Could Prediction Markets Corrupt Canada's Political Process?
I wouldn’t advise Canadians to place bets on a prediction market platform like Polymarket. That’s because - depending on where in Canada you live - the act could be treated as a criminal offence. Enforcement has so far been spotty, but it’s been argued that the practice could expose you to prosecution for either binary options trading or unlicensed gambling.
Which isn’t to say that Canadians aren’t doing it anyway. A quick search of Polymarket will show you that there are all kinds of active markets for events of exclusively Canadian interest - like whether the Bank of Canada will change its interest rate on a given date. Covert participation requires little more than a VPN and a cryptocurrency account.
Prediction markets are popular because they allow users to (anonymously) commit cryptocurrency funds as wagers on the future outcomes of specified events. Millions of dollars worth of bets are made based on how users feel elections, economic developments, or wars will turn out.
How much money a successful prediction will earn depends on how much was invested in a particular market altogether and how many other users predicted correctly. Earnings will also depend on the complexity of the market question. Linked predictions going beyond just “win” or “lose” to “win or lose by how much” can increase the payout.
Besides their entertainment value, prediction markets are closely monitored by economists, social scientists, and political parties. That’s because market activity data represents many thousands of individuals who’ve actually put their money down in support of their opinions. In other words, prediction markets are turbo charged opinion polls.
But there’s a dark side to all this beyond the built-in risks of gambling and binary trading. It’s worth understanding how it can impact the way we’re governed right here in Canada.
As Racket News recently reported, prediction markets are seeing patterns that suggest a dangerous form of insider trading. As an example, markets for predicting a U.S. attack on Iran last June provided significant payouts to users whose predictions were unnaturally accurate - and who profited yet further by holding back their bets until the very last moments before attacks were announced.
This suggests that people with inside information were - perhaps illegally - profiting from their sensitive positions. Perhaps worse, betting behavior could possibly be used by adversaries to anticipate military activity. And there’s also evidence that official U.S. government publications have been distorted to falsify outcomes and alter market bets.
According to a detailed report, a Times of Israel journalist was pressured and eventually threatened with violence unless he edited details of a published report about a missile impact near Beit Shemesh in Israel.
It seems that whether the impact was classified as a hit from a missile or from missile debris would determine the outcome of many hundreds of thousands of dollars of Polymarket bets. People who needed a particular outcome were apparently willing to resort to blackmail and violence to “correct” history.
That particular journalist - Emanuel Fabian - stood firm and refused to allow the change. But who knows whether other journalists or government workers with authority over official records are made of the same stuff.
In a more local context, there’s not a lot of cash currently riding on Bank of Canada rate changes: typically around $100,000 is available in total for each bank decision. But just imagine how someone deep inside Department of National Defence might be tempted to anonymously throw his or her hat into the ring for a $20,000 market on whether Canada will back out of the F-35 deal with the U.S. Or couldn’t someone from Privy Council Office rationalize “earning” a bit of extra easy income relating to Canada’s tariff policies?
It’s not just that the insider trading disrupts the betting markets themselves. It’s that public servants in positions of power are able to change government policy - not for the good of the nation - but to enrich themselves.
At the very least, this might be a good case for some updates to official government policy, not to mention an extra clause or two in civic service employment contracts.
related:
Those Bank of Canada rate markets on Polymarket already pull in about $100,000. Public servants could use non-public info to bet anonymously then nudge policy for personal gain. Section 8 of the Conflict of Interest Act forbids exactly that. I read the full text at https://laws-lois.justice.gc.ca/eng/acts/C-1.9/. Crypto and VPNs make enforcement a nightmare though. The Ethics Commissioner needs to update the rules fast.
This is likely the least damaging reason why the criminal enterprise of the state should be rolled back to a handful of functions. Thoughts from a grumpy old libertarian.