Prediction Markets Driven by 3.5% of Users, Study Finds

Prediction markets, often touted as a tool for crowd-sourced forecasting, are dominated by a small, highly informed group of traders, according to a study by researchers from London Business School and Yale University. The study analyzed Polymarket data from 2023 to 2025 and found that just 3.5% of accounts generate the bulk of price discovery, while the majority of participants fund this accuracy through losses.

The findings challenge the perception that prediction markets operate on the “wisdom of the crowd.” Instead, the authors argue, their accuracy reflects the “wisdom of an informed minority”—market makers and skilled traders who earn outsized profits. On average, market maker accounts pocketed $11,830 each during the study period, while other informed traders collectively captured over 30% of total gains. The majority of participants, labeled as “unlucky losers,” covered aggregate losses.

Rising Popularity and Concerns

Prediction markets have become a hotbed of activity in the crypto sector, recording over $15 billion in monthly trading volume as of 2026. Platforms like Polymarket and Kalshi allow users to trade contracts on events ranging from elections to sports outcomes, offering a financial incentive to aggregate collective beliefs.

However, this rapid growth has drawn regulatory scrutiny. Concerns over insider trading are mounting, with critics arguing that the pseudonymous nature of these platforms makes them ripe for abuse. A recent case on April 26 involved a soldier allegedly using classified information to profit on a prediction market bet. Researchers noted that prediction markets face less oversight compared to securities markets, opening the door for private information to influence trading outcomes.

Regulatory and Ethical Implications

The study’s findings highlight a potential ethical quandary: while the informed minority drives market efficiency, their gains come at the expense of less-informed participants. This dynamic raises questions about fairness, particularly as platforms gain traction among a broader user base. Regulatory pressures are likely to increase, with platforms potentially needing to adopt stricter rules to mitigate insider trading risks. For instance, some platforms have begun banning political candidates from betting on their own campaigns.

The study also underscores the profitability gap within prediction markets. Another analysis, released earlier this month, found that only 0.015% of traders on Polymarket achieved consistent profits of $5,000 or more over four consecutive months. These findings suggest that prediction markets, while lucrative for a select few, offer limited opportunities for the average user to turn a profit.

What’s Next for Prediction Markets?

As prediction markets evolve, the pressure to address transparency and fairness will grow. Kalshi and Polymarket’s recent plans to introduce perpetual contracts signal innovation, but they may also invite further regulatory oversight. With trading volumes soaring and insider trading concerns escalating, the next few years will likely define the long-term viability of these platforms.

For now, traders should approach prediction markets with caution, understanding that the odds may be tilted in favor of an informed minority who dominate price discovery and profitability.

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