The street's been fixated on institutional "capitulation" after spot bitcoin ETFs shed nearly $4 billion since mid-October and BTC dropped 35% from $125K to the low $80Ks. But that narrative misses the mechanics entirely.
Amberdata's Michael Marshall breaks it down: concentrated redemptions from basis trade closures, not broad panic. BlackRock dominated 97-99% of recent weekly outflows despite holding only 48-51% of AUM. Meanwhile, Fidelity's FBTC actually saw inflows. Over the full Oct 1-Nov 26 window, Grayscale bled $923M (53% of gross outflows), with 21Shares and Grayscale Mini rounding out 89% of total redemptions. That's surgical, not systemic.
The smoking gun: annualized 30-day basis collapsed 217bps from 6.63% to 4.46%, with 93% of recent days below the 5% breakeven threshold for carry trades. When the contango yield evaporated, arbitrageurs who'd bought ETF shares and shorted futures had to unwind—sell spot, cover futures. BTC perpetual open interest crashed 37.7% ($4.23B peak-to-trough), correlating 0.878 with basis moves. That's lockstep deleveraging, not fear-driven selling.
Total ETF holdings remain robust at 1.43M BTC. With the arbitrage overhang cleared, remaining flows increasingly reflect genuine allocation rather than yield harvesting. The market that emerges is less leveraged, more conviction-driven, and structurally cleaner than the one that entered October.
Translation: The weak hands weren't institutions capitulating—they were carry traders hitting their stop-loss. What's left is sticky capital betting on long-term appreciation. Market's reset for a cleaner rally.
Polymarket, the blockchain-based prediction market that gained mainstream credibility during the 2024 election cycle, is making a controversial pivot that threatens to undermine the fundamental principles that made decentralized prediction markets attractive in the first place.
The company is actively recruiting traders and sports bettors to build an internal market-making desk that would trade directly against its own users—transforming what was supposed to be a neutral, peer-to-peer platform into something resembling a traditional sportsbook where the house always has the edge.
The Decentralization Promise, Betrayed
Prediction markets were designed to harness collective intelligence through distributed participation. Users trade against each other based on their assessment of real-world probabilities, creating market-driven odds that reflect genuine sentiment rather than house manipulation.
Polymarket's move to position itself as a counterparty to user trades fundamentally contradicts this model. Instead of facilitating peer-to-peer discovery of truth through market mechanisms, the platform would now have direct financial incentives tied to user losses.
Harry Crane, a statistics professor at Rutgers University, explained the real motivation behind the shift: "They don't charge fees. They don't make money. They want to find a way to monetize." Rather than building sustainable revenue through transparent fee structures, Polymarket appears to be choosing the path of becoming the house—profiting when users lose.
Echoes of FTX-Alameda
The decision raises troubling parallels to the FTX-Alameda disaster that devastated crypto markets in 2022. When exchanges create internal trading entities with privileged access to customer data and order flow, the potential for abuse becomes systemic.
Critical questions remain unanswered: Will Polymarket's internal desk have access to user order flow data? Could they front-run customer trades? What safeguards exist to prevent the platform from using proprietary information to gain edge over retail users?
"The introduction of an internal desk raises operational and ethical questions reminiscent of the FTX-Alameda dynamic," industry observers note. While Polymarket claims the goal is to improve liquidity, external market makers could easily fulfill this function without creating conflicts of interest.
Destroying What Made Them Different
Polymarket's rapid rise during the 2024 election was built on perceived neutrality and transparency. Major news outlets cited Polymarket's odds alongside traditional polling data precisely because the markets seemed to reflect genuine collective intelligence rather than house manipulation.
That reputation is now at risk. When the platform itself becomes a counterparty with financial stakes in user losses, market prices no longer purely reflect distributed trader sentiment—they reflect Polymarket's internal pricing decisions and profit motives.
"This diminishes Polymarket's opportunity to differentiate itself from the competition," Crane argues. "It dedicates resources and focus to something that is definitively not what got the company to this point."
Following Kalshi Into Controversy
Polymarket appears to be mimicking its competitor Kalshi, which already operates an internal trading unit. That decision has exposed Kalshi to legal challenges, including a proposed class action alleging the company's internal desk sets betting lines that disadvantage retail users.
While Kalshi defends its model as necessary for liquidity, the optics are damaging. Co-founder Luana Lopes Lara claimed their internal desk isn't profitable and receives no preferential treatment—statements that strain credulity given the entire purpose of market making is to profit from spreads.
The Blockchain Solution Polymarket Is Ignoring
The irony is particularly sharp given blockchain technology's capabilities. Decentralized protocols could enable truly peer-to-peer prediction markets with algorithmic market making, transparent order books, and on-chain verification of neutrality. Instead of leveraging these tools, Polymarket is regressing toward centralized sportsbook models.
This move comes as Polymarket prepares to re-enter the U.S. market through a closed iOS beta, years after paying a $1.4 million settlement for regulatory violations. Rather than using this opportunity to build a genuinely decentralized alternative to traditional gambling platforms, they're adopting the same profit-extraction model that makes traditional sportsbooks "rip off the consumer"—Polymarket founder Shayne Coplan's own words from just last month.
What This Means for DeFi
Polymarket's decision represents a broader challenge facing decentralized finance: the constant temptation to abandon decentralization principles for easier monetization paths. When platforms choose centralized control and house advantage over transparent peer-to-peer mechanisms, they forfeit the core value proposition that attracted users in the first place.
For Dapnet and the broader prediction market ecosystem, this creates an opportunity. As Polymarket compromises its neutral positioning, demand will grow for genuinely decentralized alternatives that maintain protocol-level neutrality through smart contracts rather than corporate promises.
The prediction market space needs platforms that embrace rather than abandon blockchain's core advantages: transparency, disintermediation, and verifiable neutrality. Polymarket's choice to trade against its users shows they've lost sight of these principles.
Moving Forward
Users of prediction markets should approach Polymarket with heightened caution. When a platform becomes your counterparty rather than your intermediary, every trade carries additional risk beyond simple market exposure.
The decentralized prediction market space deserves better. The question now is whether truly decentralized alternatives will emerge to fill the void Polymarket is creating—or whether the entire sector will regress toward centralized sportsbook models with blockchain branding.
Polymarket has not responded to requests for comment on the timeline for launching its internal trading desk or addressing conflict-of-interest concerns.
Dapnet is committed to advancing genuinely decentralized prediction markets that maintain protocol neutrality and user protection through transparent blockchain mechanisms.