The Rise of Insider Trading as a Strategy in Growing Prediction Markets
A recent series of profitable bets that were strategically placed just before the toppling of Nicolás Maduro has sparked a heated debate over insider trading within prediction markets. These trades have led lawmakers to question whether individuals are gaining from privileged or undisclosed information rather than market analysis.
Tre Upshaw, a 29-year-old former memecoin trader hailing from Nova Scotia, has taken advantage of this controversy by developing a tool called Insider Finder. This tool is integrated into his larger analytics platform, Polysights, and is designed to identify suspicious activity on prediction markets like Polymarket. Insider Finder scans the market for trades that are significantly abnormal or unusually large, suggesting potential insider knowledge being acted upon. Upshaw then publicizes these findings on social media, allowing followers and subscribers to interpret them as potential trading cues. Although he cannot definitively prove insider trading, Upshaw often invests a small portion of his own capital in the same trades to demonstrate confidence. Approximately 85% of the scenarios flagged by Insider Finder have proven to be profitable.
“In traditional financial settings, trading on inside information can be highly detrimental,” explained Upshaw in an interview. “However, prediction markets serve as information hubs. In this context, insider trading expedites the process of discovering the truth.”
The monitoring conducted by Upshaw closely resembles the oversight typically carried out by regulators in traditional markets, where the use of undisclosed material information is strictly forbidden. The challenge arises from the fact that prediction markets are relatively new and rapidly expanding, making the regulations surrounding insider trading less defined. The Commodity Futures Trading Commission (CFTC) in the U.S. oversees these markets but has taken a hands-off approach regarding insider activity and has not yet provided clear guidance on the matter. Given the Trump administration’s lenient approach to financial regulations, aggressive enforcement is not anticipated, especially since Donald Trump Jr. is involved with Polymarket as both an adviser and a partner at 1789 Capital, an investment firm that has funded the platform.
Prediction market supporters argue that these markets excel at extracting information from individuals closely connected to unfolding events. By encouraging informed participants to risk real money, these markets can produce more precise signals for the general public. Significant trading activity related to Venezuela initially signaled major political developments.
Recently, Representative Ritchie Torres from New York garnered bipartisan backing for legislation that would restrict federal officials from trading contracts associated with policy outcomes if they have or could easily obtain undisclosed material information through their positions.
Polymarket has attracted attention due to its transparent nature. Operating on blockchain technology enables the recording of every transaction on a public ledger. This transparency facilitated Upshaw’s creation of Insider Finder and enables the tracking of individual trading behavior in near real time. Conversely, competing platforms like Kalshi, do not offer the same level of visibility as they do not entirely operate on blockchain technology and do not publicly disclose account-level transaction records.
Despite Polymarket’s substantial support from Intercontinental Exchange Inc., the platform itself operates in a legal gray area. Its primary exchange functions globally and is not accessible to U.S. citizens. Consequently, no identity verification is required. While Polymarket is currently testing a U.S.-regulated version of its exchange, it is expected not to operate on blockchain technology, which may result in detailed transaction data no longer being publicly available.