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Ethereum co-founder Vitalik Buterin has expressed growing concern about the current direction of crypto prediction markets, warning that the sector may be converging on short-term speculative use cases at the expense of broader societal value.
“Recently I have been starting to worry about the state of prediction markets, in their current form,” Buterin wrote.
He acknowledged that prediction markets have achieved measurable success. Volume is high enough to support professional traders, and markets can serve as a useful supplement to traditional media. However, he argued that the dominant product direction appears increasingly focused on short-term cryptocurrency price bets, sports betting, and other high-engagement formats.
“They have achieved a certain level of success: market volume is high enough to make meaningful bets and have a full-time job as a trader, and they often prove useful as a supplement to other forms of news media. But also, they seem to be over-converging to an unhealthy product market fit: embracing short-term cryptocurrency price bets, sports betting, and other similar things that have dopamine value but not any kind of long-term fulfillment or societal information value.”
Buterin suggested that revenue pressures, particularly during bear markets, may incentivize platforms to prioritize these high-volume categories.
“My guess is that teams feel motivated to capitulate to these things because they bring in large revenue during a bear market where people are desperate - an understandable motive, but one that leads to corposlop.”
A Structural Incentive Problem
Buterin framed the issue around the basic structure of prediction markets. In his view, these markets rely on informed traders who provide information and earn profits, and some class of participant who loses money.
He outlined three categories of participants who might fill that role:
- “Naive traders”: people with dumb opinions who bet on totally wrong things
- “Info buyers”: people who set up money-losing automated market makers, to motivate people to trade on markets to help the info buyer learn information they do not know.
- “Hedgers”: people who are -EV in a linear sense, but who use the market as insurance, reducing their risk.
He argued that the current ecosystem is dominated by the first category.
“IMO there is nothing fundamentally morally wrong with taking money from people with dumb opinions. But there still is something fundamentally "cursed" about relying on this too much. It gives the platform the incentive to seek out traders with dumb opinions, and create a public brand and community that encourages dumb opinions to get more people to come in. This is the slide to corposlop.”
Shifting Toward Hedging
Buterin proposed reorienting prediction markets toward generalized hedging.
He illustrated this with an example involving biotech stocks and elections. An investor exposed to policy risk could use prediction markets to offset downside scenarios. Even if the trade is negative expected value in isolation, it may improve overall utility by reducing risk.
He then extended the idea further, applying it to stablecoins and currency design.
“What do people who want stablecoins ultimately want? They want price stability. They have some future expenses in mind, and they want a guarantee that will be able to pay those expenses.”
Buterin questioned whether USD-backed stablecoins can fully align with crypto’s decentralization goals and proposed a more radical model built around prediction markets tied to real-world expense categories.
“Here's the idea. You have price indices on all major categories of goods and services that people buy (treating physical goods/services in different regions as different categories), and prediction markets on each category. Each user (individual or business) has a local LLM that understands that user's expenses, and offers the user a personalized basket of prediction market shares, representing "N days of that user's expected future expenses".”
Under that framework, he suggested that currency itself could become optional.
“Now, we do not need fiat currency at all! People can hold stocks, ETH, or whatever else to grow wealth, and personalized prediction market shares when they want stability.”
He concluded with a broader call for the sector to rethink its direction.
“Build the next generation of finance, not corposlop.”
