Kalshi could face enforcement action from the Commodity Futures Trading Commission over how it introduced new contracts on its prediction market platform, according to Politico.
The federal regulator has privately warned the company that charges could be coming over allegations that it failed to properly notify the agency about dozens of products it planned to launch. The investigation has reportedly been underway for months. Enforcement action may arrive soon, though a settlement remains possible.
Kalshi downplays warning
Kalshi spokesperson Elisabeth Diana described the CFTC's warning as a procedural matter involving the submission of a handful of contracts, many of which had not gone live. She said the company was already working to address the issue.
Kalshi maintains that its offerings are traditional derivatives products rather than wagers, a distinction at the center of the wider debate over how prediction markets should be regulated.
Growth and scrutiny
Prediction markets have expanded rapidly since Donald Trump's election. Kalshi and rival Polymarket have reported valuations of $40 billion and $21 billion, respectively. Their growth has been helped in part by a more welcoming approach from the CFTC, particularly under current agency leadership.
That relationship now appears to be getting more complicated. The Kalshi investigation comes as Washington faces growing pressure to take a closer look at the sector. Following their midterm victories, Democrats are preparing for tougher oversight in the next Congress, while Polymarket is also facing a broad CFTC investigation. That probe reportedly includes questions about whether the platform breached a 2022 settlement requiring it to block access for US users.
Self-certification under review
For Kalshi, one of the main issues under examination is the self-certification process used by regulated exchanges to introduce new products. Under this system, exchanges can begin offering new contracts as early as the following day after certifying that they meet CFTC requirements, including rules designed to prevent market manipulation. They do not need to wait for explicit agency approval.
The process has attracted criticism from major Wall Street players. CME Group CEO Terry Duffy has previously raised concerns about prediction market contracts that he believes could be vulnerable to manipulation. In July, the CFTC also warned operators against using overly broad language when self-certifying new products.
Trader losses
Regulatory questions are not the only concern facing the industry. A recent Galaxy Research study examining 2.9 million human-paced accounts on Polymarket found that more than 69% finished below break-even, and traders collectively recorded $338.9 million in losses.
The study analyzed on-chain trading activity, including positions, entry prices, holding periods, and payouts, while excluding accounts believed to be automated. The median retail account lost around $3, which could mean that most traders suffered relatively small losses, although some were down thousands of dollars.
Galaxy also found that specialized traders were slightly less likely to turn a profit than those trading across different topics. Only 28% of specialists finished profitably, compared with 30.4% of generalists. Sports-focused traders performed the worst, while technology and science specialists recorded better results.
