NEW YORK — Prediction markets Kalshi and Polymarket have become two of the fastest-growing trading platforms in finance, allowing users to put money on everything from elections and Federal Reserve decisions to sports, cryptocurrencies and stock-market events.
But their spectacular growth is now attracting a different kind of attention.
Regulators, academics and market experts are asking whether some of the extraordinary trading volumes being reported on these platforms truly reflect:
Independent investors taking genuine economic risk
or
Activity generated by incentives, algorithms and potentially artificial trading patterns.
Neither Kalshi nor Polymarket has been found by regulators to have engaged in wash trading.
Both platforms reject suggestions that suspicious-looking activity means their markets are being manipulated.
But recent trading patterns have become difficult for Wall Street to ignore.
And as both companies chase multibillion-dollar valuations and possible future IPOs, the quality of their trading volume is becoming almost as important as the size of it.
WHAT IS WASH TRADING?
Wash trading occurs when a trader — or coordinated traders — effectively buy and sell against themselves without taking meaningful economic risk.
The purpose can be to:
Inflate reported volume
Create the appearance of liquidity
Earn trading incentives
or
Manipulate market perception.
In traditional U.S. securities and futures markets, wash trading is illegal.
But identifying it can be difficult.
Automated market makers frequently execute enormous numbers of legitimate trades.
High-frequency traders may buy and sell rapidly.
Arbitrage strategies can also create repetitive activity.
So unusual trading patterns alone do not prove manipulation.
That distinction is essential in the current debate.
KALSHI’S $5 BILLION ETHER TRADING PATTERN TRIGGERED QUESTIONS
Kalshi attracted scrutiny after observers noticed highly repetitive activity in its:
Ether perpetual futures market.
According to Wall Street Journal analysis of public data, nearly:
1 million trades
since August occurred in amounts clustered near:
$5,500.
Those trades generated more than:
$5 billion
of reported volume.
More than one-third of activity in the contract reportedly involved similarly sized trades.
That is an extraordinary concentration.
And it immediately raised questions about why so many independent traders would repeatedly execute transactions of almost exactly the same size.
CNBC FOUND AN EVEN STRANGER SINGLE-DAY PATTERN
CNBC examined trading on:
September 20.
Nearly half of the day’s notional volume reportedly came from orders between:
$5,495
and
$5,505.
That is a remarkably narrow range.
The trading also appeared large relative to the liquidity visibly available in the order book.
To some market experts, that mismatch raised concerns.
If billions of dollars appear to trade while only relatively modest liquidity is posted, observers naturally ask:
Who is trading with whom?
And how is so much turnover being generated?
KALSHI SAYS THE TRADING IS LEGITIMATE
Kalshi rejects allegations of wash trading.
The company says hundreds of separate users participated in the activity.
It has also pointed to sophisticated trading firms participating in its markets.
Among firms reportedly active were:
Jump Trading
and
Wintermute.
Jump has said it trades for profit and uses:
self-match prevention tools
designed to prevent its own orders from trading against each other.
Kalshi argues that repetitive trade sizes do not necessarily indicate manipulation.
WHY WOULD SO MANY TRADES HAVE THE SAME SIZE?
One possible explanation is incentives.
Trading platforms sometimes reward users for:
Providing liquidity
Trading frequently
or
Generating volume.
These incentives can encourage traders to execute large numbers of transactions.
That does not automatically make those trades illegitimate.
But it can distort traditional measures of market activity.
Imagine two markets.
Market A has:
$1 billion of trading generated by investors genuinely changing positions.
Market B has:
$1 billion generated partly by traders repeatedly cycling similar positions to earn incentives.
Both markets report the same volume.
But the economic meaning of that volume may be very different.
KALSHI IS ENDING ITS VOLUME INCENTIVE PROGRAM
The timing is notable.
Kalshi recently filed with the Commodity Futures Trading Commission indicating that it plans to terminate its:
Volume Incentive Program.
The program will end no earlier than:
October 13.
The program was designed to encourage participation and liquidity.
Its termination does not prove wrongdoing.
Platforms routinely change incentive structures.
But the move comes at a sensitive moment as scrutiny over volume quality intensifies.
KALSHI’S TRADING VOLUME HAS EXPLODED
Kalshi’s growth has been extraordinary.
By September 29, the platform had generated approximately:
$52.98 billion
in monthly trading volume.
That was already a record — before the month had officially ended.
