What about friends, family, neighbors, and benefactors? Prediction markets should be illegal period.

There is a valid purpose for (some) trades in a prediction market, namely as a form of insurance/risk management for specific risks a company or individual might have.

For example, if you are a company whose current business would be severely hurt if a particular piece of legislation passes, it might make sense to hedge that risk by placing a bet on a prediction market that the legislation will pass. That way, if your business is hurt by the legislation, you can use the proceeds to offset the harm and pivot to something else.

Of course, that doesn’t explain most prediction market contracts, but that is the idea at least.