Only KYC can stop insider trading on prediction markets, Messari says

Source: CryptoNewsNet Original Title: Only KYC can stop insider trading on prediction markets, Messari says Original Link: Concerns over insider trading on prediction markets have intensified after a series of high-profile bets on geopolitical events, prompting fresh questions over whether it’s even feasible to curb such practices in the growing industry sector.

Preventing insider trading is realistically possible only on prediction markets applying Know Your Customer (KYC) measures, according to Austin Weiler, a research analyst at the blockchain intelligence firm Messari.

“For KYC’d platforms, the most effective mechanism is to restrict access upfront for users to specific markets,” Weiler noted, adding that state actors could be restricted from political or geopolitical markets.

“This does not fully eliminate abuse, since insiders can still share information with third parties, but it adds an important obstacle and raises enforcement standards,” he noted.

The problem with non-KYC prediction markets

For non-KYC, or fully onchain prediction markets, enforcement is extremely challenging and, in some cases, “nearly impossible,” Weiler said.

When wallets are not linked to real-world identities, there is no reliable way to identify traders or determine whether they have access to material non-public information (MPNI).

“Prediction markets can attempt to monitor unusual trading behavior, cap trade sizes, or slow trading during sensitive geopolitical periods. However, these measures are easily bypassed,” Weiler said, adding:

“Bans targeting government officials are only realistically enforceable in KYC-based systems. While all onchain activity is transparent, transparency alone does not solve the attribution problem. Without identity verification, it is extremely difficult to link an onchain wallet to a specific official, state actor, or insider with confidence.”

KYC requirements across prediction platforms

KYC requirements vary widely across established prediction platforms, while decentralized alternatives do not appear to require identity checks, or cannot technically support them.

One major platform enforces KYC requirements as part of its regulated model under the authority of the US Commodity Futures Trading Commission, requiring basic personal information from users and may request further verification using an identification document.

Another platform applies KYC to its US-based users, while non-US versions of the platform operate without mandatory identity checks, with access reportedly available via VPN according to social media reports.

Decentralized prediction market platforms provide no public information on KYC requirements.

The scrutiny of major prediction market platforms follows high-profile bets tied to geopolitical events, including reports of an anonymous trader turning $30,000 into more than $400,000 just hours before significant geopolitical developments.

Some US lawmakers have backed legislation aimed at barring government officials from trading on prediction markets when they hold material nonpublic information.