Remember this scene from Trading Places? That’s what critics think prediction markets are. Arigged casino, where insiders front-run everyone. Recently, I came across a viral post on facebook that called prediction markets “dirty and disgusting”. The author made some pretty serious claims: “Monad airdrop by Nov 15?” odds 70% → Insider bet a month ahead then take profit to buy a new car. 😂 “Will Tesla beat quarterly earnings?” odds 76% → Tesla’s own team already knows. They bet. Retail players are just guessing after the fact. “Will Polymarket be legalized in the U.S. this year?”to → Odds are leaning “Yes” cause they already know about that. Seem like the whole system is rigged against retail participants LMAO! Strong claims. But are they true? 🧵 Now, I’ll be honest: When I first read this, some points seemed valid! We’ve all heard about manipulation concerns, regulatory gray zones and the recent question about Polymarket’s oracle risk or Norway is currently investigating suspicious Nobel Prize betting patterns?https://medium.com/media/e1a5e3fcc42b6eba1accd30b7c96c07e/href But here’s the thing: dismissing the ENTIRE concept of prediction markets as “just insider trading” fundamentally misunderstands what these markets are designed to do and why they work. The criticism mixes up a few different things: Real market manipulation (bad and will be punish). Natural information advantages (which make markets smarter). Regulatory gaps (which are being fixed). To really understand whether prediction markets are valuable or just scams, we need to go back to 1945 to see why these markets exist in the first place. So let’s dig deeper.👇 Understanding Prediction Markets Through Hayek’s “Use of Knowledge in Society” 📚 In 1945, economist Friedrich Hayek wrote what would become one of the most influential economics papers ever published. His central question was deceptively simple: “How does society coordinate economic activity when knowledge is scattered across millions of people?”. This is called the “knowledge problem” and it’s deeper than it sounds. The core insight? Imagine being a central planner trying to allocate resources. You’d need to know: What people want? What resources are available? Where those resources are located? How to produce things most efficiently? When conditions change? But here’s the catch: this information lives in DISPERSED form, scattered across countless minds. It look like a farmer knows his cow; a Toyota worker knows his machine’s quirks or a chef in Shanghai knows what she needs today. No central authority can ever collect, process and act on all this knowledge fast enough. Hayek’s Solution: The Price System Hayek argued that markets solve this problem through PRICES. Prices aggregate dispersed information and transmit it instantly to everyone who needs it. Take his famous Tin Market for example: imagine that somewhere in the world, a tin mine collapses or a factory burns down. Tin supply drops. Here’s what doesn’t need to happen: ❌ No committee runs an investigation. ❌ Manufacturers don’t need anyone to tell them what happened. ❌ No consumer needs to know the details. And here’s what does happen automatically: ✅ Tin prices rise. ✅ Electronics makers switch to aluminum. ✅ Car producers cut tin use. ✅ Recyclers ramp up recovery. ✅ Miners boost output. Millions of people adjust, guided by one signal: PRICE. Each person only needs to know the price, not the underlying cause. The market aggregates ALL the dispersed knowledge about tin supply, demand, substitutes, and production capacity into a single number. Now Apply This to Prediction Markets Future events are just like commodities, knowledge about them is DISPERSED. A voter knows: “My neighborhood’s sentiment has shifted, Trump will beat Harris, bet on Trump!”. A farmer knows: “Monad will airdrop MON no later than Nov 2025”. A trader knows: “Trump threatens to impose additional 100% tariff on China”. In traditional forecasting, we’d need to go through step by step: Survey everyone Wait for results Aggregate data centrally Publish a forecast Hope it’s not outdated by the time we’re done Prediction markets do this INSTANTLY through prices. If you believe Trump has a 70% chance to win but the market shows 55%, you BUY → pushing price toward 70%. As thousands of people do this based on THEIR unique information, the price converges toward the real probability. What about Insiders? 🤔 Remember the tin market example, early information helps markets adjust FASTER, making them MORE accurate. That led to the term Insiders! A Tesla manager knows earnings will beat → bets Yes → price moves from 60% to 75% → everyone now has better info. This is different from stock market insider trading. In prediction markets, the goal is ACCURATE INFORMATION, not fair wealth distribution. But here’s the key distinction: ✅ INFO ADVANTAGE: Campaign staffer uses internal polls → bets on outcome (GOOD) → This is Hayek’s mechanism WORKING. ❌ MANIPULATION: Fake accounts, coordinated attacks, oracle exploits (BAD) → This is fraud and should be prosecuted. One destroys integrity. The other improves it. So when someone says prediction markets are “insider trading playgrounds”, they’re conflating legitimate information with manipulation. Info advantage looks like manipulation, but they’re DIFFERENT!Critics think these are the same. They’re not! Why Insider Trading Misses The Point 🎯 Compare Stock Markets vs Prediction Markets: Stock markets: Goal = fair wealth distribution → insider trading bad. Prediction markets: Goal = accurate info → insider knowledge good. When insiders bet, they IMPROVE forecast accuracy for everyone watching the price. The 2024 U.S. election proved this: markets called Trump win while polls only showed 50–50 LMAO.Polymarket odds on the presidential election winner! Source: Axios Visuals If manipulation were systemic, they wouldn’t consistently beat expert forecasts. Back to those claims at the top: 70% odds on Monad? That’s market uncertainty, not insider certainty. If devs knew for sure, odds would be 90%+. High odds ≠ insider info. It means collective best guess based on available information. Don’t dismiss a tool that demonstrably works because bad actors exploit gaps. Hayek’s 1945 insight still holds: When knowledge is dispersed, prices aggregate information better than any central authority. Prediction markets are proving exactly that. Are Prediction Markets Just Insider Trading Playgrounds? 