Prediction markets have grown rapidly as users increasingly trade contracts tied to:
Sports
Politics
Economic data
Cryptocurrency
and
Financial markets.
That growth has transformed Kalshi from a niche prediction venue into a major trading platform.
But rapid growth also means regulators are paying closer attention.
THE CFTC HAS REPORTEDLY LOOKED AT THE ETHER TRADING
The Wall Street Journal reported that the:
Commodity Futures Trading Commission
was reviewing the unusual ether-perpetual activity.
The reported review was preliminary.
A formal enforcement investigation had not necessarily been opened.
The CFTC declined to confirm or deny any investigation.
That is normal regulatory practice.
CFTC Chairman Michael Selig has nevertheless made the agency’s position clear.
He has said the regulator has:
zero tolerance
for:
Market manipulation
Wash trading
Insider trading
and
Fraud.
PREDICTION MARKETS ARE BECOMING SYSTEMICALLY MORE IMPORTANT
This would have mattered less when prediction markets were tiny.
That is no longer the case.
Platforms such as Kalshi and Polymarket increasingly produce market prices interpreted by:
Journalists
Investors
Politicians
and
Financial institutions
as real-time probability forecasts.
A contract trading at:
70 cents
is often described as implying roughly a:
70% probability
of an event.
That makes market integrity extremely important.
If trading activity is artificial, those probabilities could appear more credible than the underlying market actually is.
POLYMARKET FACES A DIFFERENT KIND OF VOLUME QUESTION
Polymarket’s unusual patterns look different from Kalshi’s.
On Polymarket’s international platform, analysts have observed something counterintuitive.
In multi-outcome markets, contracts representing:
very unlikely outcomes
sometimes generate more trading than:
the obvious favorite.
Normally, traders might expect the most likely outcomes to attract substantial liquidity.
But in some Polymarket markets, the opposite happens.
Long shots dominate volume.
THE 2028 PRESIDENTIAL MARKET RAISED EYEBROWS
Barron’s previously examined Polymarket’s market for the:
2028 U.S. presidential election.
Some low-probability outcomes reportedly generated unusually heavy activity.
One example involved:
Elon Musk.
Musk is constitutionally ineligible to become U.S. president because he was born outside the United States.
Yet contracts involving him reportedly generated significant trading activity.
Meanwhile, some legally eligible politicians with much higher implied probabilities attracted less volume.
That raised an obvious question:
Why would traders spend so much money on an outcome that cannot legally happen?
SPORTS MARKETS SHOWED SIMILAR PATTERNS
The phenomenon was not limited to politics.
During the:
2026 FIFA World Cup,
Polymarket reportedly recorded approximately:
$152 million
in trading on eventual champion:
Spain.
But Egypt — whose implied probability reportedly never exceeded:
0.5%
— attracted roughly:
$158 million.
Morocco, another long shot, reportedly generated slightly more volume than Spain as well.
Again, high volume does not automatically mean manipulation.
But it is unusual for extremely low-probability contracts to repeatedly generate more turnover than the favorites.
AN ETHIOPIAN POLITICAL MARKET LOOKED EVEN STRANGER
One of the most dramatic examples involved a Polymarket contract on:
Ethiopia’s next prime minister.
Incumbent:
Abiy Ahmed
eventually won and traded around:
98% probability.
His contract reportedly generated only about:
$170,000
in trading.
Another candidate:
Gedion Timothewos
remained below roughly:
3% probability
for months.
Yet his contract reportedly generated almost:
$56 million
of volume.
That is an extraordinary discrepancy.
THE MARKET KEPT TRADING AFTER THE ELECTION
The Ethiopian election occurred in:
June.
But the prediction market remained open afterward because the contract required a specific formal resolution event.
Polymarket said the market would settle after the government was formally sworn in, scheduled for:
October 5.
CNBC’s analysis reportedly found that volume in the market increased more than:
6.7 times
between June 21 and September 25.
The biggest single trading day produced more than:
$15 million
of volume.
That raises another important issue:
contract design.
If a market remains technically open after the practical outcome is already known, traders may exploit small pricing differences.
POLYMARKET SAYS “SHARPS” EXPLAIN MUCH OF THE ACTIVITY
Polymarket argues that sophisticated traders help explain the pattern.
These traders are often called:
“sharps.”
They use:
Algorithms
Automated tools
and
Arbitrage strategies
to identify tiny pricing inefficiencies.
