Polymarket, Kalshi Make Moves to Counter Insider Trading as Scrutiny Grows

Prediction markets Polymarket and Kalshi are taking steps to remove insider trading from their platforms, announcing updates to rules and tooling, respectively, on Monday as scrutiny continues to build on prediction markets and their offerings. 

The strategic advancements for both firms come as Democratic lawmakers have begun targeting prediction markets and sought to outlaw particular markets, like those focused on war, entirely.  

For Polymarket, Monday’s steps included updating integrity rules and clarifying types of insider trading conduct, like trading on insider information or illegal tips, which are prohibited behaviors on the firm’s DeFi platform and its CFTC-regulated U.S. platform. 

“These rule enhancements make our expectations abundantly clear for every participant across both platforms and highlight the compliance infrastructure we have already built,” Polymarket Chief Legal Officer Neal Kumar said in a statement.

“As Polymarket continues to scale,” he added, “we will build on our foundation with clear communication to Polymarket’s users to ensure our markets do what they do best—surface truth.”

The rules, and examples of prohibited behavior—like a coach trading on a sports contract using inside knowledge about a star player’s availability, or an ensemble performer buying shares in a market about which songs will be played at an event—can be found on the site’s market integrity page, accessible via its footer.

Polymarket said it uses a “multi-layered monitoring system” to detect potential violations of its insider trading rules on its DeFi platform, or its international version. On the U.S. side, it works with partners and a real-time control desk to “identify unusual or disruptive trading activity.” 

It also recently announced that it’s working with Peter Thiel’s Palantir to create “systems for surveilling sports-focused prediction markets.”

Monday’s advances from Kalshi take a more proactive approach to squashing insider trading on the platform, like in the example of a coach trading on a sporting event they are tied to. The firm announced it has established a new policy disallowing members connected to college or professional sports—like coaches or players—from trading markets “associated with the sports they are involved with.” 

The firm is also implementing preemptive screening for both athletic parties and politicians using screening lists it has developed, which will allow it to block trades before they even occur. 

“These efforts, which have been in the works for months, proactively address the CFTC’s guidance and Congressional bill proposals to prevent insider trading,” the firm wrote.

Insider trading allegations on prediction markets have drawn considerable attention and scrutiny this year, highlighted by anonymous traders winning major sums in markets related to subjects like government actions.

For example, one trader won more than $436,000 on the January ousting of Venezuelan President Nicolás Maduro, leading New York representative Ritchie Torres to draft a bill that would keep federal employees from using prediction markets when they have relevant inside information.

In February, an employee working for MrBeast was fined and suspended by Kalshi for trading on markets related to what MrBeast, whose real name is Jimmy Donaldson, would say in videos posted to YouTube. The individual, a video editor named Artem Kaptur, was later suspended, then fired from Beast Industries. 

Two weeks prior to that, two Israelis were arrested in the country and charged with using classified information to make bets about military operations on Polymarket.

Potential violations of the insider trading rules on Polymarket can be reported to the platform via Discord or email, its updated rules say. Details on how the investigations unfold from there, or how many reports are being made are not immediately clear. Kalshi has also implemented whistleblower functionality directly into its market pages, allowing individuals to flag potential insider trading behaviors. 

Representatives for Polymarket and Kalshi did not immediately respond to Decrypt’s request for comment.