Prediction markets like Kalshi and Polymarket are experiencing significant growth, with billions of dollars in trading volume. However, concerns are mounting regarding the ethical implications and potential credit risks associated with these major betting platforms.
Last week, Polymarket recorded a notional volume exceeding $1.2 billion, according to data from Dune Analytics. In parallel, media giant CNBC has partnered with prediction market Kalshi to integrate prediction data across its television, digital, and subscription platforms.
Building on this success, Tarek Mansour, co-founder of Kalshi, has articulated a vision of creating "a tradable asset out of any difference in opinion," suggesting that prediction markets could eventually rival the stock market in scale.
Despite this expansion, regulators in certain jurisdictions are taking steps to scrutinize and potentially limit their operations. Recent weeks have seen the emergence of concerns surrounding wash trading and insider trading, with some analysts positing that these activities exacerbate credit risks.
Russo-Ukrainian War Map Edit Highlights Potential for Market Manipulation
Prediction markets have opened up a broad spectrum of possibilities for placing wagers on various events, ranging from specific outcomes in sports matches to the results of geopolitical conflicts. In some instances, this has led to allegations of insider manipulation aimed at resolving markets in a predetermined manner.
A notable case occurred in November when the Institute for the Study of War (ISW) reported an unauthorized alteration to its map of the Russo-Ukrainian War. This map is widely used by media organizations globally to track shifts in frontline positions.
The edit specifically affected the ISW’s map of Myrnohrad, a city where Ukrainian forces have been defending against the Russian Pokrovsk offensive since July 2024. Coincidentally, this unauthorized map change occurred around the same time a bet on Polymarket, titled "Will Russia capture Myrnohrad by..." with various end dates, was resolved.
According to reports, the market resolution was triggered if Russia controlled an intersection between Vatutina Vulytsya and Puhachova Vulytsya. On November 15, the map was allegedly edited to depict Russian troops occupying this intersection. This edit was reportedly removed mere minutes after the prediction market was resolved.
The ISW officially announced the unapproved edit on November 17, clarifying that "The map does not represent battlefield changes in real-time, and all adjustments made during our workday are subject to review and change over the course of the day."
This incident suggests not only the potential use of insider knowledge to manipulate data but also raises concerns about how such manipulation could influence public perception of an ongoing conflict.
Other instances of alleged insider trading have also come to light. A pseudonymous trader, AlphaRaccoo, reportedly profited over $1 million from bets related to Google search result rankings. Additionally, this trader is said to have earned $150,000 by accurately predicting the specific date Google would launch a new version of its Gemini AI model.
Jeong Haeju, a senior software engineer at Meta, commented on the situation, stating, "He’s a Google insider milking Polymarket for quick money. It’s one of the wildest things I’ve seen on the platform."
Allegations of market manipulation extend beyond insider trading. A November report from researchers at Columbia Business School found that wash trading—defined as "buying and selling securities without taking a net position, for the purpose of artificially inflating recorded volume"—accounted for 60% of Polymarket's volume in December 2024.
While this figure decreased substantially, it rose to nearly 20% of total volume by October 2025 and has consistently represented an average of 25% of all trading activity on Polymarket.
Yash Kanoria, a professor at Columbia University's business school, noted that wash trading "doesn’t add liquidity or information to the market." This observation is particularly significant given the claims that prediction markets offer more accurate and dynamic analyses of situations.
Jason Wingard, a distinguished visiting professor at Harvard University and executive chairman of the Education Board, wrote that prediction markets generate a "'truth signal' that moves faster than polls, pundits, or official reports. When thousands of people are willing to lose money on what they think will happen, the result is a dynamic forecast of political outcomes, corporate decisions, economic trends, and cultural shifts."
Regulatory Challenges Emerge as Prediction Markets Explore New Assets
Prediction platforms have achieved significant regulatory milestones this year. In November, Polymarket secured regulatory approval from the U.S. Commodity Futures Trading Commission (CFTC) to operate an intermediated trading platform.
Shayne Coplan, founder and CEO of Polymarket, stated, "This approval allows us to operate in a way that reflects the maturity and transparency that the U.S. regulatory framework demands."
Kalshi is also regulated by the CFTC, which theoretically permits it to operate in all 50 U.S. states.
However, state regulators have raised objections to these platforms. Kalshi is currently involved in legal disputes with gaming regulators in Nevada, New Jersey, New York, Massachusetts, Maryland, and Ohio, concerning whether its platform constitutes a gambling enterprise.
Concerns have also been raised about the potential risks to financial and credit systems. Analysts at Bank of America observed, "Easy access and gamified interfaces encourage frequent and impulsive wagers, which can lead to overextension of credit and rising loan defaults."
“For investors this convergence of entertainment and speculative finance signals heightened behavioral risk that could pressure credit quality, increase delinquencies, and impact earnings for issuers and subprime lenders.”
They further elaborated that these risks could negatively affect credit quality, and that online betting markets "introduce a new risk for lenders, one that they have not had to deal with historically and underwriting models may need to be adapted."
The Connecticut Department of Consumer Protection has issued cease-and-desist orders to Robinhood, Kalshi, and Crypto.com. The department stated that, in addition to lacking proper gambling licenses, these platforms pose "a serious risk to consumers who may not realize that wagers placed on these illegal platforms offer no protections for their money or information."
While Mansour's ambition to transform "any difference in opinion" into a tradable asset may seem innovative, prediction platforms must first navigate significant regulatory scrutiny and address a range of ethical challenges.