Ethereum co-founder Vitalik Buterin has raised significant concerns about the current trajectory of prediction markets, arguing that their rapid growth is being driven by short-term speculation rather than long-term financial utility. In a detailed post on social media platform X, Buterin acknowledged that prediction markets have achieved measurable success, with trading volumes now large enough to sustain professional traders and platforms that complement traditional media by aggregating forward-looking information.
However, Buterin warned that much of this activity is concentrated in short-duration crypto price bets and sports-style wagering, areas he described as offering limited long-term social or informational value. He expressed concern that platforms, especially during bear markets, are incentivized to prioritize these exciting, high-volume bets that generate fees, potentially at the expense of building durable financial infrastructure.
Buterin outlined a core structural issue: for informed traders to profit, prediction markets require a consistent group of participants who accept expected losses. He identified three archetypes for this group: naive traders who lose due to flawed judgment; information buyers (like institutions) who subsidize liquidity to extract valuable insights, a model facing public goods challenges; and hedgers who accept a negative expected value for risk management purposes.
Buterin's primary proposal is to expand prediction markets into generalized hedging tools, where participants knowingly accept slightly negative returns to reduce exposure to external risks. For example, an investor could use an election-based market to hedge against political outcomes affecting their portfolio.
He extended this concept further into the realm of financial stability, proposing a system that could reduce reliance on traditional stablecoins. Instead of fiat-pegged tokens, individuals could hold personalized baskets of prediction market shares linked to category-based price indices (e.g., housing, transportation). These baskets would be designed to match a user's specific future spending needs, acting as a form of personalized economic insurance. "People can hold stocks, ETH, or whatever else to grow wealth and personalized prediction market shares when they want stability," Buterin said.
The critique comes amid a period of explosive growth for the sector. A recent report by blockchain security firm CertiK notes that prediction markets experienced a four-fold growth over the past year, evolving from niche products to widely used financial tools. The report identifies Kalshi, Polymarket, and Opinion as dominant global platforms but also highlights structural weaknesses, such as the hybrid Web2-Web3 vulnerabilities exposed by a third-party breach affecting Polymarket in late 2025.
