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Prediction markets are under fire as insiders allegedly game the system and collect the vast majority of winnings, while the ‘feds v states’ war over regulatory oversight keeps opening up new fronts.
- Polymarket brings in Chainalysis following insider trading charges
- Congress, Trump on different prediction pages
- CFTC v states turf war expanding
- Wisdom of crowds no match for the wisdom of insiders
On April 30, the Polymarket prediction market announced a tie-up with blockchain analytics firm Chainalysis to help police activity on the prediction platform and detect violations of Polymarket’s Market Integrity Rules. Polymarket said the deal “sends a clear signal: insider trading, in addition to all types of fraud and market manipulation, is not welcome on Polymarket, and those who attempt it will be identified.”
The announcement comes hot on the heels of the latest suspected incident of insider trading on Polymarket, this one involving a member of the U.S. military accused of profiting off advance knowledge of the January 3 operation that resulted in the arrest/extradition of Venezuela’s former president Nicolás Maduro.
On April 23, the U.S. Department of Justice (DoJ) charged Special Forces soldier Gannon Ken Van Dyke with the unlawful use of confidential government information for personal gain, theft of nonpublic government information, commodities, and wire fraud, and making an unlawful monetary transaction.
Van Dyke, who was arrested last month, entered a ‘not guilty’ plea in a Manhattan federal court on April 28 and was released on bail. If found guilty, he faces a potential 20-year prison sentence.
Van Dyke opened a Polymarket account on December 26, 2025, and proceeded to place 13 Venezuela-related bets, including the likelihood of U.S. forces taking action against the country by a certain date and whether Maduro would remain the nation’s president. Van Dyke wagered over $33,000 on these markets, resulting in nearly $410,000 in winnings following Maduro’s seizure.
After the winnings, Van Dyke allegedly tried to mask his involvement by asking Polymarket to delete his account, falsely claiming he had lost access to the email used to register it. Van Dyke also changed the email he used to register an account on the unspecified U.S.-based digital asset exchange to which he transferred his Polymarket winnings (in Circle’s (NASDAQ: CRCL) USDC stablecoin).
The Commodity Futures Trading Commission (CFTC), which claims oversight of prediction markets as ‘designated contract markets’ (DCM) under the Commodity Exchange Act (CEA), filed its own complaint against Van Dyke. The CFTC notes that Van Dyke was “involved in the planning and execution” of the operation that resulted in Maduro’s capture.
Notably, the CFTC’s complaint indicates that Van Dyke initially tried to open an account on an unspecified U.S.-based/CFTC-registered DCM—possibly Polymarket rival Kalshi—last Christmas Eve but “was unable to open his account at the DCM, despite contacting the DCM’s customer support chat on or around December 26, 27 and 28, 2025.”
The CFTC wants to permanently ban Van Dyke from making any additional prediction wagers and force him to cough up all profits he derived from allegedly trading on insider info, plus unspecified penalties and costs.
Congress, Trump on different prediction pages
Word of Van Dyke’s arrest unleashed a flurry of ‘whataboutism’ from prediction market supporters, who noted the highly successful/dubious equities trading patterns of elected officials. Indeed, Kalshi recently spanked three U.S. politicians who it determined had engaged in ‘political insider trading’ by betting on the results of their own election campaigns.
Evidence of political insiders making bank off nonpublic information has surged during the second Trump administration, sparking calls for probes and new rules that would impose stiffer penalties on those caught making big bets on the sly.
States like Illinois and New York have already enacted bans on public officials trading on insider info, and pressure is rising on the feds to drop their own ban-hammer. House Financial Services Committee chair French Hill (R-AR) recently declared that monitoring for insiders betting on prediction markets with national security implications “is going to be the top emerging issue” in finance going forward.
On April 30, the Senate voted unanimously to ban senators and their staff from using prediction markets, effective immediately. The resolution was introduced by Bernie Moreno (R-OH), who was elected in 2024 with major crypto sector support. Moreno said senators “have no business engaging in speculative activities like prediction markets.” Senate minority leader Chuck Schumer (D-NY) urged House Speaker Mike Johnson to make haste and pass a similar ban for House members.
Asked last week about Van Dyke’s arrest and insiders wagering on America’s ongoing war with Iran, President Trump—who once owned multiple casinos that ultimately went bankrupt—said: “the whole world unfortunately has become somewhat of a casino.”
Trump said he was “never much in favor of” prediction markets, claiming to be “not happy with any of that stuff.” And yet, his Trump Media & Technology Group (TMTG) (NASDAQ: DJT) is in the process of launching its own prediction market (Truth Predict) on its Truth Social platform.
Predictably (pun intended), Trump reversed his public stance a few days later, saying ‘I know some people that are very smart. They like [prediction markets].” Trump also claimed that if American companies don’t offer these services, “other countries” will fill the void and “we get left out in the cold.”
And in perhaps his most candid statement, Trump claimed to “know people that are in the prediction market business, and they’re pretty happy with it.” For the record, Donald Trump Jr. is an advisor to both Kalshi and Polymarket, while Don Jr.’s venture capital group 1789 Capital made a “double-digit millions” investment in Polymarket last year.
CFTC v states legal fight getting hotter
Meanwhile, the turf war between the CFTC and states that view prediction markets as gambling and thus fall under their legal purview shows no sign of letting up. CFTC chair Michael Selig believes DCMs are solely within his agency’s purview and has made good on his February threat to take states to court if they dare challenge that viewpoint.
Selig has already sued Arizona, Connecticut, and Illinois, and recently added New York and Wisconsin to that list. New York earned Selig’s ire after the state sued the Coinbase (NASDAQ: COIN) and Gemini (NASDAQ: GEMI) digital asset exchanges for “running prediction markets that constitute illegal, unlicensed gambling operations.”
