By Oracle — our AI event-derivatives analyst

Prediction Markets Face Insider Crackdown

The Signal

Kalshi’s insider-control system is now getting tested in public, with NPR reporting that the CFTC-regulated platform has blocked “dozens” of attempted trades by campaign insiders while at least one prohibited trade slipped through. The issue is moving from theory to operating risk as political, corporate, and macro contracts attract users who may know — or help shape — the outcomes being traded.

Goldman Sachs has already tightened employee rules, barring staff from trading prediction-market contracts tied to the bank, elections, financial markets, macro data, and geopolitics, according to CNBC. Other regulated firms are asking lawyers what their obligations are, but many have not yet built policies for event contracts.

Kalshi’s April enforcement actions are becoming the industry’s compliance template. The company suspended and fined three candidates for trading on their own races, then issued five-year bans, per Inc.

The crackdown lands as volume has scaled too quickly for ad hoc ethics rules. Pew data cited by Inc. put combined monthly notional volume on Kalshi and Polymarket International at roughly $24 billion in April, up from less than $5 billion in September 2025.

The Mechanism

• Kalshi is being forced to behave more like a surveillance-heavy exchange. Blocking campaign insiders requires identity data, restricted-person lists, audit trails, escalation workflows, and contract-level controls. That is expensive infrastructure, but it strengthens Kalshi’s pitch that regulated prediction markets can police sensitive categories better than offshore venues.

• Corporate compliance desks are becoming distribution gatekeepers. Goldman’s ban does not just restrict its own employees. It gives banks, consultancies, media companies, polling firms, and contractors a template for treating prediction-market contracts like restricted financial instruments when employees have material nonpublic information.

• Insider-risk policy may become a competitive moat. Kalshi can point to fines, suspensions, and blocked trades. Polymarket, still working through its U.S. comeback and regulated re-entry strategy, has to convince regulators and partners that its onshore operation can separate U.S. compliance from offshore liquidity culture.

• The “who can trade?” problem now sits next to the “what can be listed?” problem. Platforms have spent the last year fighting over election contracts, sports contracts, and perpetual futures. The next fight is participant eligibility: candidates, staffers, pollsters, government employees, journalists, bank employees, contractors, and corporate insiders.

• Liquidity could fragment around restricted categories. If large employers ban election, macro, geopolitics, and company-specific contracts, platforms lose some sophisticated flow but reduce enforcement risk. Retail volume may keep growing, while professional participants move toward contracts with clearer compliance treatment.

• Surveillance failures create litigation risk as much as regulatory risk. A single insider trade in a thin political market can move prices, create bad screenshots, and invite complaints from losing traders. Resolution disputes were already a trust problem; participant misconduct now adds a second trust layer.

The Landscape

Market Position: Kalshi remains the U.S.-regulated benchmark for real-money event contracts, and its response to insider trading is becoming part of its product story. Polymarket still has the larger cultural footprint and offshore liquidity engine, but its U.S. affiliate is trying to move toward regulated status at the same time institutions are writing stricter rules for employee access. The volume curve explains the urgency: Kalshi and Polymarket International moved from sub-$5 billion combined monthly notional in September 2025 to about $24 billion in April, making insider participation a market-structure issue rather than a niche ethics concern.

Regulatory Environment: The Senate unanimously barred senators, officers, and employees from entering prediction-market contracts on April 30, and urged the House, executive branch, and judiciary to follow, per Inc. State law remains fractured: election betting is illegal in some form in 32 states, with 23 states banning it entirely and nine imposing narrower restrictions. Separately, prediction-market platforms are still fighting state gambling regulators, including after an SDNY ruling reported by Semafor that New York gambling rules apply to Kalshi’s sports-event contracts.

Key Data

• ~$24B: Combined monthly notional volume on Kalshi and Polymarket International in April, up from less than $5B in September 2025, according to Pew data cited by Inc.

• “Dozens”: Number of campaign-insider trades Kalshi says it has blocked, according to NPR.

• 3 candidates: Kalshi fined and suspended three candidates in April for trading on their own races; the suspensions run five years.

• 32 states: States where election betting is illegal in some form; 23 prohibit it entirely and 9 impose narrower restrictions.

• July 3 filing: Polymarket affiliate Coming Home GBA LLC filed with the NFA for a futures commission merchant license, a step toward regulated U.S. margin trading, according to The Block and CoinDesk.

What’s Next

Kalshi’s next test is whether its restricted-person controls satisfy regulators, employers, and market makers before another insider case becomes a platform-wide controversy. Watch for more corporate trading bans, House or executive-branch rules mirroring the Senate’s prohibition, and CFTC pressure on platforms to formalize surveillance standards for politically exposed traders. Polymarket’s U.S. margin filing adds a second track: if regulators are being asked to approve more leverage, they will also ask who is allowed to use it.

Predict This covers the evolution of prediction markets — platforms, regulation, volume, and methodology. For questions or tips: reply to this email.

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This is an independent project by Michael McDonough, built with the assistance of AI. Content is aggregated and summarized automatically—errors, omissions, or inaccuracies may occur. This newsletter is for informational purposes only and does not constitute professional advice.

Oracle is our AI event-derivatives analyst. Obsessed with market structure and liquidity — where the money actually is, and where the odds diverge from the headlines.