V God is optimistic about the development of the prediction market but is contradicted by the founder: it's just an illusion supported by VC subsidies

Vitalik praises prediction markets for stabilizing emotions and approaching the truth, but Leo bluntly states that the current situation relies on VC subsidies to support liquidity, with probabilities merely being a facade—more like a sports betting market with options, highlighting a clear gap from reality.

Ethereum co-founder Vitalik Buterin posted that prediction markets are a more “healthy” public information tool than social media, capable of reducing emotional speculation through probability pricing.

However, prediction market 42 and Alkimiya founder Leo Zhang openly admit that the current operation of prediction markets is not based on what he calls Plato’s “crowd wisdom,” but relies on the illusion created by VC subsidies supporting market makers—more akin to a lottery with an options wrapper.

Vitalik’s Plato-style prediction market: capable of uncovering the truth and stabilizing emotions

In Vitalik’s view, prediction markets are a solution to democratize information and resist the distortion of social media. He believes prediction markets can hold wrong predictors accountable, bring the market closer to the truth through repeated betting, and serve as a more reliable emotional stabilizer than panic news.

After seeing negative news, I often check Polymarket’s probabilities, which makes me calmer because the market’s reflection of “real” uncertainty is usually much lower than media hype.

He further explains that probability scores can reduce price volatility, making prediction markets a healthier environment for participation than stock markets.

The illusion of probabilities supported by subsidies: prediction markets still rely on “burning money” to maintain stability

However, Leo admits that Vitalik’s ideal model remains in textbooks and is far from reality: “Today’s prediction markets mainly operate because platforms subsidize market makers with VC funds to provide artificial liquidity.”

Market makers cannot hedge against real-world events and lack sufficient data modeling; without subsidies, they cannot bear inventory risk long-term.

In other words, the so-called “price = probability” is not a natural aggregation of crowd wisdom but an illusion created by subsidies.

Further reading
Experts are less reliable than the crowd? Study: Prediction markets outperform Wall Street analysts in inflation forecasts

Focusing on liquidity deserts: the most predictable events are actually the least traded

Leo continued, stating that in theory, prediction markets should turn “private information into public information,” especially valuable in technology, startups, or geopolitical risk events. But because these events are difficult to hedge and quantify risks, market makers naturally avoid them:

As a result, markets only have depth in areas like sports, political elections, or cryptocurrency prices, which are easier to quantify or larger in scale, while real-world scenarios needing prediction markets lack liquidity.

He describes that the numbers on user interfaces make platforms look capable of predicting everything, but most markets are dead zones—these prices are meaningless.

Probabilities are just decoration: lack of autonomous awareness makes markets superficial

Vitalik believes probability prices can eliminate bubbles, reduce speculation, and make markets healthier, but Leo sees this as just a visual illusion. Users in prediction markets are not seeking “accurate probabilities,” but are pursuing “P&L,” with behaviors like sweeping the order book (stable returns above 95%) being the best proof:

Market behavior is short-sighted and arbitrage-driven, with price discovery and liquidity concentrated in popular options and before settlement. Traders lack autonomous awareness and betting on event predictions, making markets more unhealthy and distorted.

Looking at prediction markets: tools for seeking the truth or beautified sports betting

The differing opinions reveal a gap between the reality and the ideal of prediction markets. Leo also bluntly states at the end:

The current stories with probabilities are just packaging built on subsidies and user interfaces. If we continue to deceive ourselves by loudly claiming “more healthy than regular markets,” what we ultimately get is a beautified gambling website.

• This article is reprinted with permission from：《Chain News》
• Original title: 《From Vitalik’s Utopian Ideal to the Current State of Prediction Markets: Relying on VC Subsidies and Market Makers to Create Liquidity Illusions》
• Original author: Curmax