Prediction Markets: A Lucrative but Unregulated Business

Trading Volume Reaches $529 Million on Polymarket

As of 28 February, the biggest contract on Polymarket, a prediction market platform, attracted $90 million in trading volume since its creation. The contract was tied to the United States strikes on Iran, which occurred on the same day. The second biggest bet on a US attack on Iran was for 31 January, with $42 million in bets.

Insider Trading Concerns

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Largely unregulated, prediction markets have no specific rules or oversight on unfair practices such as insider trading. Bubblemaps SA, an analytics firm, found that six accounts made $1 million in profits by betting on the exact date of the attack, 28 February. These accounts were new and only placed bets on likely dates that US strikes might occur, with some predictions coming hours before the bombs dropped in Tehran.

Notable Bets

One contract with a bet for 27 February gained over $25 million in volume, while a $26,513 bet for Saturday pocketed $1,74,000 for its owner. These bets were made by new accounts created in February, further raising concerns about insider trading.

Geopolitical Bets Gain Traction

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The report noted that similar patterns of bets and profits were also seen during the US strikes in Venezuela, when Nicolás Maduro was captured in January. Polysights, an analytics company, found a surge in bets over Ali Khamenei's deposition, dated for March-end, with 40% likelihood.

Regulatory Environment

Kalshi Inc., a Commodity Futures Trading Commission (CFTC)-regulated rival of Polymarket, told Bloomberg that it does not offer markets that settle on death. In the event of Khamenei's death, it would resolve its contract based on the last price offered. Polymarket is based outside the US and beyond the CFTC's regulations.

Actions Against Insider Trading

In February, Israeli authorities filed a case against two individuals for making $1,50,000 by allegedly using secret operational information to place Polymarket bets on Israeli security operations in 2025. Recently, Kalshi also disclosed actions against two customers suspected of using insider information when betting.