Prediction markets — online platforms where people wager on the outcomes of elections, wars, policy decisions and other events — are facing growing scrutiny after a string of high-profile incidents that critics say look like insider trading.
Recent controversies include an Army special operations member accused of placing large bets on the capture of Venezuela’s leader ahead of the operation, several candidates wagering on their own races, and unusually timed wagers on a U.S. ceasefire announcement that preceded the public declaration. Those episodes have intensified debate over whether these marketplaces are useful tools for aggregating information or hazardous venues for trading on privileged knowledge.
Regulation and platform rules vary widely, and that patchwork contributes to uncertainty. Two prominent firms, Polymarket and Kalshi, illustrate the divide. Polymarket largely operates offshore, has previously faced U.S. regulatory limits, and settles some markets using cryptocurrency — a structure that allows users to trade under pseudonyms. The company says it conducts backend identity and payment checks and reports suspicious activity to authorities, but critics argue the relative anonymity can invite misuse.
Kalshi, in contrast, is a U.S.-regulated exchange that has required ID verification and adheres to Know Your Customer standards since 2020. It conceals users’ identities from other bettors but retains the information for compliance. Kalshi has used that distinction to position itself as a more tightly policed alternative and has moved to ban certain categories of markets, including some tied to war and elections.
After the Venezuelan-betting episode, Polymarket said it flagged the account and cooperated with federal investigators. The soldier charged in the case, identified in reporting as Gannon Ken Van Dyke, allegedly profited about $400,000. Kalshi said the same bettor was denied a similar wager on its platform and emphasized its commitment to policing insider activity.
Regulators and lawmakers are responding. The Commodity Futures Trading Commission maintains it has authority over many event-based contracts, treating them like other derivatives it already oversees. But several states and state attorneys general view certain prediction markets as illegal gambling. New York’s attorney general has pursued enforcement actions against companies offering speculative products, and governors in states such as Utah have vowed to block markets they consider improper.
Congressional interest has also increased. Bipartisan proposals would ban or severely restrict contracts tied to assassinations, terrorist acts, deaths, or other morally fraught outcomes; supporters argue such markets are impermissible and could create national security risks by signaling sensitive information. Critics of broad prohibition contend that transparent, regulated markets can produce valuable aggregated forecasts and that targeted enforcement against abuse is preferable.
Platforms themselves are tightening policies. Kalshi announced fines and multi-year bans for federal candidates who bet on their own races and has adopted rules barring candidates and certain athletes or team personnel from trading markets where they have direct influence. Polymarket updated its own terms to restrict wagers where traders might hold confidential information or be able to affect outcomes.
The industry’s expansion also overlaps with political and commercial interests. Investors and advisers connected to high-profile public figures have signaled interest in prediction betting businesses, and some social media companies linked to political figures are planning their own market products. That entanglement has added urgency to calls for clearer oversight.
As law enforcement probes, state actions and legislative proposals multiply, the sector is at a crossroads. Platforms are responding with stricter controls and greater cooperation with authorities, but regulators and lawmakers are debating whether tougher rules, tighter federal oversight or outright bans are needed to prevent trading on privileged information and to protect public safety and electoral integrity. The outcome will shape whether prediction markets grow as accepted forecasting tools or are constrained as risky, lightly regulated gambling venues.