracle (result-determining system), voted “No.”

The problem lies in the arbitrariness of the judgment. A small number of large token holders had enough voting power to enforce results that aligned with their interests. If they had significant risk on the opposite side of the bet, and if false judgments yielded profits exceeding the system’s correction costs, corruption would inevitably occur. This is evidence that the system is functioning as designed and points to a fundamental issue in its incentive structure—governance.

The “Danger Signal” of Accuracy: The Influx of Insider Information

Proponents of prediction markets argue that insider trading causes markets to move early and “accelerate the discovery of truth.” However, this logic has a fundamental flaw.

If the market enhances accuracy by laundering undisclosed information—such as confidential military operations, leaked government timelines, or classified data—then it ceases to be a public information market and instead transforms into a secret shadow trading platform.

There is a fundamental difference between rewards for better analytical ability and rewards for access to power. Markets with blurred boundaries between these are inevitably subject to regulatory scrutiny. The real issue isn’t market inaccuracy but rather “being too accurate”—that is, reflecting information that should not be publicly available.

Wall Street Entry and Regulatory Tensions

The explosive growth of prediction markets is raising new concerns. Trading volume has surged, with major platforms like Kalshi and Polymarket reaching several hundred million dollars annually. Kalshi alone processed about $24 billion in transactions last year.

Moreover, the entry of Wall Street is noteworthy. NYSE shareholders have proposed strategic acquisition offers of up to $2 billion for Polymarket, which is estimated to be valued at around $9 billion. This signals that prediction markets are evolving to become entities comparable to traditional financial markets.

At the same time, regulatory authorities’ interest is intensifying. Representatives like Congressman Rich Trumka have introduced bills banning insider trading, highlighting the dangers of insider information functioning as an “advantage.”

Shedding the Mask: Recognizing the True Nature of Prediction Markets

Until now, prediction markets have been portrayed as “noble engines for discovering truth.” But it is time to honestly acknowledge their true nature.

Simply put, prediction markets are financial products that bet on future events. Their essence remains unchanged regardless of decorative explanations, blockchain technology, or added economic legitimacy. Participants are not pursuing profits under the guise of “foresight” or “information discovery,” but are merely earning monetary rewards by accurately predicting future outcomes.

The root problem lies in this “disguise.” As long as platforms tout themselves as “truth machines,” all disputes may appear as existential crises. However, if prediction markets are honestly positioned as high-risk, high-stakes financial products, disputes transform from philosophical crises into practical issues demanding regulatory and design improvements.

By acknowledging that platforms are not “epistemological engines” but “gambling products,” a clearer and more ethical regulatory framework can be realized. When markets reveal their true nature, genuine transparency is born for the first time.