Suppose a contract worth approximately:
1 cent
is momentarily available for:
0.8 cents.
A sophisticated trader may buy enormous quantities because the small difference can still produce profit at scale.
That can create massive turnover in low-probability contracts.
Polymarket says such trading is healthy because it helps move prices toward fair value.
LOW-PROBABILITY CONTRACTS CAN GENERATE HUGE TURNOVER
This is important mathematically.
Imagine a contract priced at:
$0.01.
A trader can buy:
1 million contracts
for only:
$10,000.
That represents:
1 million contract units
even though the actual capital at risk may be relatively small.
Low-priced outcomes therefore can generate enormous apparent activity.
That can help explain why volume sometimes concentrates in long shots.
But researchers say it may not explain every pattern.
POLYMARKET’S INTERNATIONAL PLATFORM IS DIFFERENT FROM ITS U.S. EXCHANGE
Another crucial distinction involves regulation.
Polymarket operates an:
international platform
that historically existed outside direct U.S. exchange regulation.
It also operates a U.S.-regulated exchange environment.
CNBC reportedly found that the unusual low-probability trading pattern did not appear as strongly in equivalent markets on Polymarket’s U.S. exchange.
Polymarket says the two user populations are different.
The international platform contains more sophisticated algorithmic traders.
The U.S. market reportedly includes more casual retail participants.
COLUMBIA RESEARCHERS HAVE STUDIED POLYMARKET WASH-TRADING PATTERNS
Concerns about Polymarket volume are not new.
Researchers from:
Columbia Business School
and affiliated institutions developed a network-based method to identify trading patterns consistent with wash trading.
Their research examined how groups of wallets interact with one another.
The idea is that colluding wash traders may repeatedly trade within relatively closed groups rather than with the broader marketplace.
The researchers then analyzed Polymarket data using that framework.
THE STUDY FOUND A PEAK NEAR 60%
The researchers estimated that transaction patterns indicative of wash trading:
began increasing in July 2024.
They estimated the activity peaked at nearly:
60% of weekly volume
in:
December 2024.
The activity then declined substantially.
By early:
October 2025,
the researchers estimated it had increased again to around:
20%.
The study does not prove that every flagged trade was illegal wash trading.
The authors explicitly note that legitimate strategies can resemble suspicious activity.
BY 2026, THE ESTIMATE HAD FALLEN DRAMATICALLY
Lead researcher Allen Sirolly later said the measured pattern declined significantly.
By around:
April 2026,
the estimate had fallen to negligible levels.
That is important context.
The historical data do not necessarily describe today’s market.
Polymarket says improved:
Surveillance
and
Trading fees
have reduced incentives for manipulation.
So current unusual volume cannot simply be assumed to be a continuation of past wash trading.
TOKEN AIRDROP SPECULATION MAY ALSO BE DRIVING ACTIVITY
Another possible explanation involves:
crypto token incentives.
Polymarket operates on the:
Polygon blockchain.
Crypto platforms sometimes launch tokens and distribute them through:
airdrops.
Eligibility can be based on metrics such as:
Trading volume
Number of transactions
Liquidity provided
or
Open positions.
Some traders may therefore be generating activity today because they hope it will qualify them for a future Polymarket token.
Polymarket has not confirmed such an airdrop.
The company declined to comment on the speculation.
AIRDROP FARMING HAS DISTORTED CRYPTO VOLUME BEFORE
The behavior is common in decentralized finance.
Users often conduct repetitive activity in hopes of qualifying for future token distributions.
This is known as:
airdrop farming.
A trader may:
Swap repeatedly
Bridge assets
Provide liquidity
or
Place frequent trades
even if the immediate economic return is minimal.
That does not necessarily constitute wash trading.
But it can make platform activity look more organic than it actually is.
WHY VOLUME MATTERS SO MUCH TO THESE COMPANIES
Trading volume is one of the most important metrics for an exchange.
Higher volume can indicate:
More users
More liquidity
Greater revenue opportunity
and
Stronger network effects.
These metrics can directly influence private-market valuations.
And both Kalshi and Polymarket have enormous ambitions.
Reports suggest Polymarket has explored financing at a valuation above:
$20 billion.
Kalshi has reportedly discussed financing that could value the company near:
$40 billion.
Those figures make volume quality financially significant.
BOTH COMPANIES COULD EVENTUALLY GO PUBLIC
Kalshi and Polymarket have also been linked to potential:
initial public offerings.
