- Kalshi is under investigation as regulators examine prediction-market oversight and product self-certification.
- Kalshi and Polymarket have reported valuations of $40 billion and $21 billion, respectively, following rapid industry growth.
- Galaxy Research found that more than 69% of 2.9 million human-paced Polymarket accounts finished below break-even, with traders recording $338.9 million in collective losses.
Kalshi Investigation Puts Prediction-Market Regulation Under Scrutiny
Kalshi is already working to address the issue, according to the company. Kalshi maintains that its offerings are traditional derivatives products rather than wagers, a distinction at the center of the broader debate over how prediction markets should be regulated.
Prediction markets have expanded rapidly since Donald Trump’s election. Kalshi and rival platform Polymarket have reported valuations of $40 billion and $21 billion, respectively. Their growth has been supported in part by a more accommodating approach from the Commodity Futures Trading Commission, particularly under the agency’s current leadership. That relationship now appears increasingly complicated as Washington faces mounting pressure to examine the sector more closely.
Following their midterm victories, Democrats are preparing for tougher oversight in the next Congress. Polymarket is also facing a broad CFTC investigation that reportedly includes questions about whether the platform violated a 2022 settlement requiring it to block access for users in the United States.
How CFTC Self-Certification Works
For Kalshi, a central issue under examination is the self-certification process regulated exchanges use to introduce new products. Under the system, an exchange can begin offering new contracts as early as the following day after certifying that the products comply with CFTC requirements, including rules intended to prevent market manipulation.
Exchanges do not have to wait for explicit agency approval before launching products under this process. However, the approach has drawn criticism from major Wall Street firms. CME Group CEO Terry Duffy has previously expressed concerns about prediction-market contracts that he believes may be vulnerable to manipulation. In July, the CFTC also warned operators against using overly broad language when self-certifying new products.
Research Shows Most Polymarket Traders Lost Money
Regulatory concerns are not the only challenge facing prediction markets. Research indicates that making money on these platforms may be more difficult than many retail traders expect. A recent Galaxy Research study of 2.9 million human-paced Polymarket accounts found that more than 69% finished below break-even, while traders collectively recorded $338.9 million in losses.
The study examined on-chain trading activity, including positions, entry prices, holding periods and payouts, while excluding accounts believed to be automated. The median retail account lost approximately $3, suggesting that most traders experienced relatively small losses. Some accounts, however, were down thousands of dollars.
Galaxy Research also found that specialized traders were slightly less likely to turn a profit than participants who traded across multiple topics. Only 28% of specialists finished profitably, compared with 30.4% of generalists. Sports-focused traders performed the worst, while specialists focused on technology and science recorded better results.
Why This Matters
The Kalshi investigation and the separate Polymarket probe come as prediction markets grow rapidly and attract significantly higher valuations. The regulatory debate centers not only on whether these products should be treated as derivatives or wagers, but also on whether existing safeguards and self-certification procedures are sufficient to prevent market manipulation and protect participants.
The findings from Galaxy Research add another dimension to the debate. Even when retail losses are small for the median account, the collective losses identified in the study show the financial scale of participation across prediction markets. Potentially tougher oversight in the next Congress could increase scrutiny of product launches, access restrictions and trading practices across the sector.
Frequently Asked Questions
Why is Kalshi under investigation?
The investigation includes scrutiny of Kalshi’s prediction-market products and the self-certification process used by regulated exchanges to launch new contracts under CFTC rules.
How are Kalshi and Polymarket valued?
Kalshi and Polymarket have reported valuations of $40 billion and $21 billion, respectively.
How did Polymarket traders perform in the Galaxy Research study?
More than 69% of the 2.9 million human-paced accounts studied finished below break-even, and traders collectively recorded $338.9 million in losses. The median retail account lost approximately $3.
