Inside Trading in Prediction Markets: Truth Engine or Fair Casino?

Author: Chloe, ChainCatcher

Recently, when Venezuelan leader Maduro was arrested, a Polymarket account created in late December quietly exited with a 1242% return before mainstream media broke the news. This event sparked U.S. Representative Ritchie Torres’s “Financial Prediction Market Public Integrity Act of 2026,” attempting to introduce traditional finance’s “insider trading” regulations into the crypto market.

This article uses the Maduro event as a core case study to deeply explore the controversial “insider trading” issue in prediction markets, and to re-examine whether what we need in decentralized prediction platforms is an absolutely equal casino, or a precise truth engine?

Polymarket’s “Prophet” Moment: Accurately Predicting Maduro’s Fall

In January 2026, Venezuelan leader Maduro was confirmed to be arrested. As global mainstream media was still verifying news sources, data on decentralized prediction market Polymarket had already provided the answer.

A new account created on Polymarket in late December 2025 appeared to possess divine foresight, precisely predicting the event’s occurrence. While the market remained silent, this account made four bets, all related to whether the U.S. would intervene in Venezuela. The largest bet involved investing $32,537 wagering that “Maduro will step down before January 31st.” At the time, market expectations for such extreme events were single digits; this account swept positions at an extremely low price of 7 cents.

As Trump confirmed military action early Saturday morning, these contracts instantly spiked to settlement prices near $1. The account profited over $400,000 in less than 24 hours, achieving a 1242% return. This was no ordinary speculation—it was a precise sniper shot.

Prophet or Insider Trading?

This god-like perspective coupled with massive profits quickly became the community’s focus. As discussion heated up, accusations of insider trading followed:

Chain analyst Andrew 10 GWEI pointed out that the account’s fund flow showed extremely high similarity: 252.39 SOL withdrawn from Coinbase on January 1st closely matched 252.91 SOL deposited by another wallet the previous day in both amount and timing (23 hours apart), seemingly breaking the chain through exchange transfers. More controversially, associated wallets registered domains like StCharles.sol and had large transactions with addresses suspected to belong to World Liberty Finance (WLFI) co-founder Steven Charles Witkoff. Given WLFI’s close relationship with the Trump family, this raised strong suspicions: was this insider trading utilizing White House internal information?

On-chain analysis platform BubbleMaps subsequently offered a different perspective. They argued that the inference of “similar timing and amounts” was superficial, pointing out that at least 20 wallets on-chain match this pattern, and Andrew’s argument also lacked direct on-chain evidence of fund movement, therefore there was no reliable evidence linking the Polymarket account to WLFI co-founders.

Representative’s Integrity Act: Proposed Regulation of Prediction Market Insider Trading

This event also prompted U.S. Representative Ritchie Torres to propose the “Financial Prediction Market Public Integrity Act of 2026.” The act’s core aim is to prohibit federal elected officials, political appointees, and administrative staff from trading in prediction markets related to government policy using “material nonpublic information” obtained through their posts.

However, this bill faces a double divide in reality. First is the lengthy and uncertain legislative path—under America’s complex political landscape, such bills typically require extensive hearings and interest negotiations, ultimately often becoming texts where political posturing outweighs substantive impact.

Second is the enforcement blind spot in decentralized environments. On-chain fund flows can easily be obscured through various privacy protocols or complex intermediary mechanisms. Although the bill symbolizes that traditional finance values are beginning to formally intervene in prediction markets, attempting to protect retail investors from information harvesting and maintain fair participation rights, we must consider: will this regulatory logic, directly transplanted to decentralized prediction markets, conflict due to different core values and potentially cause prediction markets to malfunction?

The Core Value of Prediction Markets and the Paradox of Insider Trading

Returning to first principles, does the purpose of prediction markets exist to provide fair profit-making opportunities for everyone, or to obtain the most accurate predictions?

Traditional finance prohibits insider trading to protect retail investor confidence and prevent capital markets from becoming cash machines for the powerful. But in prediction markets, the core value may be “truth discovery.”

Prediction markets are machines that aggregate fragmented information into price signals. If a market asking “Will Maduro step down?” prohibits informed participants, then that market’s price will forever reflect “amateur guesses” rather than “true probabilities,” causing prediction markets to lose accuracy.

In the Maduro event, suppose the profit-maker was not an insider but a top information analyst. Through tracking unusual radio signals at Venezuela’s borders, private jet landings, even U.S. Department of Defense public procurement lists, and after modeling and synthesis, they deduced military action would occur. Such behavior may be controversial in traditional regulatory eyes, but within prediction market logic, it’s highly valuable “information pricing behavior.”

One mission of prediction markets is breaking information monopolies. As various parties interpret vague, lagging government diplomatic statements, price movements on prediction markets are already sending truth warnings to the world. Therefore, rather than calling this insider trading, it’s better called rewarding trade that surfaces hidden information from the shadows, providing real-time risk guidance to the public.

Prediction Markets Are Tools Born Pursuing Truth, Not Trading Venues Pursuing Fairness

The emergence of the “Financial Prediction Market Public Integrity Act of 2026” may reflect regulatory misunderstandings of decentralized prediction platforms. If we pursue a “completely fair” prediction market, we ultimately get a “completely ineffective” prediction market.

The Maduro event profoundly reveals prediction markets’ true value: it converts hidden truths into on-chain signals inspectable by all through traces of capital flows. Blockchain’s transparency breaks the black box. Even if we cannot immediately identify the hidden hand, when mysterious accounts build positions heavily and probabilities fluctuate dramatically, the market is actually sending signals. This attracts smart money to quickly follow, rapidly erasing originally unequal information gaps, transforming “inside information” into “public probability.”

Prediction markets are not stock markets—they are essentially humanity’s collective wisdom radar. To keep this radar accurate, we must necessarily tolerate the friction costs that information arbitrage brings to some degree. Therefore, rather than using prohibition to block signals, should we consider positioning prediction markets as tools born pursuing truth rather than trading venues pursuing fairness?