Leading betting platforms Kalshi and Polymarket are grappling with a dramatic increase in questionable trading activity this year, as these investment venues gain widespread popularity while drawing intensified regulatory oversight.
The rise in dubious betting activity coincides with explosive growth in trading volumes across prediction markets, occurring as these platforms implement stricter measures to combat insider trading following criticism from federal lawmakers.
Beginning this year, Kalshi has examined and identified over 400 questionable trades, representing more than double the number of transactions the platform investigated throughout the previous year, according to two sources with knowledge of the situation. One source noted that several cases were reported to the derivatives regulator, the Commodity Futures Trading Commission, though specific details were not provided. The CFTC did not immediately respond to a request for comment.
Polymarket has experienced a comparable increase in suspicious trading volume since January, a third source revealed, declining to provide specific numbers.
However, detecting wrongdoing on these platforms presents unique challenges.
“In the world of corporate insider trading it is often relatively easy to identify the parties with access to material nonpublic information who might trade in violation of the law,” said Stanford Law School professor Joseph Grundfest, who is a former commissioner of the Securities and Exchange Commission. “But equivalent data is often very difficult or impossible to collect in connection with some prediction markets.”
The increase in suspicious activity comes as both platforms, established within the past ten years, experience unprecedented growth. Kalshi reported that its annualized trading volumes have increased more than threefold over six months to reach $178 billion, the company announced earlier in May. Polymarket’s monthly trading volumes across its international exchange and domestic platform reached approximately $10.3 billion in April, compared to $3.8 billion during the same month last year, based on Dune Analytics information.
Meanwhile, trading platforms are implementing additional protections and security measures to prevent unlawful activity, including recent policies barring federal employees from betting on political campaigns they support. Oversight of prediction markets is currently at the center of a regulatory dispute between the CFTC, which contends it should oversee them as derivatives markets, and individual states.
The growth in suspicious trading demonstrates that investors are prepared to accept significant risks for potential profits, analysts noted, given the substantial financial rewards possible from successful predictions about event outcomes.
Growing investor interest has boosted platform valuations significantly. Kalshi recently completed a $1 billion funding round that valued the startup at $22 billion, representing more than a tenfold increase in valuation within one year. Polymarket, which is working to launch its domestic exchange after experiencing delays earlier this year, has been negotiating to secure additional funding at a $15 billion valuation, according to a separate source familiar with the discussions.
Increased oversight of prediction markets follows other recent well-timed market positions on declining oil prices ahead of a significant Iran-policy announcement from the Trump administration.
Investors increasingly rely on prediction market platforms before making critical investment decisions, as these venues have sometimes proven accurate in forecasting outcomes related to events like economic policy announcements or elections, often outperforming traditional public opinion surveys.
These markets are platforms where participants purchase and sell binary ‘yes’ or ‘no’ contracts based on the outcomes of various events, including economic policies, elections, and sports competitions.
“Economically, the nature of these markets is such that they let you trade not on the market reaction to news, but on the actual news – so there’s less risk,” said Vincent Gregoire, a professor at business school HEC Montreal.
Kalshi was founded in 2018 by Massachusetts Institute of Technology classmates Tarek Mansour and Luana Lopes Lara. Polymarket, launched in 2020 by Shayne Coplan during the height of the pandemic, started as a crowdsourced forecasting experiment that has grown into a full-fledged event contracts exchange over the past few years, generating several billion dollars worth of trades every month.
Several recent high-profile insider trading incidents have intensified scrutiny of the platforms. A U.S. Army soldier was recently charged with winning $400,000 by using confidential information to place a bet on Polymarket on the removal of ousted Venezuelan President Nicolas Maduro. In April, Kalshi banned three U.S. congressional candidates for “political insider trading.”
CFTC Chair Michael Selig told lawmakers recently that his agency would aggressively prosecute insider trading. The CFTC in March began the process of crafting prediction market regulations.
Following lawmaker criticism, both Kalshi and Polymarket recently revised their policies to specify that certain types of betting, including wagers based on confidential information and illegal tips, would be prohibited on their platforms. Polymarket recently eliminated some war-related betting options and contracts after facing public criticism.
“If someone has insider information, they might be way more inclined to act on it on prediction markets than on equity markets,” said Charles Martineau, a professor at the University of Toronto’s business school.