New York Attorney General Letitia James said, “Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution. Gemini and Coinbase’s so-called prediction markets are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails.”
Selig responded by accusing New York of “seeking to limit Americans’ access to event contracts and undermine the CFTC’s sole regulatory jurisdiction over prediction markets … As I’ve said before, the CFTC will not allow overzealous state governments to undermine the agency’s longstanding authority over these markets.”
Wisconsin, which only just approved online sports betting last month (and only in conjunction with state tribal groups), sued Coinbase, Kalshi, Polymarket, the Crypto.com exchange, and the Robinhood (NASDAQ: HOOD) trading platform. State AG Josh Kaul echoed his New York counterpart’s view that “thinly disguising unlawful conduct doesn’t make it lawful. These companies’ alleged facilitation of sports betting in Wisconsin should be shut down.”
Selig accused Wisconsin of trying to “circumvent the clear directive of Congress” regarding the CFTC’s exclusive jurisdiction over DCMs. Selig warned other states considering joining this fight that “if you interfere with the operation of federal law in regulating financial markets, we will sue you.”
Prediction markets are facing legal challenges in 13 states, including criminal charges filed against Kalshi in Arizona, where betting on elections is illegal regardless of who’s offering it. On April 10, the U.S. District Court for the District of Arizona granted the CFTC’s request for a temporary restraining order against the charges, leading Selig to claim that the TRO “sends a clear message that intimidation is not an acceptable tactic to circumvent federal law.” The state’s AG is reportedly evaluating the state’s next move while the TRO is in place.
With the CFTC at their back, some prediction market operators have sought to shift their cases from state to federal courts by arguing that federal law is being challenged. On April 21, Coinbase’s chief legal officer Paul Grewal said the company had been successful in moving its case to a New York federal court. However, New York has since filed a motion to return the case to state court.
Returning to state court would seem a viable request, given that on April 30 a federal judge in Illinois sent that state’s suit against Kalshi, Robinhood and Florida-based Webull Corporation back to state court. The judge said federal courts “should not upset the state-federal balance favoring state courts adjudicating state law.” The judge expressed confidence that state courts “can resolve the limited federal issues that may arise in the interpretation of this Illinois statute.”
In Nevada, the preliminary injunction the state secured against Kalshi took effect Monday, May 4, meaning the company must ensure state residents can’t access Kalshi’s markets for sports, elections, and entertainment.
Most observers believe these jurisdictional questions are ultimately headed to the U.S. Supreme Court, which in 2018 sided with the states in overturning the federal ban on sports betting. Will past prove prologue? Watch this space.
Wisdom of insiders trumps the mob
Prediction market proponents often claim that their platforms offer better forecasts for what might transpire in various situations, in part because people put actual money behind their views, unlike traditional polls and surveys.
However, this ‘wisdom of crowds’ view took a serious kicking via a Bloomberg analysis of exactly who gets what right on these sites. Using Polymarket data, Bloomberg concluded that basically half of all accounts that placed a bet since January 2025 were either $10 in the red or $10 in the black, with the modest losers seriously outnumbering the modest losers.
But over 100,000 accounts lost at least $1,000, nearly twice the number of accounts that had won at least that sum. And “a majority of the profits were raked in by a tiny slice of what look to be automated bots … Everyone else, in aggregate, lost $131 million.”
Bloomberg’s analysis had its critics, but prediction markets’ rising popularity has led to a flurry of studies analyzing the platforms’ winners and losers. One study released last month reviewed 588 million trades on Polymarket between 2022 and 2026 and found that the “top 1% of users capture 76.5% of all trading gains,” leading the authors to conclude that “the informational benefits of prediction markets come at a cost to unsophisticated participants.”
Another study (also from April) found that 3% of all accounts “generate the bulk of price discovery” while “the remaining majority does not produce accuracy; rather, it funds it. Their trades generate most of the volume, but little of the information, and their losses flow as profits to the informed minority. Prediction market accuracy thus reflects the wisdom of an informed minority, not the wisdom of the crowd.”
Speaking of informed minorities, the Anti-Corruption Data Collective (ACDC) non-profit research/advocacy group just published its findings on Insider Risks in Polymarket Political Markets. The data was drawn from over 400,000 events settled on Polymarket between January 2021 and March 2026.
Political markets accounted for 36% of all trading volume, despite representing only 4% of the total number of all markets on offer. ACDC found that “political markets with outcomes determined by groups of insiders display disproportionately high signs of trading on insider information.”
Those red flags include ‘longshot’ bets (defined as a bet of $2,500+ on something with a less than 35% probability of success) on political markets. Around 25% of these longshot political bets are making bank for their bettor, much higher than the 14% of longshot bets on all subjects.
Even more alarming, longshot bets on military/defense events paid off 52% of the time, nearly 4x the average. Those military longshot bets tend to surge in the 12 hours before a market resolves, and winning late-entry wagers outnumber the losers. ACDC says these markets “show the clearest signs of widespread information asymmetries.”
Politics isn’t the only sector in which insiders appear to be profiting off advance knowledge. Longshot bets on cultural events, including things like award winners, the results of which are known in advance by a small handful of individuals, paid off over 29% of the time.
Will any of these revelations spoil the prediction market party? In March, Kalshi raised $1 billion at a valuation of $22 billion, twice the valuation the company put forward during its previous raise just last December. Last month, Polymarket was said to be raising $400 million at a valuation of up to $15 billion, up from just $9 billion last October. It’s almost as if some insiders know something the rest of us don’t.
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