Prediction Markets Face Reckoning as Lawmakers Target the Industry
Polymarket and Kalshi, the two largest prediction market platforms in the United States, announced sweeping new insider trading bans on Monday in a coordinated effort to get ahead of federal legislation that could fundamentally reshape — or even dismantle — key parts of their business.
The moves come as Sens. Adam Schiff (D-Calif.) and John Curtis (R-Utah) introduced bipartisan legislation called the “Prediction Markets are Gambling Act,” which would ban prediction markets from offering contracts related to sports. If enacted, the bill could severely curtail the future growth prospects of both platforms, which have been aggressively expanding into sports-related markets over the past year.
What the New Rules Prohibit
Polymarket’s updated rulebook, published Monday across both its global decentralized finance (DeFi) platform and its Commodity Futures Trading Commission (CFTC)-regulated U.S. exchange, codifies explicit bans on three categories of insider trading. First, users are now prohibited from trading on any contract if they possess confidential information about the outcome of the underlying event, where using that information would violate a preexisting duty of trust or confidence. Second, users cannot trade on confidential tips received from someone who owed a duty of confidence to a third party. Third, anyone who holds a position of authority or influence sufficient to affect the outcome of an event is barred from placing bets on that event.
Kalshi took a slightly different approach, announcing it would preemptively block political candidates from trading on their own campaigns and ban anyone involved in college or professional sports from trading on contracts related to the sports they play or are employed by.
Suspicious Bets Sparked the Crackdown
The industry-wide push for stronger guardrails did not happen in a vacuum. Over the past several months, prediction markets have faced intense scrutiny after a series of suspiciously well-timed bets drew the attention of lawmakers, regulators, and the media.
One Polymarket trader operating under the username “Magamyman” made more than $553,000 by placing bets related to Iran and its Supreme Leader, Ayatollah Ali Khamenei, just before an Israeli strike killed him. The account appeared to have profited from advance knowledge of military action in the region. Similarly, other traders placed large, profitable wagers ahead of the capture of former Venezuelan President Nicolás Maduro, further raising alarms about potential information leaks from government or intelligence sources.
Sen. Jeff Merkley (D-Ore.) was among the first to sound the alarm, describing the activity as insider trading conducted openly and proposing legislation in early March to ban government officials from participating in prediction markets entirely.
Polymarket Builds Out Its Enforcement Infrastructure
Beyond updating its rulebook, Polymarket has invested heavily in enforcement technology. The company’s U.S. exchange now operates a three-tier surveillance structure that includes a trade surveillance technology partner, a real-time control desk, and a Regulatory Services Agreement with the National Futures Association (NFA). Violations can result in suspension, monetary penalties, or referral to law enforcement.
Earlier this month, Polymarket also announced a partnership with Palantir and TWG AI to build a comprehensive surveillance platform designed to detect suspicious trading patterns and manipulation in sports prediction markets. Polymarket CEO Shayne Coplan said the goal is to bring world-class analytics and monitoring to sports markets while maintaining the confidence of leagues and teams in the integrity of games.
The timing of these investments is no coincidence. Just four days before Monday’s rule update, Polymarket was named Major League Baseball’s exclusive prediction market partner in a landmark deal announced March 19. The partnership gives Polymarket and its brokers exclusive access to MLB logos, official data from Sportradar, and brand exposure across the league’s digital ecosystem. As part of the agreement, MLB also signed a first-of-its-kind Memorandum of Understanding with the CFTC to share information and establish an integrity framework for prediction markets in professional sports.
An Industry at a Crossroads
The prediction market sector experienced explosive growth in 2025, with total trading volume increasing fourfold to $60 billion. MLB joined the NHL, MLS, and the UFC as North American sports leagues that have signed commercial partnerships with prediction market platforms, signaling growing mainstream acceptance.
But the bipartisan legislation introduced Monday threatens to reverse that momentum. The “Prediction Markets are Gambling Act” would effectively destroy much of Kalshi and Polymarket’s sports-related business if it becomes law. The platforms are betting that by proactively self-regulating and demonstrating robust integrity controls, they can persuade lawmakers that the industry can police itself without heavy-handed federal intervention.
Whether that strategy will succeed remains an open question. With multiple senators from both parties now engaged on the issue and public scrutiny intensifying after the Iran and Venezuela betting scandals, the prediction market industry faces perhaps its most consequential moment since Polymarket’s breakout during the 2024 presidential election cycle.
For now, the message from both Polymarket and Kalshi is clear: the era of unregulated, anything-goes prediction markets is over. The question is whether the industry will be allowed to write its own rules — or whether Congress will write them instead.