Polymarket has once again generated concerns over possible financial instability and market manipulation; as users are allowed to take positions on whether banks like HSBC and Lloyds Banking Group will fail by the end of the year.
Liberal Democrat MP and UK Treasury committee member Bobby Dean said to the Guardian: "Polymarket has a poor reputation for stopping insider trading or bad actors placing bets on their platform, so it’s easy to see how it could be exploited to try to aggravate real shifts in market sentiment.
“If the bank-related activity grows on the platform and then a particular market was to escalate rapidly, it could even trigger bank runs."
A bank run occurs when many customers withdraw all their money at the same time because they fear the bank will fail. In 2023, bank runs were one of the reasons for Silicon Valley Bank and Credit Suisse's collapse.
In September, the European Securities and Markets Authority (ESMA) warned that the expansion of prediction markets pose a risk of insider trading and market manipulation.
Polymarket is already facing regulatory scrutiny in Europe, as the countries that have restricted access or blocked the website include Denmark, Germany, Ireland, Belgium, Romania, Switzerland, Poland, the Netherlands, Greece, Portugal, Spain, Ukraine, the Czech Republic and most recently Lithuania. However, that still leaves around 150 countries where users stand to benefit from huge financial instability.
Speaking to the Guardian, Chief Legal Officer Neal Kumar said: "The information in these markets is already public. Banks, hedge funds and credit professionals have had access to credit default swap markets for years. You shouldn’t need to work at an institution like that to have access to information on a topic of this importance like bank failures.
“Polymarket simplifies the question, providing a much larger audience with information, and markets serve as a powerful source of information and combating disinformation.”
Polymarket has been lobbying ESMA and the European Commission to classify its contracts as financial derivatives rather than gambling products
