Prediction markets, which allow trading on the outcomes of events ranging from elections to geopolitical conflicts, are rapidly growing in size and influence. This expansion introduces unprecedented risks including insider trading and manipulation of information, prompting calls for enhanced trust and safety measures beyond traditional sports betting frameworks.
Growth and Risks of Prediction Markets
Prediction markets have evolved from niche platforms to major components of the financial and information ecosystems. The 2024 court victory by sports betting company Kalshi enabling election-related markets marked a turning point. Since then, markets on sports outcomes and other real-world events have seen explosive growth, with companies like Kalshi and Polymarket approaching valuations exceeding $20 billion.
These markets incentivize financial gain based on event outcomes, including politically sensitive and high-stakes situations such as military actions or the tenure of political leaders. This dynamic has led to multiple insider trading concerns, such as an Army special forces member charged with profiting from classified intelligence related to a US military operation in Venezuela. Similar investigations have occurred in Israel involving soldiers betting on conflict outcomes and in the tech sector with an OpenAI employee dismissed for leveraging proprietary information.
Beyond insider trading, there have been attempts to influence information flows directly. Instances include alteration of publicly available information to sway markets and reported threats and financial inducements targeting journalists covering relevant events. These actions highlight how prediction markets transform from passive forecasting tools into active players that can shape real-world narratives and outcomes.
Limitations of Current Regulatory and Integrity Approaches
Legislators have begun addressing these risks. Proposals include barring senior federal officials from participating in prediction markets and prohibiting trading based on nonpublic government information. However, these efforts face challenges such as detecting insider activity, attributing misconduct, and handling legal ambiguities around event definitions—especially when contracts indirectly relate to outcomes like death or incapacitation.
Moreover, emerging decentralized platforms threaten to circumvent centralized oversight mechanisms. Traditional regulatory focus on market intermediaries may prove insufficient as the market structure evolves.
The Commodity Futures Trading Commission (CFTC) encourages partnerships between exchanges, sports leagues, and integrity organizations to monitor and detect suspicious activity in sports-related markets. Companies like Polymarket have partnered with firms such as Palantir to deploy advanced anomaly detection and trade monitoring systems. While these efforts improve fraud detection in sports markets, they are less suited to counter risks related to information manipulation and coercion.
Role of Trust and Safety Professionals
To address the broader risks in predication markets tied to geopolitics, public safety, and societal outcomes, experts in trust and safety must be involved. These professionals specialize in managing real-world consequences of digital platforms, including harassment, coordinated manipulation, and jurisdictional policy complexity.
Trust and safety teams can play a crucial role in the design phase of prediction markets by ensuring clarity and precision in contract wording to reduce ambiguity and prevent harmful speculation. They assess how market questions might incentivize manipulation or abuse, applying risk frameworks developed from years of safety operations.
Additionally, trust and safety expertise supports organizational policies to prevent insider risk, such as monitoring employee trading tied to privileged information and enforcing relevant restrictions. They can also assist in protecting journalists and public-facing staff from harassment or coercion linked to market outcomes, utilizing established incident response and escalation protocols.
This domain also contributes to detecting misinformation and coordinated inauthentic behavior campaigns aimed at manipulating markets, bridging gaps between platform integrity and organizational security.
From a policy perspective, trust and safety professionals can guide more enforceable regulatory frameworks that balance prohibitions with practical standards for information integrity and market behavior. Independent dispute resolution mechanisms and consent-based market creation are among potential measures they can help develop.
Why it matters
Prediction markets increasingly influence how information around major global events is produced and perceived. Without robust trust and safety measures, these platforms risk enabling insider exploitation, misinformation, and even threats to public officials and journalists. Integrating trust and safety expertise is essential to managing these novel risks and safeguarding the integrity of markets that affect public knowledge and policy.
Sources
This article is based on reporting and publicly available information from the following source:
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