Concerns over insider trading on prediction markets have grown following high-profile wagers linked to geopolitical events.
Insider trading can realistically only be limited on prediction platforms that apply Know Your Customer checks, according to Messari research analyst Austin Weiler.
“For KYC’d platforms, the most effective mechanism is to restrict access upfront for users to specific markets,”
Austin Weiler said.
He added that state actors could be barred from political or geopolitical markets to reduce the risk of misuse.
“This does not fully eliminate abuse, since insiders can still share information with third parties, but it adds an important obstacle and raises enforcement standards,”
He said.
Weiler warned that enforcement on non-KYC or fully onchain prediction markets is extremely difficult and in some cases nearly impossible.
“Without identity checks, platforms cannot reliably determine whether traders possess material non-public information,”
He said.
“Prediction markets can attempt to monitor unusual trading behaviour or cap trade sizes, but these measures are easily bypassed,”
Weiler added.
KYC requirements vary widely across platforms, with some regulated services enforcing identity checks while decentralised alternatives generally do not.
The issue has drawn political attention after reports of anonymous traders profiting heavily from wagers linked to sensitive geopolitical developments.