This isn’t going anywhere anytime soon, but it has had some effect and is worth keeping an eye on.
After two United States senators introduced a bipartisan bill on Monday aimed at banning sports futures on prediction markets, Kalshi and Polymarket, the two leading companies in the field, announced new measures to guard against insider trading on their platforms.
Senators Adam Schiff, a Democrat from California, and John Curtis, a Republican from Utah, introduced the “Prediction Markets Are Gambling Act,” which, if passed and enacted, would prevent “Commodity Futures Trading Commission (CFTC)-registered entities from listing any prediction contract that resembles a sports bet or casino-style game.” Traders can currently buy and sell contracts, based on predictions via markets like Kalshi and Polymarket, even in states that have not legalized sports betting. Those states include major markets such as Texas and Schiff’s home state.
Prediction contracts differ from traditional sports bets in that traders are not putting their money up against “the house” as betters would with a sportsbook that sets the odds for a specific outcome. The value of prediction contracts is determined by traders. Correct predictions will cash out, but traders can also sell their contracts for a profit, like a stock.
While not directly responding to the bill’s assertion that prediction markets are gambling and should be regulated as such, Kalshi and Polymarket said they will toughen and clarify guardrails against insider trading. In a statement, Kalshi said it was “launching new technological guardrails that preemptively block politicians, athletes, and other relevant people from trading in certain politics and sports markets.” Polymarket announced that it had updated and clarified its rules around insider trading and market manipulation.
These prediction markets are federally regulated like financial exchanges, which means they can operate in all 50 states. Traditional sports bets are not federally regulated and are only legal in 39 states, as well as in Washington, D.C.
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Kalshi said politicians have already been banned from trading on their own campaigns, and athletes have been banned from trading on their own performances, adding that it instituted screening systems to preemptively stop such acts from happening. Kalshi also announced that it was “adding a whistleblower functionality straight in our market page, which makes it easier for our community to flag potential violations as they go through our public trading data.”
Polymarket updated its terms of use, focused on trading based on stolen confidential information, illegal tips or by those who can influence the outcome.
“These new integrity rules and pages simply articulate what we’ve always believed and enforced,” Polymarket CEO Neal Kumar said in a social media post. “Now it’s all in plain view.”
Polymarket also launched “Market Integrity” pages, which offer ways for users to report suspicious activity.
Prediction markets have been on the rise under President Donald Trump’s administration, with some sportsbooks launching their own in recent months. The Biden administration had banned Polymarket from operating in the U.S.
I assume this is in part a response by everyone involved to the recent sports betting scandals, which may not have anything to do with prediction markets but which are certainly at least proximate to them, and also recent reporting about lucrative bets on the Iran war that were facilitated by Polymarket. “Voluntary” regulation by businesses, especially where highly profitable activity is concerned, is of course at best a misdirection, but it is also indicative of where the wind is blowing. So while this legislation is highly likely to go nowhere, the issue isn’t going away. And maybe someday when the environment is more amenable to real regulation on these things, the other forms of illicit activity that they have generated can also be addressed. If you want more, this recent episode of the “Pablo Torre Finds Out” podcast, in which he talks to Sen. Chris Murphy about prediction markets, is a great resource.