Reports suggest public listings could come as soon as:
2027.
An IPO would subject these companies to much greater scrutiny from:
Investors
Auditors
Regulators
and
Securities analysts.
Potential shareholders would want to know not merely:
How much trading occurs?
but:
How much of that trading generates sustainable revenue?
THE DIFFERENCE BETWEEN VOLUME AND REVENUE MATTERS
A platform can report enormous volume without generating equally enormous profits.
If trades are:
Highly subsidized
Fee-free
or
Driven by incentives,
revenue per dollar of trading can be low.
Investors therefore need to examine metrics such as:
Net revenue
Take rate
Active users
Deposits
Open interest
and
Customer retention.
Headline volume alone may not tell the full story.
LIQUIDITY MAY MATTER MORE THAN RAW VOLUME
Another critical metric is:
liquidity.
Liquidity measures how easily traders can enter or exit positions without moving prices dramatically.
A market can show huge historical volume but still have poor liquidity at a particular moment.
That matters enormously for users.
Suppose a prediction contract has:
$100 million
of reported historical volume.
But only:
$10,000
of buy and sell orders are currently available near the market price.
A trader may struggle to execute a large order.
That means the historical volume number may exaggerate how usable the market actually is.
KALSHI’S ETHER CONTRACT RAISED THIS EXACT QUESTION
Observers noted that Kalshi’s ether perpetual market displayed:
very large daily turnover
relative to:
visible order-book liquidity.
Market experts told CNBC that such a gap deserves examination.
Kalshi said it has:
“zero concerns”
about the relationship between the two numbers.
The company says its market activity is legitimate.
But analysts argue that large discrepancies between volume and liquidity are worth monitoring.
PREDICTION MARKETS ARE MOVING INTO STOCKS
The regulatory stakes are also increasing because prediction platforms are expanding into traditional financial territory.
Polymarket and Kalshi now offer markets connected to:
Tesla
Apple
Nvidia
and other publicly traded companies.
Reuters reported more than:
$220 million
had already traded in equity-linked Polymarket contracts.
That growth is attracting attention from both:
The CFTC
and
The Securities and Exchange Commission.
STOCK-RELATED PREDICTION MARKETS CREATE A REGULATORY GREY AREA
Traditional prediction contracts are generally structured as:
event contracts.
But if a contract is tied closely to the price or performance of a public stock, regulators may ask whether it behaves more like a:
security-based derivative.
That matters because security-based swaps face stricter regulation.
Some are limited primarily to sophisticated or institutional participants.
The regulatory boundary between:
Prediction market
and
Financial derivative
is becoming increasingly important.
INSIDER TRADING IS ANOTHER MAJOR CONCERN
Prediction markets can create unique insider-trading risks.
Imagine an employee knows:
a merger will be announced tomorrow.
Instead of buying the company’s stock, that employee could trade a prediction contract asking:
“Will Company A acquire Company B this month?”
Traditional insider-trading surveillance might miss that transaction.
Regulators therefore need new monitoring systems.
This becomes particularly important as platforms expand into:
corporate events
earnings
and
stock prices.
POLITICAL MARKETS CREATE SIMILAR PROBLEMS
Political insiders may also possess valuable nonpublic information.
Campaign staffers could know:
A candidate will withdraw
An endorsement is coming
or
A policy decision has already been made.
Prediction-market platforms need controls to prevent those insiders from profiting unfairly.
Recent investigations involving politically connected traders have already drawn regulatory attention.
This will become increasingly important ahead of major elections.
STATES ARE ALSO FIGHTING THE FEDERAL GOVERNMENT OVER SPORTS MARKETS
Kalshi’s sports contracts have created another regulatory battle.
Several U.S. states argue that certain sports prediction contracts effectively function as:
sports betting.
Kalshi argues they are:
federally regulated event contracts
under the Commodity Exchange Act.
That disagreement has produced lawsuits.
The outcome could determine whether prediction platforms compete directly with companies such as:
DraftKings
and
FanDuel.
THE INDUSTRY IS GROWING FASTER THAN ITS RULEBOOK
This is the core regulatory challenge.
Prediction markets combine elements of:
Trading
Gambling
Information markets
and
Cryptocurrency.
Existing regulators were not designed for this hybrid model.
The CFTC traditionally oversees derivatives.
The SEC oversees securities.
