Ethereum co-founder Vitalik Buterin recently expressed serious concerns about the current state of decentralized prediction markets, warning that without a major shift in direction, they risk long-term unsustainability or collapse.
In a detailed post on X, Buterin acknowledged the successes of platforms like Polymarket—high trading volumes, the ability to support full-time traders, and their role as a news supplement.
However, he argued they are “over-converging” on an unhealthy product-market fit: focusing heavily on short-term cryptocurrency price bets, sports wagering, and other high-dopamine activities that provide momentary excitement but little long-term societal value or informational utility.
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He described this as a slide toward “corposlop” (corporate slop), driven by platforms chasing revenue in tough markets by catering to “naive traders”—uninformed participants who consistently lose money, effectively subsidizing “smart traders” who profit from better information.
Buterin outlined three main types of participants who absorb losses in prediction markets: Naive traders (current dominant model): People betting on bad ideas, which he sees as morally neutral in isolation but “cursed” when over-relied upon, as it incentivizes platforms to encourage poor decision-making and exploitative communities.
Info buyers; decision markets where organizations pay for information: Limited by public goods problems, as info benefits everyone for free. Hedgers (his proposed solution): Users who accept expected losses (-EV linearly) for risk reduction, like insurance.
He advocated pivoting strongly toward generalized hedging as a more sustainable path. Examples include: Betting against politically unfavorable outcomes to offset portfolio risks like holding biotech stocks while hedging election risks.
A radical vision: Replacing fiat/stablecoins entirely with personalized baskets of prediction market shares tied to individual future expenses such as housing, food, regional goods/services. AI/LLMs could customize these baskets, providing true stability without relying on centralized currencies.
For this to work, markets would need to be denominated in desirable assets; interest-bearing ones, ETH, or wrapped stocks to avoid high opportunity costs. Emphasizing the risk of collapse if platforms continue depending on speculative gambling during bear markets, rather than evolving into robust hedging tools.
His core warning is that the sector’s current trajectory—dominated by short-term, high-dopamine speculation on crypto prices, sports, and similar events—creates an unsustainable model reliant on “naive traders” who consistently lose money.
Without a pivot, he argues, these markets risk collapsing or stagnating, especially in bear markets when speculative volumes dry up.
Here are the key implications of his critique and proposed shift toward generalized hedging: Current reliance on naive (uninformed) participants incentivizes platforms to prioritize addictive, low-value bets to maximize revenue and liquidity.
This creates a feedback loop: platforms build communities and features around “dumb opinions” to attract more losers, subsidizing smart traders. In prolonged downturns or reduced retail enthusiasm as seen in recent crypto cycles, volumes could plummet, leading to liquidity crises, platform failures, or regulatory backlash.
Buterin contrasts naive traders with hedgers: users who accept small expected losses for risk reduction, similar to buying insurance. This could elevate prediction markets from gambling/entertainment to core financial infrastructure, attracting sophisticated institutional capital, long-term users, and higher-quality liquidity.
It aligns with ideals from Robin Hanson but addresses public goods issues in info-buying models. Markets must be denominated in desirable, interest-bearing, or appreciating assets like ETH, wrapped stocks to minimize opportunity costs—non-yielding fiat would undermine hedging value.
Integration with AI for personalized baskets and onchain indices for goods/services prices would be essential. This requires major infrastructure builds like better oracles, LLM-driven customization, cross-asset denomination. If achieved, it could decentralize money itself, reducing reliance on USD-backed stablecoins and enhancing crypto’s antifragility.
Failure to adapt might leave markets niche or entertainment-only. Prediction markets have gained prominence but face scrutiny. A hedging pivot could position them as legitimate risk-management tools, potentially easing regulatory pressure by emphasizing utility over gambling.
Success here might inspire hybrid systems (prediction markets + governance/DAOs) and influence stablecoin designs. Failure risks the sector being dismissed as “casino crypto,” limiting mainstream adoption and innovation. It echoes ongoing crypto debates about speculation vs. utility.
This could spur developer focus on hedging prototypes, AI integrations, or new platforms. It also pressures existing ones like Polymarket to evolve or risk losing mindshare. Buterin’s intervention is a call to action: prediction markets have proven technical viability but face a moral and economic fork in the road.
Pivoting to hedging could unlock profound innovation—potentially redefining money and risk management in a decentralized world—while sticking with the status quo risks turning them into another unsustainable hype cycle.
Buterin concluded: “Build the next generation of finance, not corposlop.” This comes amid prediction markets’ growing prominence, but also regulatory pressures and debates over their role beyond entertainment/speculation. His view aligns with long-standing ideas in the space while pushing for practical, AI-enhanced evolution.