Prediction Markets Are Becoming Financial Infrastructure. Their Security Is Not Ready.

Introduction

Prediction markets are experiencing unprecedented growth. During the 2024 U.S. election, platforms like Polymarket saw billions in trading volume, bringing these markets into mainstream consciousness. What was once a niche crypto experiment is now being discussed as potential financial infrastructure.

The Security Gap

Our analysis of major prediction market platforms reveals critical security gaps that pose significant risks to users and the broader ecosystem.

• Oracle manipulation vulnerabilities in outcome resolution
• Smart contract risks in market creation and settlement
• Centralization risks in dispute resolution mechanisms
• Front-running opportunities in order matching
• Liquidity pool exploitation vectors

Attack Vectors

We identified several attack vectors that could be exploited by malicious actors.

// Example: Oracle Manipulation Vulnerability
contract VulnerablePredictionMarket {
    function resolveMarket(uint256 marketId, bool outcome) external {
        // No verification of oracle source
        // No time delay for disputes
        // Single point of failure
        markets[marketId].resolved = true;
        markets[marketId].outcome = outcome;
        distributeWinnings(marketId);
    }
}

Recommendations

Prediction markets must evolve their security posture to match their growing importance.