The Dark Side of Prediction Markets

Written by: Splin Teron

Compiled by: Luffy, Foresight News

The pitfalls I am about to talk about, I have experienced myself and have lost quite a bit of money because of them.

There is no need to deny the current trend. Google Trends shows that the search volume for "prediction markets" is now on par with that of "memecoin" at the beginning of the year.

But first, let's quickly understand the basic operation of prediction markets:

Deposit USDC;

To purchase a result token, it must be either "Bullish" (Yes) or "Bearish" (No);

Tokens will be locked in the smart contract until the event is over.

After the dust settles on the event, the oracle will lock in the results.

If your bet is correct, you can redeem the tokens and earn a profit; if you bet incorrectly, the principal you invested will be lost.

So, the oracle is an external source of truth. On the Polymarket platform, this role is fulfilled by UMA.

After the event ends, the oracle sends a signal to the contract: "Yes" or "No". It is at this time that funds will be redistributed among participants.

The trust of the entire market relies on the oracle. If the oracle makes a "misjudgment" or determines the outcome in a questionable manner — even if the facts are obvious, there will be those who profit and those who lose.

The problem lies in the fact that... the "misjudgments" of oracles are actually quite frequent. Or, in the community's words, oracles "favor the whales"!

Case 1: Ukraine and Trump's Mineral Agreement

March 2025: The prediction market on the Polymarket platform for "Ukraine and Trump reach a mineral deal" ultimately ruled Yes, but in reality, neither party reached any deal at all; it was the whales of UMA who forcibly pushed this decision. Users lost millions of dollars as a result, while Polymarket announced that it would not provide any refunds.

Case 2: Will TikTok be banned before May 2025?

January 2025: On the Polymarket platform, the prediction market for "Will TikTok be banned before May 2025" was ultimately determined to be Yes. Although the U.S. Supreme Court approved the relevant bill, TikTok was not actually banned and continued to operate normally. The UMA oracle directly locked in this result, bypassing the conventional dispute resolution process. At that time, the market involved a capital scale of approximately $120 million. Users accused this of being manipulation, but the platform still did not provide refunds.

Case 3: Will Zelensky appear in a traditional suit?

July 2025: The prediction market on the Polymarket platform regarding "Will Zelensky appear in a traditional suit" attracted over $210 million in betting funds. Despite multiple media outlets and even the suit's maker confirming that Zelensky wore the suit, the UMA oracle determined the market result as No. They defended this outcome with a vague explanation, stating that "the core intent of the market is 'a suit paired with a tie'", which in fact serves to protect the interests of the whales, helping them maintain their positions.

Case 4: Will the Houthi forces attack Israel before August 31?

August 2025: On the Polymarket platform, the prediction market for "Will the Houthis attack Israel before August 31?" had a trading volume of $13 million, with the final determination being Yes. However, official reports have confirmed that the missile was intercepted mid-air. According to the rules, this result should have been determined as No.

I don't want to list all the cases just to fill up space... If you want to know more, you can search on Reddit or use Grok or ChatGPT.

Why do those seemingly obvious market results ultimately contradict the facts? Who exactly holds the decision-making power in the voting process?

I don't know the answer, but the key point is simple: this is indeed happening, and people are losing money because of it!

What filtering methods can help you avoid risks before trading?

Good fund management: The amount bet in a single market should not exceed 1%-3% of your deposit.

Choose events with clear information sources, such as court rulings, official statements, on-chain data, etc.;

View market liquidity and top holders list;

Take profits early, for example, exit when the gains reach around 95%, and do not wait for the final result to be determined.

And I hope you can understand that prediction markets are more akin to gambling rather than investing. If you cannot control the impulse to bet, it is best to stay away from this field...

But if you decide to delve deeper, I have attached a distribution map of different protocols to help you step into the world of prediction markets.