Vitalik Buterin has raised concerns about the direction of prediction markets, warning that the sector risks long-term instability as platforms lean heavily on speculative behavior. His remarks outline a proposal that reframes prediction markets as tools for hedging risk tied to real-world expenses rather than short-term betting.
In a post on X, Buterin wrote that he has "been starting to worry about the state of prediction markets" despite their growth and visibility. He acknowledged that market volume now supports full-time traders and often complements news coverage. He also warned that the ecosystem has drifted toward "short-term cryptocurrency price bets, sports betting, and other similar things that have dopamine value but not any kind of long-term fulfillment or societal information value."
The criticism marks a sharper tone from someone who previously backed the space, including participation in funding tied to platforms such as Polymarket. The sector gained attention over the past year as adoption and trading activity rose.
Recently I have been starting to worry about the state of prediction markets, in their current form. They have achieved a certain level of success: market volume is high enough to make meaningful bets and have a full-time job as a trader, and they often prove useful as a…
— vitalik.eth (@VitalikButerin) February 14, 2026
A structural problem inside the current model
Buterin divided market participants into two groups: "smart traders" who profit from information and those who lose money. He argued that the latter category now consists largely of uninformed retail participants.
"There is nothing fundamentally morally wrong with taking money from people with dumb opinions," he wrote. "But there still is something fundamentally 'cursed' about relying on this too much."
He warned that dependence on uninformed traders creates incentives for platforms to cultivate speculation rather than information discovery. That dynamic conflicts with the original purpose of prediction markets, which focused on risk management and collective intelligence.
His critique arrives during a period of strong industry momentum. Platforms such as Kalshi and Polymarket processed tens of billions in trading volume in 2025. Kalshi reached an $11 billion valuation, while Polymarket reached $9 billion after fundraising rounds. Jump Trading agreed to act as a market maker for both companies in exchange for equity stakes. Coinbase launched prediction markets across all 50 U.S. states through Kalshi’s infrastructure late last month.
Proposal: prediction markets as hedging tools
Buterin proposed a shift away from speculation toward hedging. Under this approach, users would not seek profit from bets. They would instead offset real-world risks tied to business exposure, investments, or living costs.
He outlined three categories of participants: naive traders, information buyers, and hedgers. He argued that naive traders dominate current markets. Information buyers face a public goods problem because everyone benefits from the information they fund. Hedgers, in his view, offer a sustainable foundation because they accept small expected losses in exchange for stability.
The framework relies on prediction markets that track price indices across categories of goods and services. Each region and spending category would have its own market. Individuals and companies would hold positions that match expected future expenses.
Local AI systems would analyze personal spending patterns and construct customized baskets of positions. Those baskets would represent coverage for future costs. The model mirrors insurance rather than gambling.
Toward a post-fiat financial structure
Buterin extended the concept into a broader economic vision. He suggested that prediction markets denominated in productive assets could reduce reliance on fiat-pegged stablecoins.
"We do not need fiat currency at all!" he wrote. "People can hold stocks, ETH, or whatever else to grow wealth, and personalized prediction market shares when they want stability."
The idea connects to his earlier concerns about the sustainability of dollar-pegged assets and non-interest-bearing instruments. He argued that markets tied to yield-bearing assets or equities could deliver better hedging outcomes.
His proposal also builds on earlier discussions about the intersection of artificial intelligence and decentralized systems on Ethereum. He has described a future where AI tools help scale decision-making and strengthen decentralized governance structures.
Industry momentum meets philosophical tension
Prediction markets have achieved legitimacy through volume growth, institutional participation, and broader public visibility. That success also highlights tension between commercial incentives and long-term societal utility.
Buterin framed the issue as a choice about the future direction of decentralized finance. Platforms can continue to pursue revenue tied to speculative activity, or they can reposition toward risk management infrastructure tied to real economic needs.
He closed his message with a direct call to the industry:
"Build the next generation of finance, not corposlop."
Anastasiia G
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