Crypto.com hires personnel to trade against customers in sports prediction market…conflict-of-interest controversy sparks

Cryptocurrency exchange Crypto.com appears to be hiring market-making personnel who will trade directly with customers on its sports prediction market platform. This has brought renewed conflict-of-interest concerns to the fore as prediction markets have presented themselves as neutral trading platforms.

On the 23rd (local time), Bloomberg reported that Crypto.com is recruiting a quant trader to join a market-making team that trades financial contracts linked to sports event outcomes. Those personnel will take positions opposite customers' bets on the prediction market exchange.

Market-making has been a continual source of controversy in the prediction market industry. Prediction market firms have argued they are neutral platforms where participants with differing views trade, and have maintained they differ from traditional sports betting firms that set odds and profit from customer losses.

However, not only Crypto.com but also major prediction market firms such as Kalshi and Polymarket are operating internal market-making organizations or recruiting. Kalshi has an internal team called 'Kalshi Trading', and Polymarket is also reported to be building its own trading organization.

Critics argue that such a structure creates conflicts of interest with customers and makes prediction markets no different from traditional sportsbooks. Indeed, Crypto.com's job posting specifies maximizing profit and risk management as the trader's roles, leading some to assess that this reveals a profit-making purpose through internal trading.

In response, Crypto.com said proprietary trading is not a major revenue source and that internal market-makers do not have access to customer order flow or nonpublic data. They also said that internal trading activities are fully disclosed to the U.S. Commodity Futures Trading Commission (CFTC).

Meanwhile, legal controversies surrounding Kalshi continue. A class-action lawsuit filed last November alleged that Kalshi Trading set betting lines unfavorable to customers. Kalshi co-founder Luana Lopez Lara rebutted, saying the organization is not profitable and receives no special treatment.

External market-maker recruitment is also being pursued to expand liquidity. Wall Street trading firms such as Susquehanna International Group and Jump Trading participate as market-makers on Kalshi. However, Crypto.com has a rule granting market-makers a 3-second priority to place orders on sports contracts, raising fairness concerns for small traders.

Crypto.com was one of the prediction market firms that first listed sports event-based contracts at the end of last year. Subsequently, sports contracts came to account for most of Kalshi's volume, and established sports betting companies such as DraftKings and FanDuel, under Flutter Entertainment, have launched prediction market apps in response. The structure and regulatory issues of prediction markets have emerged as policy issues in the U.S. over how to delineate them from the traditional gambling industry.