CFTC Looks to Crack Down on Prediction Market Promotions

_{The roller coaster ride for prediction markets like Kalshi continues with a crackdown on incentives and a Supreme Court showdown expected eventually. (Photo: Cristian Bonaviri / Alamy)}

The Commodity Futures Trading Commission (CFTC) is reviewing promotions and incentives at a number of leading prediction market platforms, including offers aimed at both traders and market makers.

According to a report by Front Office Sports, a source familiar with the investigation said that a specific approach to dealing with incentives in the prediction market industry hasn’t yet been determined, but that CFTC Chairman Michael Selig was expected to take some action by the end of the week.

As of this week, Kalshi has already suspended its trading volume incentive program, a move that appears to be a direct response to ongoing CFTC pressure. Polymarket, which has spent $128 million on incentives since January 2026, nearly half of its $229 million in fee revenue over that period, has not announced a similar change, though it may face increased scrutiny going forward.

Could Incentives Warp Perpetual Markets?

Several notable prediction markets, including industry leaders like Kalshi and Polymarket, offer sportsbook-style promotions to new users. These can include offers of additional funds for making a first deposit or making a certain amount in trades, as well as offers for unlimited rebates and guaranteed profits on some trades.

The CFTC is said to be concerned that such incentives could undermine the integrity of the markets, which are meant to host legitimate trading activity that leads to organic pricing of contracts.

The idea that this could be occurring in some markets has already been raised, with some observers pointing to Kalshi’s new perpetual futures markets, which allow users to trade crypto and precious metal contracts without expiration dates and on margin.

On Sept. 20, Benoit Dubosson of Shaira AI pointed to a series of identical, $5,500 trades on Kalshi’s Ethereum perpetual market.

“It literally made up 48%-58% of ALL ETH PERP volume on four separate days,” Dubosson wrote on X.

Such action has led to accusations of wash trading – essentially, fake activity designed to make it appear as though the market has more liquidity than it actually does – while others have pointed to Kalshi’s offer to waive trading fees through the end of 2026 on its perpetual market, which has encouraged the behavior.

However, Kalshi claims that the trades were legitimate and that they appeared to benefit one side over the other.

“All the trades that were shared on X this weekend are trades that both sides wanted to take at the time, because they disagreed on the fair price,” Kalshi wrote in a Sept. 22 blog post. “It turns out that one side was pretty consistently right (the takers – which were hundreds of distinct traders) and one side was pretty consistently wrong (the maker. This is a sign of genuine economic activity rather than wash.”

Prediction Markets Facing Likely Supreme Court Showdown

The scrutiny over incentives comes at a time when prediction markets are facing increasing legal pressure, as rulings continue to point to a Supreme Court showdown over the status of sports-event contracts.

On Friday, a Sixth Circuit Court of Appeals panel ruled unanimously in favor of Ohio and Tennessee in a case against Kalshi, finding that sports-based contracts don’t meet the definition of swaps – and that even if they did, the current federal regulatory scheme wouldn’t prevent states from enforcing gambling laws against prediction markets.

“We hold that Kalshi has not shown that its sports-event contracts satisfy the statutory definition of a ‘swap’ so as to fall within the score of the CFTC’s ‘exclusive jurisdiction,’” wrote Judge Julia Smith Gibbons. “Even assuming that Kalshi’s sports-event contracts are swaps, we alternatively hold that the [Commodity Exchange Act] neither expressly nor impliedly preempts Ohio’s or Tennessee’s gambling laws.”

Meanwhile, the CFTC continues to back prediction markets in these cases, and is taking steps to potentially strengthen its case by clarifying its own regulations. On Sept. 28, the CFTC proposed two more rules that would update its definition of swaps to clearly exclude “casino-style gaming products” while explicitly including event contracts.

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