Two of the leading prediction market platforms, Kalshi and Polymarket, have announced stringent new trading rules to combat insider trading, a move that comes as lawmakers introduce a bipartisan bill targeting event contracts resembling sports bets or casino games.
Kalshi, which has been working on these new guardrails for months, will now ban political candidates and individuals involved in college and professional sports from trading on their own campaigns or events. This preemptive measure aims to align with regulatory guidance and legislation in Congress that seeks to address insider trading and market manipulation in prediction markets.
Polymarket Takes a Broader Approach
Just hours after Kalshi’s announcement, Polymarket unveiled even broader prohibitions. The platform will ban users who trade using stolen confidential information, illegal tips, or who can influence the outcome of a market. These measures follow recent incidents where users profited from well-timed bets before significant geopolitical events, such as U.S. and Israeli strikes on Iran and a U.S. military operation targeting Venezuelan President Nicolás Maduro.
Ben Yorke, a former Cointelegraph research analyst, told The Guardian that the Iran strike bets were likely made by someone with insider information, as the bets were placed at market price and across multiple accounts to obscure the trader’s identity.
Legislative Action and Industry Pushback
The timing of these announcements coincides with the introduction of the Prediction Markets Are Gambling Act by Democratic Senator Adam Schiff and Republican Senator John Curtis. The bill seeks to ban Commodity Futures Trading Commission-registered entities, including Kalshi and Polymarket, from listing event contracts that resemble sports bets or casino games.
“Sports prediction contracts are sports bets—just with a different name,” Schiff said, emphasizing the need for clarity and regulation. Curtis added that the legislation “clarifies regulatory jurisdiction, ensuring that states can maintain their authority over sports betting and casino gaming.”
However, Tarek Mansour, CEO of Kalshi, criticized the bill, suggesting it is more about protecting monopolies than consumers. “This bill isn’t about protecting consumers; it’s about protecting monopolies,” he posted on X, the platform formerly known as Twitter.
Legal Battles and Future Implications
Prediction market platforms, including Kalshi, Polymarket, and Coinbase, are currently embroiled in legal battles across multiple states. These states have asserted that sports event contracts are illegal gambling and require a state license to operate. The platforms argue that their contracts are not illegal betting and fall under the exclusive jurisdiction of the CFTC, not state authorities.
The new trading restrictions and the introduction of the bipartisan bill highlight the growing tension between the prediction market industry and regulators. As the industry continues to navigate this complex landscape, the focus will likely shift to finding a balance between innovation and compliance to ensure the integrity of these platforms.
Looking ahead, the prediction market industry will need to demonstrate its commitment to transparency and fair trading practices to gain the trust of regulators and the public. The success of platforms like Kalshi and Polymarket will depend on their ability to adapt to the evolving regulatory environment while maintaining their unique value proposition.
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