The Dark Side of Prediction Markets

In the words of the community, the oracle is "favoring the whales."

Written by: Splin Teron

Translated by: Luffy, Foresight News

The pitfalls I'm about to discuss are ones I've personally experienced, and I've lost quite a bit of money because of them.

There's no need to deny the current trend. According to Google Trends, the search volume for "prediction market" is now on par with that of "memecoin" at the beginning of the year.

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

1. Deposit USDC;
2. Buy an outcome token, either "bullish" (Yes) or "bearish" (No);
3. The tokens are locked in a smart contract until the event concludes;
4. Once the event is settled, the oracle locks in the result;
5. If your bet is correct, you can redeem the tokens and earn a profit; if you bet incorrectly, you lose your principal.

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

After the event ends, the oracle sends a signal to the contract: "Yes" or "No." At this point, funds are redistributed among participants.

The entire market's trust relies on the oracle. If the oracle makes a "misjudgment," or determines the result in a questionable manner—even if the facts are obvious—some people will profit while others lose money.

The problem is... such "misjudgments" by oracles actually happen quite frequently. Or, as the community puts it, the oracle is "favoring the whales"!

Case 1: Ukraine and Trump Mineral Agreement

March 2025: On Polymarket, the prediction market for "Ukraine and Trump reaching a mineral deal" ultimately settled as Yes, but in reality, no deal was ever made between the two parties. It was the whales of UMA who forcibly pushed this decision. Users lost millions of dollars as a result, while Polymarket announced that no refunds would be provided.

Case 2: Will TikTok Be Banned Before May 2025?

January 2025: On Polymarket, the prediction market for "Will TikTok be banned before May 2025" ultimately settled as Yes. Although the US Supreme Court approved the relevant bill, TikTok was not actually banned and continued to operate normally. The UMA oracle directly locked in this result, skipping the usual dispute resolution process. At the time, the market involved about 120 millions USD. Users accused the platform of manipulation, but no refunds were provided.

Case 3: Will Zelensky Appear in a Traditional Suit?

July 2025: On Polymarket, the prediction market for "Will Zelensky appear in a traditional suit" attracted over 210 millions USD in bets. Although multiple media outlets and even the suit's maker confirmed that Zelensky was indeed wearing a suit, the UMA oracle ruled the market as No. They defended this result with a vague explanation, claiming "the core intent of the market was 'a suit with a tie'," which was essentially a way to protect the whales and help them maintain their positions.

Case 4: Will the Houthis Attack Israel Before August 31?

August 2025: On Polymarket, the prediction market for "Will the Houthis attack Israel before August 31" had a trading volume of 13 millions USD and ultimately settled as Yes. However, official reports confirmed that the missile was intercepted mid-air. According to the rules, this result should have been No.

I don't want to list every single case just to fill space... If you want to know more, you can search on Reddit, or use Grok or ChatGPT to check.

Why do markets with seemingly obvious outcomes end up being settled contrary to the facts? Who actually has the final say in the voting?

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

What screening methods can help you avoid risks before trading?

• Practice good fund management: don't bet more than 1%-3% of your deposit on a single market;
• Choose events with clear sources of information, such as court rulings, official statements, on-chain data, etc.;
• Check market liquidity and the list of top holders;
• Take profits early, for example, exit when your gains reach around 95%, instead of waiting for the final result.

And I hope you understand that prediction markets are more akin to gambling than investing. If you can't control your urge to bet, it's best to stay away from this field...

But if you decide to dig deeper, I've attached a distribution chart of different protocols to help you step into the world of prediction markets.