🎲 was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this storyRemember this scene from Trading Places? That’s what critics think prediction markets are. Arigged casino, where insiders front-run everyone. Recently, I came across a viral post on facebook that called prediction markets “dirty and disgusting”. The author made some pretty serious claims: “Monad airdrop by Nov 15?” odds 70% → Insider bet a month ahead then take profit to buy a new car. 😂 “Will Tesla beat quarterly earnings?” odds 76% → Tesla’s own team already knows. They bet. Retail players are just guessing after the fact. “Will Polymarket be legalized in the U.S. this year?”to → Odds are leaning “Yes” cause they already know about that. Seem like the whole system is rigged against retail participants LMAO! Strong claims. But are they true? 🧵 Now, I’ll be honest: When I first read this, some points seemed valid! We’ve all heard about manipulation concerns, regulatory gray zones and the recent question about Polymarket’s oracle risk or Norway is currently investigating suspicious Nobel Prize betting patterns?https://medium.com/media/e1a5e3fcc42b6eba1accd30b7c96c07e/href But here’s the thing: dismissing the ENTIRE concept of prediction markets as “just insider trading” fundamentally misunderstands what these markets are designed to do and why they work. The criticism mixes up a few different things: Real market manipulation (bad and will be punish). Natural information advantages (which make markets smarter). Regulatory gaps (which are being fixed). To really understand whether prediction markets are valuable or just scams, we need to go back to 1945 to see why these markets exist in the first place. So let’s dig deeper.👇 Understanding Prediction Markets Through Hayek’s “Use of Knowledge in Society” 📚 In 1945, economist Friedrich Hayek wrote what would become one of the most influential economics papers ever published. His central question was deceptively simple: “How does society coordinate economic activity when knowledge is scattered across millions of people?”. This is called the “knowledge problem” and it’s deeper than it sounds. The core insight? Imagine being a central planner trying to allocate resources. You’d need to know: What people want? What resources are available? Where those resources are located? How to produce things most efficiently? When conditions change? But here’s the catch: this information lives in DISPERSED form, scattered across countless minds. It look like a farmer knows his cow; a Toyota worker knows his machine’s quirks or a chef in Shanghai knows what she needs today. No central authority can ever collect, process and act on all this knowledge fast enough. Hayek’s Solution: The Price System Hayek argued that markets solve this problem through PRICES. Prices aggregate dispersed information and transmit it instantly to everyone who needs it. Take his famous Tin Market for example: imagine that somewhere in the world, a tin mine collapses or a factory burns down. Tin supply drops. Here’s what doesn’t need to happen: ❌ No committee runs an investigation. ❌ Manufacturers don’t need anyone to tell them what happened. ❌ No consumer needs to know the details. And here’s what does happen automatically: ✅ Tin prices rise. ✅ Electronics makers switch to aluminum. ✅ Car producers cut tin use. ✅ Recyclers ramp up recovery. ✅ Miners boost output. Millions of people adjust, guided by one signal: PRICE. Each person only needs to know the price, not the underlying cause. The market aggregates ALL the dispersed knowledge about tin supply, demand, substitutes, and production capacity into a single number. Now Apply This to Prediction Markets Future events are just like commodities, knowledge about them is DISPERSED. A voter knows: “My neighborhood’s sentiment has shifted, Trump will beat Harris, bet on Trump!”. A farmer knows: “Monad will airdrop MON no later than Nov 2025”. A trader knows: “Trump threatens to impose additional 100% tariff on China”. In traditional forecasting, we’d need to go through step by step: Survey everyone Wait for results Aggregate data centrally Publish a forecast Hope it’s not outdated by the time we’re done Prediction markets do this INSTANTLY through prices. If you believe Trump has a 70% chance to win but the market shows 55%, you BUY → pushing price toward 70%. As thousands of people do this based on THEIR unique information, the price converges toward the real probability. What about Insiders? 🤔 Remember the tin market example, early information helps markets adjust FASTER, making them MORE accurate. That led to the term Insiders! A Tesla manager knows earnings will beat → bets Yes → price moves from 60% to 75% → everyone now has better info. This is different from stock market insider trading. In prediction markets, the goal is ACCURATE INFORMATION, not fair wealth distribution. But here’s the key distinction: ✅ INFO ADVANTAGE: Campaign staffer uses internal polls → bets on outcome (GOOD) → This is Hayek’s mechanism WORKING. ❌ MANIPULATION: Fake accounts, coordinated attacks, oracle exploits (BAD) → This is fraud and should be prosecuted. One destroys integrity. The other improves it. So when someone says prediction markets are “insider trading playgrounds”, they’re conflating legitimate information with manipulation. Info advantage looks like manipulation, but they’re DIFFERENT!Critics think these are the same. They’re not! Why Insider Trading Misses The Point 🎯 Compare Stock Markets vs Prediction Markets: Stock markets: Goal = fair wealth distribution → insider trading bad. Prediction markets: Goal = accurate info → insider knowledge good. When insiders bet, they IMPROVE forecast accuracy for everyone watching the price. The 2024 U.S. election proved this: markets called Trump win while polls only showed 50–50 LMAO.Polymarket odds on the presidential election winner! Source: Axios Visuals If manipulation were systemic, they wouldn’t consistently beat expert forecasts. Back to those claims at the top: 70% odds on Monad? That’s market uncertainty, not insider certainty. If devs knew for sure, odds would be 90%+. High odds ≠ insider info. It means collective best guess based on available information. Don’t dismiss a tool that demonstrably works because bad actors exploit gaps. Hayek’s 1945 insight still holds: When knowledge is dispersed, prices aggregate information better than any central authority. Prediction markets are proving exactly that. Are Prediction Markets Just Insider Trading Playgrounds? 🎲 was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story