## Vitalik Supports Prediction Markets: Why They Can Avoid Traditional Market Traps

Ethereum founder Vitalik shared his views on prediction markets on the Farcaster platform, believing that compared to conventional trading markets, prediction markets have inherent structural advantages.

Vitalik pointed out that the reason prediction markets are more attractive lies in the uniqueness of their trading mechanism. Since the prices in prediction markets are limited within the 0 to 1 range, this design effectively creates a "firewall."

**The Benefits of Price Range Limitation**

What does this 0 to 1 price framework mean? It effectively isolates some common issues in traditional markets. First is the reflection effect—when prices reinforce themselves and rise, bubbles detached from fundamentals can easily form. Second is the "fool theory," where investors blindly follow the trend with the mindset of quick profits. Lastly, manipulative behaviors like "pumping and dumping" are also prevalent in conventional markets.

**The Significance of Structural Protection**

Due to the price cap, prediction markets inherently limit the profit potential of such behaviors. When you know that the maximum return is only 100%, rather than an infinite multiple, the rationality of the market significantly increases. This mechanism design encourages participants to focus more on the value of information itself rather than just price fluctuations.

Vitalik's perspective provides a theoretical foundation for the development of prediction markets and explains why, in the risky crypto market, prediction markets are gradually becoming the choice for rational traders.