States regulate gambling.
Crypto markets introduce yet another layer.
Prediction platforms increasingly sit in the middle of all four systems.
HIGH VOLUME DOES NOT AUTOMATICALLY MEAN GOOD PRICE DISCOVERY
Supporters of prediction markets often argue they are powerful forecasting tools.
Markets can aggregate information from:
Thousands of people
into one price.
That can sometimes outperform polls or expert forecasts.
But market accuracy depends on:
Real participants
Independent information
and
Sufficient liquidity.
If a large percentage of activity is generated by incentives or coordinated transactions, the informational value may decline.
That is why volume quality matters.
PRICE MAY MATTER MORE THAN VOLUME
There is also an important counterargument.
Even if some trading volume is artificial, prediction prices can still be accurate.
Suppose thousands of wash trades occur at:
70 cents.
If genuine buyers and sellers would also transact near:
70 cents,
the probability signal may remain useful.
So researchers need to distinguish between:
volume manipulation
and
price manipulation.
They are related.
But they are not identical.
MARKET MAKERS NATURALLY TRADE CONSTANTLY
Another reason caution is necessary is:
market making.
Market makers continuously post:
buy orders
and
sell orders.
They may trade thousands of times per day.
Their goal is often to profit from the:
bid-ask spread
rather than the underlying outcome.
This activity creates liquidity.
Without market makers, prediction markets could become unusable.
Any system designed to identify wash trading therefore must avoid wrongly labeling legitimate high-frequency activity.
THIS IS WHY THE COLUMBIA STUDY USES NETWORK ANALYSIS
The Columbia researchers did not simply count repetitive trades.
They examined the relationships between wallets.
If certain accounts mostly trade among themselves and rarely interact with outside participants, that can indicate coordinated behavior.
This approach is more sophisticated than simply saying:
“High volume equals manipulation.”
But even network analysis cannot perfectly determine intent.
The research identifies:
patterns consistent with wash trading.
It does not prove criminal intent in every case.
POLYMARKET SAYS ITS MARKETS HAVE BECOME CLEANER
Polymarket points to:
Higher fees
Better monitoring
and
Improved surveillance
as reasons manipulation has declined.
The Columbia research itself appears to support part of that argument.
The estimated wash-trading signal fell dramatically from its late-2024 peak.
That suggests platform policy can influence trader behavior.
But unusual long-shot volume remains something researchers continue to monitor.
KALSHI’S ENDING OF VOLUME INCENTIVES COULD BECOME AN IMPORTANT TEST
Kalshi’s decision to terminate its:
Volume Incentive Program
creates a natural experiment.
If reported trading volume remains strong after the incentives disappear, that would strengthen the argument that activity reflects genuine demand.
If volume falls dramatically, investors may conclude incentives were responsible for more activity than previously understood.
October could therefore provide an important test.
The market itself may answer some of the questions regulators are asking.
THE BIGGER STORY: PREDICTION MARKETS NOW HAVE TO PROVE THEIR VOLUME IS AS REAL AS THEIR VALUATIONS
Kalshi and Polymarket have moved remarkably quickly.
What was once a niche corner of finance has become an industry generating:
tens of billions of dollars in monthly trading.
Their prices are quoted in:
Newsrooms
Trading desks
Political campaigns
and
Investment firms.
Their private valuations now reach into the tens of billions.
And potential public listings could make them some of the most closely watched financial technology companies in the world.
But growth creates a new standard.
When platforms are small, unusual trading can be dismissed as a technical curiosity.
When they are worth:
$20 billion
or
$40 billion,
every dollar of reported volume matters.
Kalshi says its repeated ether transactions involve legitimate traders.
Polymarket says sophisticated sharps and algorithmic traders explain much of its unusual long-shot activity.
Neither company has been found guilty of wash trading over the current activity.
And legitimate market-making can sometimes look suspicious in raw data.
But the questions will not disappear.
Regulators and investors increasingly want to know:
How much trading reflects real economic risk?
How much exists because platforms are paying users to trade?
How much is generated by bots?
How much is connected to potential future token rewards?
And how much of the headline number translates into durable revenue?
Those questions could matter even more than whether prediction markets correctly forecast the next election.
Because the industry’s next major bet is not on politics, sports or interest rates.
It is on itself.
Kalshi and Polymarket have proved that prediction markets can generate spectacular volume — but now they have to prove that the volume itself deserves to be believed.
