On March 23, 2026, Kalshi and Polymarket, by far the largest prediction markets, announced bans on insider trading; even though insider trading is already banned in their Terms and Conditions.

Prediction markets have two major problems, which can’t be cured by public relations stunts.

Insider trading has gotten the most attention, and disgust.  Days before Trump began his war against Iran, one or more people who knew his top-secret military plans opened accounts on Polymarket and placed $529 million in winning trades, on the exact day airstrikes would begin.  

But there is a bigger problem, which so far has gotten little attention:  Kalshi has refused to pay $54 million to traders who won their bets on when Iranian leader Ayatollah Ali Khamenei would leave office.

Gamblers will put up with a game, if it’s the only game in town, even when they know the game is rigged so that insiders will win.  What they won’t put up with is no one winning.

So, why is Kalshi risking its reputation?  Why won’t Kalshi pay winners?

Prediction markets are losing public support.  A Republican joined Democratic Senators in sponsoring the “Prediction Markets Are Gambling Act,” which would prohibit platforms regulated by the Commodity Futures Trading Commission (“CFTC”) from taking sports bets.  The “Public Integrity in Financial Prediction Markets Act,” would outlaw insider trading by government officials.  The “End Prediction Market Corruption Act” would prevent federal officials from making trades in areas where they can make their bets come true. 

Politicians can read the public will.  A dozen state legislatures are also considering outlawing, taxing or regulating sports futures (although, except for taxes, states have no power to do anything if these are commodities platforms, exempt from all state-anti-gambling laws).

Judges are also human. Increasingly, courts are rejecting the argument that trades on which team will win a football match is a commodity, like corn or oil.  As was shown by their rejection of Trump’s tariffs, even the Republican dominated U.S. Supreme Court will follow the law when the law is clear and the public is incensed.

Kalshi says that it won’t pay the winners of the “when will the Ayatollah leave office” contract because he was killed, and it does not like taking bets on people dying.  Of course, it has no trouble taking bets on a war that has already killed thousands of people, including civilian children, and at least 14 American service men and women.

If you believed the prediction market companies, this problem shouldn’t exist.  Kalshi should have no interest in whether any bet is won or lost, as long as the rules are followed.  (In this case, the rules were not clear as to whether the bet would be won if the Ayatollah died, rather than retired.  A bizarre claim to make, given that his being killed was one of the most likely outcomes.) 

One of the most important arguments that prediction markets make is that they are not at all like bookies.  These are contracts between individuals, which the markets simply facilitate.  There’s only a bet on a future event occurring if there is somebody on the other side who is putting up money that the event will not occur.

This is not true.

The people who won the $529 million bet on when the war would begin sometime put up as little as ten cents to win a dollar.  Were there really people willing to bet as much as 90 cents to win only a dollar that Trump would not start a war with Iran?  Does anyone believe that gamblers put up more than $400 million, on 1 to 9 odds, no less, that there would be no airstrikes before the end of March? 

So who would lose if Kalshi had to pay winners?  In the Massachusetts case, the judge found that “Kalshi has an affiliated entity that places buy and sell orders, ensuring that both yes and no contracts can be purchased for any given event at all times.”

So Kalshi would have to pay winners out of its own pockets, just like a bookie.  Kalshi probably uses an affiliated entity to make its wagers, so that when those bets lose big time, as now, the affiliate alone can declare bankruptcy.

An interesting twist is the fact that while Kalshi is acting like a bookie and taking the bets itself, that might not be relevant to whether future event contracts are commodities.  It clearly is the dictionary definition of gambling.  But so are all commodity markets. 

Trading in commodities is legal only because Congress has passed statutes declaring it not to be gambling, if certain requirements are met.  So, gamblers are called speculators.  And the legal question is whether Congress intended to treat bets on sports events, elections and war the same as trades on the future prices of corn and oil.

The online commodities industry likes to say it is merely providing a platform for individuals to bet against each other.  It may be a platform, but it is also a market, with market makers.  Kalshi’s affiliate does exactly what a market maker is supposed to do: put up the money when there is nobody to take the other side of a trade.  Of course, market makers are required to pay winners.

As a good example of where we are today, look at what everyone agrees are commodities traded on federally regulated exchanges: oil and stock index futures.  Literally five minutes before Trump announced peace talks with Iran one or more individuals bought $1.5 billion in S&P 500 futures and sold $192 million in oil futures.  The stock market exploded upwards after the announcement and oil prices plummeted 15% to below $100 a barrel.

An insider knew the announcement was about to be made.

Given the timing, it was probably Trump himself.

Insiders are making million-dollar bets on events they know will occur, or worse, are in a position to make happen, because they are getting away with it.  Federal regulators and law enforcement won’t investigate.  Trump named Kalshi’s attorney to be the chair and, at present, only member of the CFTC.  And he named his personal lawyer to be the Deputy Attorney General.

But once Democrats take over the House or Senate, they will subpoena the White House records.  Trump will, of course, refuse to turn over any communications from the White House to commodities brokers.  But Congressional committees controlled by a Democratic majority will also subpoena the brokers themselves.

What does this mean for prediction markets?  They had better change their practices immediately, and not just issue press releases, to win back the public.  Pay off winners.  Stop creating contracts on future events, which insiders can make happen.

And stop taking bets on wars.