The leading prediction market Polymarket is reported to be establishing an internal market-making team that may directly bet against users in the market. This strategy is originally intended to enhance liquidity, but it risks entering the legal and trust controversies faced by competitor Kalshi, including neutrality issues such as conflicts of interest and odds manipulation. Meanwhile, the participation of whales and professional institutional market makers is reshaping the power balance in the prediction market.
Polymarket recruits internal market makers to bet against users?
Bloomberg reports that Polymarket is actively recruiting members with professional trading experience to form an 'internal market-making team' that will be able to place orders directly on the platform in the future, taking on less popular or higher-risk positions in the market, filling liquidity gaps and stabilizing market depth.
This move has shifted the prediction market platform from a facilitator role to gradually approaching a traditional bookmaker model, drawing significant external attention.
In 2022, Polymarket was fined $1.4 million for regulatory violations and forced to exit the U.S. market, but it has now regained regulatory approval and is once again allowed to operate.
(Polymarket receives approval from the U.S. CFTC to return to the U.S. market as a compliance-based intermediary trading platform)
Lessons from the past: Kalshi's internal market-making faces collective lawsuits, raising concerns about conflicts of interest.
Last week, Kalshi just got embroiled in multiple lawsuits due to its market-making company Kalshi Trading, with officials claiming the purpose is to increase liquidity and improve user experience.
It is reported that the collective lawsuit accuses them of manipulating market odds, placing users at a disadvantage against professional institutional counterparties due to information asymmetry, believing their model has deviated from the positioning of a neutral trading facilitation platform, instead resembling traditional but unlicensed sports betting companies.
Despite Kalshi founder Luana Lopes Lara rebutting that this is smear, emphasizing that internal market makers did not profit and received no special treatment, the controversy has not subsided.
(Kalshi is accused of operating an illegal gambling platform, betting against retail investors: Is compliance becoming a stumbling block in business?)
Polymarket's neutrality faces challenges: Can whales and market makers sustain liquidity?
Polymarket has rapidly grown, but it has reportedly relied heavily on whales and external market makers to provide liquidity.
Community leaks, including wallet activities of large market makers like Wintermute and Jump Trading being found to overlap significantly with the platform, have raised concerns about whether a few players could lead the overall situation.
However, with more institutions entering the market, Polymarket, originally focused on 'crowd wisdom' and 'truth discovery engine,' faces new concerns: Is the platform still a neutral information market, or is it gradually evolving into another bookmaker calculating odds?
(Betting or truth? Polymarket's prediction market is accused of manipulation, with 'UMA whales' raising a crisis of trust)
The next watershed moment for the prediction market: financial instrument or gambling platform?
As Polymarket and Kalshi obtain regulatory approval in the United States, the prediction market is rapidly entering the mainstream. However, issues such as the role of market makers, whether the platform intervenes in price formation, and whether specific traders have an information advantage are challenging its core claim of crowd wisdom.
For example, recently there were reports of a Google insider repeatedly betting on Polymarket using insider information, winning 22 out of 23 bets and making $1 million in a day.
Looking back, although the platform believes that market makers can ensure market liquidity and facilitate smoother transactions, if it goes off track, it may fall back into a regulatory gray area, undermining user trust in its legitimacy.
This article predicts that Polymarket will recruit an internal market-making team and operate like a casino? First appeared in Chain News ABMedia.