Vitalik Buterin stated that the hedging function of the prediction market has significant flaws! After Ethereum broke its historical high, the gap in hedging tools in the crypto market has become prominent.

Ethereum co-founder Vitalik Buterin recently pointed out that the current prediction market cannot serve as an effective hedging tool due to the lack of interest payment mechanisms and participant diversity. This statement comes as the price of Ethereum breaks $4956, reaching a historic high, with a surge in investor demand for risk management tools, exposing the significant gap between crypto financial infrastructure and traditional markets.

1. V God sharply analyzes: Why prediction markets are difficult to serve as hedging tools

Vitalik Buterin expressed his latest views on the Farcaster platform, pointing out the structural flaws in the current prediction market:

1. No interest payment mechanism: Participants must forgo the guaranteed returns provided by traditional finance.

2. Single type of participants: mainly attracting result speculators rather than risk transfer traders.

3. Lack of standardized products: There is a significant gap compared to mature products like S&P 500 index futures.

4. Insufficient liquidity depth: Difficult to form an efficient pricing mechanism.

5. Success Factors in Traditional Markets: Four Pillars Supporting Hedging Functions

Buterin summarized four key elements by comparing the successful experiences of traditional financial markets:

1. Highly standardized product design

2. A diverse group of participants

3. Extremely low transaction costs

4. Traders with different motivations coexist. These factors together create an effective market for risk management, while the current prediction market has yet to reach this standard.

5. Surge in Hedging Demand Against the Background of Ethereum Reaching New Highs

After Ethereum broke through the historical high of $4956 on August 24, there was a brief pullback, but overall it still maintains a strong upward trend. As the price approaches the psychological barrier of $5000, the demand from investors for profit-taking and hedging tools has surged. However, Buterin's analysis indicates that the existing prediction markets cannot meet this demand.

4. Market Status: Millions of Daily Trading Volume Coexist with Regulatory Dilemmas.

Despite the flaws, prediction market platforms are still thriving:

• Polymarket and Kalshi have daily trading volumes reaching tens of millions of dollars.
• Kalshi's latest financing values it at $2 billion.
• Regulatory agencies such as the SEC and CFTC in the United States find it difficult to effectively regulate this field.

5. In-depth Comparison: Differences Between Hedging Tools in the Encryption Market and Traditional Markets

6. Product Maturity Comparison

   1. Traditional markets: futures, options, swaps, and other derivatives have developed over several decades
   2. Encryption market: The prediction market is still in the early exploration stage.

7. Liquidity Depth

   1. Traditional market: trillions of dollars in daily trading volume
   2. Encryption Market: The daily trading volume of the prediction market is only several tens of millions of dollars.

8. Participant Structure

   1. Traditional Market: Market makers, institutions, and retail investors coexist diversely.
   2. Encryption market: dominated by retail speculators

9. Differences between Bitcoin and Ethereum Hedging Tools

10. Bitcoin: The futures ETF and options market are relatively mature. 2. Ethereum: Mainly relies on decentralized prediction markets, with limited functionality

VI. Disagreements Among Industry Giants: Hayes Bets $45 Million on Bullish Outlook

In stark contrast to Buterin's cautious attitude, Arthur Hayes has recently made a large-scale repurchase of Ether and set a target price of $20,000 for this cycle. The core logic includes:

1. The inflow of encryption financial funds continues to increase.

2. Tom Lee's BitMine company co-invested $45 million to purchase ETH.

3. The market structure continues to strengthen

4. Development Prospects: Derivative Innovation or Filling Market Gaps

As Ethereum continues to rise by 8% this week, the demand for hedging tools will continue to grow. If the structural issues pointed out by Buterin are resolved, it may drive the following innovations:

1. Prediction market protocol with interest payments
2. Institutional-level encryption derivatives platform
3. Financial instruments for risk transfer
4. Cross-chain Hedging Solutions

【Conclusion】

Vitalik Buterin's critical analysis of prediction markets reveals key shortcomings in the encryption financial infrastructure. As Ethereum continues to reach new highs, the influx of institutional investors has made the demand for effective risk management tools increasingly urgent. This demand gap could become an important driving force for innovation in the crypto derivatives market, ultimately promoting the entire industry towards a more mature direction. What kind of hedging tools do you think the crypto market needs? Feel free to share your thoughts in the comments!