After an anonymous user raked in $400,000 on a Polymarket bet that Venezuelan president Nicolás Maduro would be out by the end of January, onlookers and regulators started throwing around accusations of insider trading. The user, after all, had made $20,000 worth of bets just hours before Trump ordered the military to strike Venezuela’s capital and capture Maduro. But Robin Hanson, the economist who’s commonly known as the godfather of modern prediction markets, thinks that using inside information to place bets like this is actually necessary for these markets to work—making “insider trading” a feature, not a bug.
“The point of these markets is to get information, so the only reason you should ever be trading on them is if you think you have some information,” said Hanson, a professor of economics at George Mason University whose academic work inspired the founders of prediction markets Polymarket and Kalshi. “People with more information should trade more and get more money because that’s how they get paid for the information they contribute.”
The public outcry against insider trading on prediction markets has built to a fever pitch over the last few weeks, with curiously well-timed trades making news, like one user making $1 million from guessing 22 out of 23 of Google’s most popular searches of 2025 correctly before the company released those rankings. It culminated with Rep. Ritchie Torres proposing a bill on Monday that would prevent elected officials and select government employees from trading on prediction markets.
Tarek Mansour, cofounder of Polymarket’s chief rival Kalshi, said in a LinkedIn post that Kalshi supports the bill and strictly prohibits any insider trading because prediction marketplaces are regulated as financial exchanges under the Commodity Futures Trading Commission. It’s been pretty well established that the outcome of the events traded on prediction markets qualify as a commodity—in fact, that’s how the companies have defended themselves against lawsuits trying to classify them as gambling platforms. This means if someone commits fraud through a misappropriation of material non-public information in these markets, it would qualify as a violation of the Commodity Exchange Act and CFTC regulations, said Peter Malyshev, a partner at law firm Cadwalader, Wickersham & Taft specializing in CFTC regulation. Regulating insider trading is important not only to punish fraud but also to maintain trust among financial market participants. Financial markets work under the assumption that everybody has the access to the same information, so that it’s fair for all. Otherwise, the market loses its value, because people won’t trust it enough to trade, Malyshev added.
But Polymarket’s founder Shayne Coplan takes a divergent view: Coplan has publicly supported the idea of using insider information to trade in prediction markets, framing “insider trading” in these markets as a public good that would enable the masses to get access to accurate information more quickly (Polymarket did not respond to comment requests on the bill or the $400,000 win).
Hanson thinks similarly. His argument is rooted in the belief that prediction markets are fundamentally information institutions, similar to news outlets, think tanks or consulting firms. These institutions that employ journalists or analysts to obtain and publish knowledge have a duty to be as timely and accurate as possible to best inform the public. The same goes for prediction markets, except that rather than a specialized group of employees, anyone can be compensated for gathering and contributing the most accurate information. Thus, trades using non-public information, like the bet made on Maduro’s ousting, are not only necessary but should be encouraged, he added.
From Hanson’s perspective, any legal action around an issue like this should be the same as investigating any other information institution involved in the misappropriation of non-public information. For instance, if someone broke a legal agreement with their employer or another individual by sharing information with a journalist, they could be sued. Hanson believes that how the mystery Maduro trader obtained the information should be more relevant legally than the fact they made a bet based on it. “It’s not an issue of regulating these markets but regulating the people who are spilling this information,” Hanson said. (Then again, making a bet based on knowing Trump is about to take Maduro into custody isn’t the same thing as disclosing it because the veracity would only be known after the information becomes public.)
Perhaps the government could ask Polymarket to reveal the identity of the trader, but Hanson sees the anonymity of the user as akin to journalists who publish information from anonymous sources and are protected by the law if they choose to uphold source confidentiality.
Prediction markets are obviously different from news outlets because they allow an “insider” to reap outsized financial gain at the cost of another trader. But it would be difficult to legally protect people who have lost money to those with insider information. “This is a feature of these sorts of trades. Everyone knows going in, or should know, that there may be participants in the market that have more information than others,” said Stephen Piepgrass, a partner at law firm Troutman Pepper Locke who leads the firm’s regulatory investigations practice.
In fact, some believe that more “insiders” are necessary to make these markets more efficient and accurate. “If everybody knows that insiders can trade on this, then they will make more careful decisions about their money and what their predictions are, which will improve the accuracy of the prediction market,” said Alex Nowrasteh, a policy analyst at think tank Cato Institute. Polymarket does not currently make any explicit warnings to its users that insiders may be making trades on its platform.
Hanson goes even further: He thinks the ability to put money behind your beliefs in these prediction markets deserves constitutional protection as a form of free speech, just as protests are constitutionally protected. Money can communicate in ways written words or even a protest march can’t. “You can communicate the strength of your concern, your degree of confidence because the fact that you will lose money if you’re wrong can show people that you really believe what you’re saying,” he said.
If you look at prediction markets as an information institution where users are financially rewarded for freely expressing their opinions and beliefs based on the most accurate information they have, then the user who made $400,000 on predicting that Maduro would be ousted is only using the system as it’s been designed.
Prediction markets’ value as sources of information has become more compelling as both Polymarket and Kalshi have made recent moves into traditional media and news. On Wednesday, Polymarket announced an exclusive partnership with the Wall Street Journal’s parent company Dow Jones, where Polymarket data will be displayed across its online platforms. In December, Kalshi announced partnerships with CNN and CNBC, which will display Kalshi tickers on their live broadcasts.
Industry pundits, including Hanson, have long believed prediction markets could disrupt mainstream information institutions like news outlets. Brain Armstrong, the founder of crypto exchange Coinbase, which recently began offering prediction markets on its platform, said in a CNBC interview last February that he saw prediction markets “as less of a trading product and more of an alternative to the New York Times.”
In the past, Coplan has even thought of CNN as Polymarket’s largest competitor, according to a source familiar with his thinking. Though in a recent interview with Forbes, Coplan reframed Polymarket as complimentary to rather than a competitor of traditional media and news outlets. “Polymarket has carved itself out as part of the news palette of the educated individual in the modern era,” Coplan told Forbes in October.
Still, the reality is that 90% of trading activity on prediction markets is the outcomes of sports games—not politics, economics or other newsworthy topics. There’s been a slew of state litigation attempting to classify sports prediction markets as gambling, so states can regulate and tax these markets like they do businesses such as sportsbooks. And states will only continue to bring prediction markets to court because they stand to lose out on a lot of tax revenue, Malyshev said. Prediction markets have been able to counter this litigation based on the argument that their users trade legitimate financial instruments on a federally-licensed exchange. Bring up the idea that prediction market contracts transcend or push the boundaries of this legal classification, and it’s unclear how much more complicated their regulation can get, said Dustin Gouker, a gambling industry analyst.
With the issue of insider trading dividing even the industry’s loudest proponents, it’s an existential moment for prediction markets. As Gouker put it: “Yes, insider trading can get us the information quicker, but if insider trading is encouraged, then why would people bet into markets where people have more information than they do?”
