TORONTO – Prediction markets are experiencing rapid growth, processing billions of dollars in daily trades, according to a CBC News broadcast. These platforms allow users to trade on the outcomes of events ranging from sports and politics to the weather and even war.

Concerns Over Gambling and Regulation

Critics argue that prediction markets function similarly to gambling, despite being regulated differently. In the United States, they are overseen by the same federal body that regulates commodity futures. Approximately 90% of Calci’s trade volume last year was attributed to sports betting, leading some to characterize these markets as a form of gambling, as stated by a commentator during the broadcast.

Clinical psychologist Andrew Kim noted the similarities between betting on platforms like Polymarket or DraftKings, and traditional online gambling, emphasizing the need for similar protections for problem gamblers.

One American user interviewed by CBC News reported earning approximately $200,000 in the past year, while another lost around $2,000 betting on a U.S.-Iran strike contract. The user, who wished to remain anonymous, described the stress associated with losses and the temptation to recoup them, even while acknowledging the potential to quit.

Market Design and Potential for Manipulation

The design of prediction markets, resembling financial markets with statistical displays, aims to create familiarity and legitimacy, particularly for users accustomed to trading apps like Robinhood. However, this design can also obscure the risks associated with these platforms.

The broadcast highlighted concerns about potential market manipulation, citing a Polymarket account that reportedly made $15,000 in a single day on the Iran strike trade 71 minutes before the news became public. Insider trading is now prohibited on both Calci and Polymarket.

Regulatory Landscape in Canada and the US

In Canada, short-term binary options, similar to those offered on prediction markets, are generally prohibited under a 2017 ruling. However, users can circumvent these restrictions using VPNs. Wealthsimple recently became the second Canadian company to receive approval to operate a limited prediction market, with restrictions on contracts related to elections, political events, unlawful activities, and those with durations under 30 days.

In the U.S., lawmakers have introduced a bill to ban sports event contracts and casino-style games on prediction markets. Arizona’s attorney general has filed criminal charges against Calci for operating an illegal gambling business. Polymarket has stated it is increasing efforts to prevent insider trading, and Calci is implementing measures to block bets from sports figures and politicians.

Despite these concerns, proponents argue that prediction markets can aggregate information and provide insights more effectively than traditional methods like public opinion polls. Werner Antweiler, who ran a prediction market through UBC for over 20 years, cautioned that commercial prediction markets, where large bets can influence prices, differ from purely predictive markets and open the door to manipulation.

A New Jersey court recently ruled in favor of Calci, allowing users to continue betting on sporting events, a decision the company’s CEO called “a big win for the industry.”