The explosive growthin Prediction Markets has been difficult to avoid. The occasional outlandishbet, the surging popularity amongst next-gen traders and regulatory debate haveall been at the forefront, but whilst much of the focus is on whether these arebets or financial transactions, are we asking the right questions here? Or doesa more fundamental point sit behind all of this?The Purpose ofPublic MarketsIf we roll the entireconstruct back, let’s remember that public markets were designed to bringwilling buyers and sellers together, to help both parties find a fair price fora trade, then coordinate the transaction to ensure settlement was completed. Themarket, along with the professional parties involved –such as brokers andcustody agents – both took a “clip of the ticket” to compensate for theirefforts in the deal, all of which offered confidence regarding the fairness ofthe process to buyers and sellers alike.But crucially, themarket served as a mutual utility, with all participants playing a role in thefair price discovery process, in turn contributing towards the market’sefficiency.The Concentrationof ProfitsThat’s where the Wall Street Journal report from earlier in 2026, highlighting how 67% of all profits on Polymarket were being captured by just 0.1% of accounts, became eye-catching. Only a very small proportion of participants, notablythose who were very well capitalised or very well informed, could consistentlyhope to win on this venue.The glib response here may be that a fool and theirmoney are easily parted, but we have very recent precedent for behaviourprecisely like this, where dominant participants in a limited market canconsistently outperform – and what the outcome is.Lessons from HorseRacingThat has been playedout in the US of late with computer-assisted wagering (CAW) being deployed bybetting syndicates on horse racing tracks. Superior information processing,preferential order execution and volume rebates have proven lucrative to those usingthis tactic. The situation is compounded by the fact that betting on US horseracing uses a totalisator – or “tote” – rather than trading directly against abookmaker, which removes the peer-to-peer element that can ultimately act as a“flywheel of fairness”.However, as the UShorse betting scene became ever more one-sided, traditional “retail” betting onthe races plummeted as participants realised that it was getting harder torealise any wins. That situation is now wrapped up in legal disputes andclass-action lawsuits, whilst the stakes placed by CAW have droppedsignificantly too, but it all provides a useful insight into what happens when “institutional”behaviour inlimited-market environments is allowed to run unchecked.Are PredictionMarkets Heading the Same Way?Surely, on theircurrent trajectory, Prediction Markets are heading for the same destination?The technology available to the heaviest hitters improves literally every day,and so does their understanding of human behaviour. What’s more, as PredictionMarkets currently operate in what appears to be a Wild West environment –unregulated and with little that looks like an effective rule book – pricemanipulation is all too easy.Whether that’s opacity of the underlying or themarket operator sending out overt messages to users declaring that a trade ismispriced (using the defence that this is content marketing, not analysis),it’s difficult to see how these products are reflective of the financialmarkets or financial promotions structures that have evolved to date.Prediction Markets canserve a vital purpose at the peer-to-peer level, enabling any sort of trade tobe placed away from traditional exchanges but still conducted in a controlledmanner. Primarily, they should serve the buyer and seller, with the markettaking its fair cut on the way through. But make this a one-sided propositionwhere punters are betting against faceless “hedge-style” liquidity providerswho are backed by an ever-expanding information armoury, and the game willprove short-lived.The Risk of LosingRetail ParticipantsAs the horse bettingexample shows us, the retail market will walk away if the efficiency of thecounterparty reaches a level that makes the proposition too unattractive.Rather than debating if this is gambling or finance, perhaps the question thatneeds to be asked is whether this concept even resembles a fair market in anyway, shape or form.Ensuring thesestructures behave like markets – complete with enough informational friction toactually incentivise price discovery and reward the opinions of the retailtrader – is vital if they are to prosper.This article was written by Tony Cross at www.financemagnates.com.