The anonymous Polymarket trader that made over $400,000 in profit betting on Maduro’s ouster has been allegedly unmasked as special forces soldier Master Sgt. Gannon Ken Van Dyke. Van Dyke was a participant in the raid that captured the former president of Venezuela in early January. He now “faces five criminal charges for stealing and misusing confidential government information, theft and fraud.” The Commodity Futures Trading Commission, which asserts jurisdiction over prediction markets in the United States, has also filed a related civil complaint against the active duty soldier (the first such insider trading case involving prediction markets!).
We have previously discussed on this blog how prediction markets incentivize bad behaviour. The goal aggregating diffuse knowledge to produce unbiased forecasts is a lofty one, but in practice we get gambling, insider trading, and sometimes outright hostile/antisocial actions to make a bet happen.
To some, insider trading is a bug, not a feature. To quote Coinbase CEO Brian Armstrong on the subject: “If you’re actually optimizing it for a source of news, you 100% want insider trading.” (He uses the example of an admiral sitting in the Suez Canal making a bet based on military intelligence.) Is it worth knowing about events just before they happen if the mechanism is that retail traders (gamblers) get soaked over and over again?
At least this time, the culprit profiting off insider trading at the expense of other bettors might face justice. But the scale of insider trading that goes unpunished on these barely regulated exchanges is likely overwhelming.