WAR WAGERS
Mideast conflict draws scrutiny to betting on speculative platforms
A crew assembles the Polymarket "Situation Room" pop-up bar March 19 in Washington.
Advertisements by the company Kalshi predict a victory for Zohran Mamdani in the mayoral election Nov. 4 in New York before the votes are counted and polls close.
The Polymarket prediction market website is displayed Jan. 11 on a computer screen in New York.
Government supporters gather April 9 in Tehran, Iran, to mark the 40th day since the killing of Supreme Leader Ayatollah Ali Khamenei.
An advertisement for prediction market platform Kalshi hangs April 1 at 13th and L Street NW in Washington.
PREDICTION MARKETS
Prediction markets let people wager on just about anything — from basketball games to elections and, among more jarring bets recently, the U.S.-Israeli war against Iran.
Shortly ahead of a fragile ceasefire agreement, a new group of accounts on prediction market platform Polymarket made highly specific, well-timed trades betting there'd be an announcement about a halt in fighting April 7. Some quickly pocketed awards, which amounted to hundreds of thousands of dollars in profits combined. Others still await payouts as an end to the deadly conflict still seems uncertain.
Regardless, the trades once again put the spotlight on a murky — and growing — world of speculative, 24/7 transactions now filling the internet. Some raised questions about suspicious activity, including an anonymous Polymarket trader pocketing more than $400,000 after the U.S. military's capture of former Venezuelan President Nicolás Maduro in January.
The timing and subjects of such trades fueled concerns about potential insider trading — with calls increasing among lawmakers for investigations. Popular platforms, including Polymarket, rolled out added guardrails recently but critics say that isn't enough.
Meanwhile, because prediction market wagers are categorized diff erently than traditional forms of gambling, tensions about government oversight erupted. President Donald Trump's administration threw its support behind company operators — and sued three states over eff orts to regulate them further.
How they work
The scope of topics involved in prediction markets can range immensely. Recently, there's been a surge of wages on elections and sports games. But some users have also bet millions on things like a rumored — and ultimately unrealized — "secret finale" for the Netflix show "Stranger Things," whether the U.S. government will confirm the existence of extraterrestrial life and how much billionaire Elon Musk might post on social media.
In industry-speak, what someone buys or sells in a prediction market is called an "event contract." They're typically advertised as "yes" or "no" wagers. The price of one fluctuates between $0 and $1, reflecting what traders are collectively willing to pay based on a 0% to 100% chance of whether they think an event will occur.
The more likely traders think an event will occur, the more expensive that contract becomes. As those odds change over time, users can cash out early to make incremental profits, or try to avoid higher losses on what they invested.
Proponents of prediction markets argue putting money on the line leads to better forecasts and off ers a gauge of public opinion as an alternative to polling. Some think there's value in monitoring prediction markets for potential news, particularly elections.
Still, prediction markets can be wrong, and who is behind the trading is unclear.
The companies running today's biggest platforms know who their customers are — as they collect personal information to verify identities and payments. But most users can trade under anonymous pseudonyms on public-facing websites, making it difficult for the world to tell who is profiting.
In theory, people investing their money may be closely following certain events, but others could just be randomly guessing. Critics also stress that the ease and speed of joining these 24/7 wagers leads to financial losses every day, particularly harming users who struggle with gambling.
Major players
Polymarket is one of the largest prediction markets in the world. Users can fund event contracts through cryptocurrency, debit or credit cards and bank transfers.
Restrictions vary by country; in the U.S., prediction markets' reach expanded rapidly in recent years, coinciding with shifting policies out of Washington.
After a 2022 settlement with the CFTC, Polymarket was barred from operating in the U.S. That changed under Trump late last year, when Polymarket announced it would return to the U.S. after receiving clearance from the Trump-controlled Commodity Futures Trading Commission. American-based users can now join a "waitlist" to access the platform. Major League Baseball inked a deal with Polymarket last month, following other partnerships in professional hockey and soccer.
Polymarket's top competitor, Kalshi, has been a federally regulated exchange since 2020. It off ers similar ways to buy and sell event contracts as Polymarket and allows event contracts on elections and sports nationwide.
Meanwhile, sports betting giants DraftKings and FanDuel launched their own prediction platforms.
Trump's social media site, Truth Social, also promised to off er an in-platform prediction market through a partnership with Crypto.com. One of the president's sons, Donald Trump Jr., holds advisory roles at both Polymarket and Kalshi.
Last month, The Associated Press agreed to sell its U.S. elections data to Kalshi.
Calls for reform
Because they're positioned as selling event contracts, prediction markets are regulated by the CFTC. That means they can avoid state-level restrictions or bans in place for traditional gambling and sports betting today.
"It's a huge loophole," said Karl Lockhart, an assistant professor of law at DePaul University who studied this space. "You just have to comply with one set of regulations, rather than (rules from) each state around the country."
Sports betting is taking center stage. There are a handful of big states — like California and Texas, for example — where sports betting is still illegal, but people can now wager on games, athlete trades and more through event contracts.
Some states and tribes seek to stop this but the Trump administration pushed back, maintaining the CFTC has the sole authority to regulate prediction markets. Many lawyers expect litigation to eventually reach the U.S. Supreme Court.
Despite overseeing trillions of dollars for the overall U.S. derivatives market, the CFTC is much smaller than the Securities and Exchange Commission, which regulates the securities industry.
While event contracts are growing rapidly on prediction market platforms, there were sizeable workforce cuts and leadership departures at the CFTC; chairman Michael Selig is the sole member, filling just one of five commissioner slots.
Meanwhile, Congress members from both sides of the aisle introduced legislation for more guardrails in recent months.
Soon after, Kalshi — which maintained that it always banned insider trading — quickly moved to bar political candidates from trading on their own campaigns and preemptively block anyone involved in college or professional sports from contracts related to the sports they play or are employed in. Polymarket rewrote its rules to clearly say users cannot trade on contracts where they might possess confidential information, or could influence the outcome of an event.
The CFTC can also bar event contracts related to war, terrorism and assassinations. Some lawmakers seek an outright ban of these kinds of trades.
