Vitalik: "Decentralized prediction markets are bad markets"

Son Min

Summary

Vitalik Buterin assessed that decentralized prediction markets can be socially harmful and have inherent limitations.
He pointed out that these markets are limited in liquidity provision and risk hedging, and that there is no interest paid to investors.
Unlike traditional financial markets, he said that it is structurally difficult for prediction markets to achieve long-term efficiency.

Vitalik Buterin, co-founder of Ethereum (ETH), stated that decentralized prediction markets are bad markets.

On the 25th (local time), Vitalik said on a podcast, "Decentralized markets are bad markets. They mock state-level gambling regulations," and added, "The world is increasingly falling into decadence." He continued, "If this market becomes large enough, it could even destroy society."

Regarding traditional financial markets, he said, "Each investor has different risk preferences, so by transferring unwanted risks among each other, the market operates in a healthy way." Airlines hedge against risk by buying oil futures, while speculators target price volatility in the opposite way. These opposing interests provide active trading and liquidity to the market.

However, he argued that prediction market outcomes are implemented in a binary structure of 'Yes' or 'No'. As a result, liquidity provision and risk hedging are significantly restricted. Vitalik emphasized, "Prediction markets lack participant diversity and are structurally difficult to hedge," and "there are fundamental limitations to reaching the efficiency of traditional financial markets in the long run."

He also pointed out the absence of interest payments. He added, "Decentralized prediction markets mostly do not pay interest. By holding dollars, you lose the stable 4% annual interest income that is guaranteed."

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