Kalshi could soon face enforcement action from the Commodity Futures Trading Commission (CFTC) over the way it introduced new contracts on its prediction market platform.
Politico reports that the federal regulator privately warned the company that charges could be forthcoming, alleging that it failed to properly notify the agency about dozens of products it planned to launch.
Regulatory Trouble Brewing?
The investigation has reportedly been underway for months. Enforcement action may come soon, though a settlement remains possible. Kalshi, however, is downplaying the matter. Company spokesperson Elisabeth Diana characterized the CFTC’s warning as a procedural issue involving the submission of a handful of contracts, many of which had not even gone live.
Diana also said the company was already working to resolve the issue. Kalshi maintains that its offerings are traditional derivatives products, not wagers—a distinction central to the broader debate over how prediction markets should be regulated.
Prediction markets have grown rapidly since Donald Trump’s election. Kalshi and rival Polymarket have reported valuations of $40 billion and $21 billion, respectively. Their growth has been partly supported by a more welcoming stance from the CFTC, particularly under the agency’s current leadership. But the relationship now appears to be growing more complicated. The Kalshi investigation comes as pressure mounts on Washington to scrutinize the sector more closely.
After their midterm victories, Democrats are preparing for tougher oversight in the next Congress, while Polymarket is also under a broad CFTC investigation. The probe reportedly includes questions about whether the platform violated a 2022 settlement requiring it to block access for US users.
One of the main issues under examination in the Kalshi case is the self-certification process that regulated exchanges use to introduce new products. Under this system, exchanges may begin offering new contracts as soon as the following day after certifying that they comply with CFTC requirements, including rules intended to prevent market manipulation.
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Exchanges do not have to wait for explicit agency approval. But the process has drawn criticism from major Wall Street players. CME Group CEO Terry Duffy has previously voiced 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.
Numbers Behind Trader Losses
Regulatory questions are not the industry’s only concern: research suggests that making money on these platforms may be harder than many retail traders expect. A recent Galaxy Research study of 2.9 million human-paced accounts on Polymarket found that more than 69% ended below break-even, with traders recording combined losses of $338.9 million.
The study examined on-chain trading activity, including positions, entry prices, holding periods, and payouts, while excluding accounts thought to be automated. The median retail account lost about $3, which could indicate that most traders lost relatively small amounts, although some were down thousands of dollars.
Galaxy also found that specialized traders were slightly less likely to make a profit than those who traded across different topics. Just 28% of specialists finished profitably, compared with 30.4% of generalists. Sports-focused traders performed worst, while specialists in technology and science had better results.
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