Polymarket and Kalshi Crack Down on Insider Trading as US Lawmakers Close In
Kalshi and Polymarket both announced on March 23 that they are introducing new rules against insider trading on their prediction market platforms. The timing may not be coincidental. News of the restrictions came hours after Sens. Adam Schiff and John Curtis introduced bipartisan legislation that could effectively ban both companies from offering many of their markets.
Polymarket published updated governing documents for both its offshore DeFi platform and its Commodity Futures Trading Commission (CFTC)-regulated U.S. exchange. Kalshi, its closest rival, announced it would begin proactively blocking athletes, coaches, and political candidates from trading on markets related to their own competitions and campaigns. Both companies framed the moves as long-planned upgrades to compliance infrastructure.
Polymarket Chief Legal Officer Neal Kumar said that “markets thrive on clarity” in Monday’s statement. He said that the new rules enhancement “make our expectations abundantly clear for every participant.”
What the New Prediction Market Rules Say
The two companies took their own approaches to the same underlying problem. Polymarket’s new rules define three categories of prohibited insider conduct. They target non-public, confidential information, acts on tips from someone who has a duty of trust to a third party, and trades on any contract where a participant has sufficient authority or influence to affect the underlying outcome.
The third category broadly applies to everything from executives trading ahead of earnings announcements to government officials betting on policy decisions to military personnel betting on operations about which they have advanced knowledge. Enforcement tools for U.S. users include fines, suspension, and regulatory referral. This will be carried out under a formal surveillance agreement with the National Futures Association.
Kalshi’s approach is more proactive. It plans to introduce technical mechanisms to prevent high-risk users from placing certain trades altogether, rather than waiting to detect violations after the fact.
It will work with compliance firm Integrity Compliance 360, which already partners with licensed sportsbooks such as BetMGM and Caesars. Kalshi will block professional and college athletes, coaches, and officials from betting on their own sports, and block political candidates from trading markets relating to their campaigns. The company is also launching a whistleblower function, letting users flag suspicious activity.
Kalshi’s Head of Government, Bobby DeNault, told Axios that no system is airtight. He said that it’s not possible to “stop all illicit activity everywhere.” But, he added that “you shouldn’t make the perfect the enemy of the good either.”
Several High-Profile Insider Scandals at Prediction Markets
The announcements come after numerous high-profile scandals over suspiciously timed trades. One of the most prominent cases involved Venezuelan President Nicolás Maduro. Hours before a U.S. special forces mission to capture him, an anonymous person collected more than $400,000 on Polymarket by betting that he would be removed from power.
An Israeli military reservist and civilian associate were later indicted for exploiting classified information to profit from security-related contracts on the platform. They won approximately $150,000.
Ahead of the 2026 Super Bowl, a single account that was created the day before the game bought almost $70,000 in halftime show contracts. It successfully predicted almost all of the outcomes.
An Industry Reversing Course
The new rules mark a reversal from attitudes that were common and openly defended by platform operators. Prediction markets grew out of a broader crypto culture that often treated information asymmetry as a feature and not a flaw.
The scandals were met, in some corners of social media, with something closer to admiration than outrage. Screenshots of the “romanticpaul” Taylor Swift trade and the Maduro account’s overnight windfall circulated on X and Reddit, accompanied by comments praising the traders’ nerve. Crypto-adjacent influencers posted the blockchain receipts like highlight reels, framing the trades as evidence that prediction markets worked.
Operators themselves would frequently tout the insider trades as “revealing the truth” before the news.
The CEO of Coinbase, Brian Armstrong, argued that insider trading is a type of price discovery. By betting on what they know, insiders would push prices toward accurate forecasts, bringing private knowledge into the public domain. He claimed that restricting insiders can actually make prediction markets less accurate.
However, that logic hasn’t held as the industry scaled rapidly and attracted mainstream scrutiny. The big issue that critics point out is when the insider doesn’t just have access to sensitive information but also has the power to make the outcome happen.
A politician who bets on a bill’s passage could try to accelerate it, or an athlete betting on their team to lose has an incentive to underperform. Polymarket’s new prohibition on trading by those who “can influence the outcomes” directly addresses this issue.
Prediction Markets Face Mounting Pressure on Multiple Fronts
Monday’s compliance announcement came at a time of escalating regulatory pressure from both Congress and state governments.
The Prediction Markets Are Gambling Act, introduced by Schiff and Curtis, would prohibit CFTC-regulated exchanges from offering contracts on sports events or casino games. In a statement, Curtis said that too many people “are getting exposed to addictive sports betting” that should be under state control and not federal regulators.
State-level pressure has also been ramping up. The Arizona attorney general filed criminal charges against Kalshi last week, accusing the company of running an unlicensed gambling operation. The Nevada Gaming Control Board secured a temporary restraining order against Kalshi on Friday, barring the platform from offering sports, politics, or entertainment markets in the state for 14 days.
With bipartisan legislation in play and state prosecutors actively pursuing charges, both companies had limited room to delay. As one attorney told CBS News, if the platforms fail to implement credible compliance regimes, “someone’s going to do that for them.”
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