Vitalik Buterin: “Prediction markets are overly reliant on gambling-style bets… they should shift to AI-based hedging tools”

Vitalik Buterin, co-founder of Ethereum (ETH), recently voiced concerns about the direction of the prediction-market industry, arguing that it needs to move beyond a short-term, speculation-driven structure and evolve into AI-based hedging tools linked to real-world consumption.

According to The Block on the 15th (local time), Buterin said that “prediction markets are converging excessively on dopamine-inducing products such as short-term crypto price bets or sports gambling,” adding that they are “far from structures that provide long-term societal information value or practical utility.”

He warned that “the market is currently split between ‘smart traders’ who leverage an information edge and ‘ordinary participants’ who absorb losses, and if platforms rely on uninformed speculative demand, sustainability could be undermined.”

As an alternative, he proposed redesigning prediction markets as general-purpose hedging infrastructure. The idea is to build on-chain markets linked to regional price indices for goods and services, and have users use local AI models that analyze personal consumption patterns to construct customized positions that prepare for future spending. This, he explained, would allow prediction markets to function not as simple betting venues but as financial tools for managing risks from changes in living costs and inflation.

Buterin further argued that if prediction markets were denominated in productive assets—such as interest-bearing assets or tokenized equities—they could reduce reliance on fiat-pegged stablecoins. This aligns with his ongoing concerns about structural vulnerabilities in decentralized stablecoins.