Vitalik Buterin warns that prediction markets will collapse beyond repair

Ethereum co-founder Vitalik Buterin calls for a radical restructuring of decentralized prediction markets. He argues that the sector’s current reliance on speculative gambling threatens the sector’s long-term viability.

This opinion comes at a time when prediction markets like Polymarket have seen great success over the past year.

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Buterin calls for a structural reform of the prediction markets

On February 14, Buterin argued that Platforms like Polymarket It has achieved significant volume and mainstream attention, but currently suffers from “unhealthy market consensus.”

“Prediction markets seem to be excessively skewed toward an unhealthy product market consensus: short-term cryptocurrency price bets, sports bets, and the like have dopamine value, but don’t provide any kind of long-term gratification or social information value,” argued Buterin.

He warned that the sector was dangerously over-reliant on “naive translators”, who are known to be… Speculators looking for short-term payouts.

This speculative behavior is in sharp contrast with the purpose of the market: to facilitate the discovery of information and risk management.

Recently I started to worry about the state of prediction markets, in their current form. They have achieved a certain level of success: the market volume is high enough to make significant bets and have a full-time job as a trader, and they often prove useful as …

– vitalik.eth (@VitalikButerin) February 14, 2026

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Buterin classified current market participants into two distinct groups: “smart traders” and “financial losers.” Currently, the latter category is dominated by retail players.

He argued that if prediction markets continue to prioritize the extraction of revenue from these users at the expense of social benefit, they are vulnerable to collapse during bear markets when speculative enthusiasm cools down.

“There is nothing inherently morally wrong to take money from people with stupid opinions. But there is also something inherently “cursed” for excessive trust in it. It gives the platform the incentive to seek out traders with stupid opinions, and create a public brand and a community that encourages stupid opinions to attract more people,” said the Ethereum founder.

To ensure a sustainable future, Buterin suggested that these platforms turn into “hedging”, that is, they actually act as insurance mechanisms rather than betting platforms.

In this model, the user would not bet on an outcome to make a profit, but rather on realistic risks, like a business owner betting on a policy change that could have a negative impact on his supply chain.

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AI powered coverage system to replace Fiat

Extended recommendations Founder of Ethereum in radical economic areas, they suggest that prediction markets may eventually make stablecoins tied to fiat currencies obsolete.

Buterin proposed creating accurate price indices covering the main categories of world goods and services.

Under this theoretical framework, users use Large Language Local Models (LLMs) To analyze their personal spending habits. The AI ​​then creates a personalized “basket” of asset stocks that reflects the user’s specific lifetime cost.

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Holding these predictive market shares instead of Assets linked to the US dollar such as USDC or USDT, Users can theoretically preserve their purchasing power against inflation without relying on traditional banking infrastructure.

“We don’t need fiat currency at all! People can hold shares, ETH or anything else to increase wealth, market shares with personal predictions when they want stability.” books.

Buterin acknowledged that the transition from the current “information buying” phase to an advanced hedging economy will require a new infrastructure.

However, he emphasized that replacing fiat currency with baskets of diversified assets is still the latest evolution of technology.