Insider trading may be the most valuable part of the predictive market

Author: Chloe, ChainCatcher

Original Title: Insider Trading Might Be the Most Valuable Part of Market Prediction

Recently, Venezuelan leader Maduro was detained. Before mainstream media announced the news, a Polymarket account established in late December quietly exited with a 1242% return. This event prompted U.S. Representative Ritchie Torres to propose the “2026 Financial Prediction Market Public Integrity Act,” aiming to regulate insider trading in crypto markets by borrowing from traditional financial oversight.

This article will focus on the Maduro incident as a case study to explore the controversial topic of “insider trading” in prediction markets, re-examining whether we need an absolutely fair casino or an accurate truth engine in decentralized prediction platforms.

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

In January 2026, it was confirmed that Venezuelan leader Maduro was detained. While mainstream media worldwide was still verifying sources, data on the decentralized prediction market Polymarket had already provided the answer.

A new account created on Polymarket in late December 2025 seemed to have a god’s-eye view, precisely predicting the event. During a quiet market period, this account made four predictions, all related to U.S. involvement in Venezuela. The largest bet was $32,537 on the prediction that “Maduro will be ousted before January 31.” At that time, the market’s implied probability for such an extreme event was only in the single digits, and the account bought in at a very low price of 7 cents.

When news broke early Saturday morning that Trump confirmed military action, these contracts surged to nearly $1 settlement price. The account made over $400,000 in less than 24 hours, with a return of 1242%. This was not ordinary speculation but a precise sniper shot.

Mystical Prophet or Insider Trading?

Such massive profits with a god’s-eye perspective quickly became the focus of community discussion. As the debate heated up, accusations of insider trading also emerged:

On-chain analyst Andrew 10 GWEI pointed out that the fund flow of this account showed high similarity: 252.39 SOL was withdrawn from Coinbase on January 1, and 252.91 SOL was deposited into another wallet the day before, with a time gap of 23 hours, suggesting possible chain-hopping through exchanges. More controversially, the related wallet registered domains like StCharles.sol and had large transactions with addresses associated with Steven Charles Witkoff, co-founder of World Liberty Finance (WLFI). Given WLFI’s close ties to the Trump family, this led to strong external suspicion: was this insider trading using White House internal information?

The on-chain analysis platform BubbleMaps later offered a different perspective. They argued that such “similar timing and amounts” inferences are superficial and pointed out that at least 20 wallets follow this pattern. Moreover, Andrew’s argument lacked direct evidence of on-chain fund movements, so there is no reliable proof linking this Polymarket account to WLFI co-founder.

Congressional Proposal for Integrity Law: Aims to Regulate Prediction Market Insider Trading

This incident also led U.S. Representative Ritchie Torres to propose the “2026 Financial Prediction Market Public Integrity Act,” which centers on banning federal elected officials, political appointees, and administrative staff from trading prediction markets based on “material nonpublic information” obtained through official duties.

However, this bill faces two major hurdles in practice. First is the lengthy and uncertain legislative process. In the complex power landscape of U.S. politics, such bills often undergo long hearings and interest negotiations, ultimately risking becoming political statements rather than effective laws.

Second is the enforcement blind spot in decentralized environments, where on-chain fund flows can be easily obscured through privacy protocols or complex routing mechanisms. Although the bill symbolizes traditional financial values entering prediction markets—aiming to protect retail investors from information asymmetry and ensure fair participation—it raises the question: would applying this regulatory logic directly to decentralized prediction markets cause conflicts due to differing core values, or even lead to market failure?

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

Returning to first principles, what is the purpose of prediction markets? Is it to give everyone a fair chance to profit, or to obtain the most accurate forecasts?

Traditional finance bans insider trading to protect retail investors’ confidence and prevent capital markets from becoming tools for the powerful. But in prediction markets, their core value might be “truth discovery.”

Prediction markets are machines that aggregate fragmented information into price signals. If a market on “whether Maduro will be ousted” bans informed insiders from participating, then the market’s prices would forever reflect only “outsiders’ guesses,” not “true probabilities,” thus undermining accuracy.

In the Maduro case, suppose the profit was not made by insiders but by a top-tier information analyst. By tracking unusual radio signals at the Venezuelan border, private jet landings, or even publicly available U.S. Department of Defense procurement lists, and then modeling the situation, they could piece together the likelihood of military action. Such behavior might be controversial in traditional regulation, but in the logic of prediction markets, it is highly valuable “information pricing.”

One mission of prediction markets is to break information monopolies. When parties interpret vague, delayed government diplomatic statements, the price fluctuations in prediction markets serve as early warning signals of truth. Therefore, rather than viewing this as insider trading, it is better to see it as rewarding those who hide information in the shadows to surface it through trading, providing the public with real-time risk guidance.

Prediction Markets as Tools for Pursuing Truth, Not Fair Trading Venues

The emergence of the “2026 Financial Prediction Market Public Integrity Act” may reflect regulatory bias against decentralized prediction platforms. If we pursue a “completely fair” prediction market, we might end up with a “completely invalid” one.

The Maduro incident profoundly reveals the true value of prediction markets: they turn hidden truths into on-chain signals accessible to all, by tracking the flow of funds. Blockchain transparency breaks the black box. Even if we cannot immediately identify the behind-the-scenes actors, when mysterious accounts build large positions or probabilities fluctuate wildly, the market is actually sending signals. This attracts smart money to follow quickly, rapidly closing information gaps, and transforming “insider” into “public probability.”

Prediction markets are not stock markets; fundamentally, they are radar for collective human wisdom. To keep this radar accurate, some level of information arbitrage friction is necessary. Instead of trying to block signals with bans, we should consider whether prediction markets are tools born for truth-seeking rather than strictly fair trading venues.