Photo-Illustration: Intelligencer; Photo: Getty Images
On prediction markets, there are many ways you can make or lose money on America’s foreign wars. There’s been plenty of demand lately. Before the U.S. captured Nicolás Maduro, users, including people with suspiciously accurate information, were putting money on how long he might be in power or whether there might be an invasion of Venezuela. Last week, before the U.S. and Israel initiated massive strikes on Iran, killing Ali Khamenei and numerous other leaders, hundreds of millions of dollars had been bet on — or, technically speaking, invested in — different outcomes for Iran’s future.
You can currently bet on the exact date that the Strait of Hormuz might close, or the date of a future cease-fire; you can put money on an arrival date for exiled opposition leader Reza Pahlavi; and if you have a hunch about if or when the U.S. will seize an Iranian oil tanker, that market is available, too. There are plenty of reasons you might think to do this. Perhaps you’re a keen observer of American foreign relations, or you believe you have unusually good instincts about the president’s decision-making process. Maybe you know a lot of people in government, or the military, and you’re picking up on some strange patterns or vibes.
Or maybe — just maybe — you’re privy to something specific and know a sure thing when you see it. It doesn’t look like that didn’t happen last week on the Donald Trump Jr.–advised platform Polymarket:
An account trading under the username “Magamyman” made more than $553,000 placing bets on the prediction market Polymarket that Iran’s Supreme Leader, Ayatollah Ali Khamenei, would be out of power just before an Israeli strike killed him on Saturday.
This strategy doesn’t just apply to wars, of course. There are, for example, many ways you can make or lose money on the YouTuber MrBeast, a.k.a. Jimmy Donaldson. You can put money on whether he’ll be married this year, reach 500 million subscribers, or donate money to East Carolina University. You can also buy into date ranges for a Beast Industries IPO or the specific length of his next video. When his next video comes out, 15 different “mention” markets will resolve one way or the other. Did he use the words “win,” “money,” “insane,” or “subscribe”? How about “prize” or “billion” or “Saudi Arabia”?
Similarly, if you have good reason to believe that MrBeast will talk about Saudi Arabia in his next video — the likelihood of which is currently trading at around 7 percent — you could make some money. Maybe you’ve read about Beast Land, the Saudi Arabian theme park, and think there’s a reason he might address it, or have a strong hunch and a track record of vibing with MrBeast’s content-release schedule. Or maybe you know exactly what’s going to be in the next video, and how long it is, because you’re one of the people who helped make it, which also allegedly happened recently.
The booming prediction-market industry isn’t known for being overly precious about ethics and appearances, but it is concerned about seeming overtly rigged, which is an increasingly common belief among not just skeptical outsiders but also traders themselves. So platforms are finally beginning to take some action that, in theory, may discourage insider betting. Alleged insider bets on the Iran strike and the metadata on Jimmy Donaldson’s next video obviously differ in importance, but they’re alike in kind, which is why prediction markets are doing something about them. Well, one of them. No, not that one:
The … case involved trading in markets on a popular YouTube streamer’s videos. Our surveillance systems flagged his near-perfect trading success on markets with low odds, which were statistically anomalous. At the same time, because all trading data is publicly available, a number of Kalshi users sent us tips about unusual activities they saw in the trading data. We investigated and found that the trader was employed as an editor for the streamer’s show and likely had access to material non-public information connected to his trading.
This user was, according to Kalshi, subject to a “2-year suspension + financial penalty (5 times the initial trade size).” The latter was described as a “fine,” levied because the user violated “Kalshi’s insider trading rules” — specifically, exchange rules 5.17(y) and 3.6(a), which cover “access to material non-public information” and cooperation with internal investigations, respectively.
If you’re a commodities lawyer, prediction-market employee, finance professional, or heavy prediction-market user, this probably makes some sense to you. If you’re the sort of person who finds it strange or shocking that MrBeast “mention markets” exist at all and that they’re an enforcement priority in a world where you can bet on geopolitics, which you also find insane — basically, if you’re anyone else — you might have some follow-up questions. For example: Isn’t everyone here just gambling? How can Kalshi impose a “fine,” and does it actually have investigators? Can you really get in trouble for “insider trading” on a YouTube video and with whom? What about a war?
Early this week, on Kalshi, a different war-related controversy was coming to a head. Users expected a market about when Ali Khamenei would be “out as Supreme Leader” to resolve after his killing by an air strike. Except Kalshi, by its own rules, doesn’t allow people to bet on whether someone will die, leaving the platform in an unusual position:
After Khamenei’s death, Kalshi reimbursed users and further clarified its rules; Polymarket, on the other hand, resolved similar markets for the “out” side. In response to increased attention around markets like this, in fact, Polymarket has added a defensive notification to its site and app: “The promise of prediction markets is to harness the wisdom of the crowd to create accurate, unbiased forecasts for the most important events to society. That ability is particularly invaluable in gut-wrenching times like today,” the company said. “After discussing with those directly affected by the attacks, who had dozens of questions, we realized that prediction markets could give them the answers they needed in ways TV news and 𝕏 could not.”
The rationale behind Kalshi’s death rule, and Polymarket’s casual attitude about its own death-connected market, can be explained — along with the particulars of Kalshi’s investigation into MrBeast — by the same fact: In America, where prediction markets were effectively illegal until just a couple of years ago, they’re now regulated by the Commodity Futures Trading Commission, meaning that their users are subject to the same rules as, for example, professionals trading fuel swaps or corn futures. Kalshi’s attempts to stay on the right side of the law as a regulated “designated contract market” is why we’re talking about insider trading in the first place rather than cheating or rigging; while Polymarket also operates as a regulated contract market, it maintains a parallel international platform, beyond the reach of American regulators, where markets adjacent to death and killing remain on the menu and where Americans aren’t allowed to participate (but, using VPNs and cryptocurrency, seem to manage to anyway).
In the public imagination, Kalshi and Polymarket are both ways to “bet” on all sorts of things, an extension of the logic and sensibility of apps like DraftKings and FanDuel. Legally speaking, however, Kalshi is “a financial exchange designated to trade futures, swaps, and/or options on commodities.” After the company’s MrBeast announcement, the CFTC issued its own statement saying that while “Kalshi’s internal enforcement program handled these matters … the Commission has full authority to police illegal trading practices,” which these allegedly were. MrBeast’s editor hadn’t just broken a rule. He might be in trouble with the law.
As a contract market, Kalshi is required to create and present its own rules to the CFTC, after which it is expected to monitor and enforce them. This is how the company, along more established contract markets, ends up levying “fines” and how we get from the popular understanding of these scenarios — people using gambling apps to bet on MrBeast videos or air strikes — to the legal concept of insider trading. Despite the “strange” subject matter of the contracts, says Jack Murphy, senior counsel at the Washington, D.C., law firm Akin (and, until last year, a CFTC enforcement attorney), “if you take a short step back and think about what you have, I think the information is material, and it’s clearly nonpublic” — a crucial factor in whether a trade might be illegal. MrBeast doesn’t run a public company, but the existence of Kalshi markets about MrBeast means that his employees, should they trade on them, can be understood, legally, as insiders. The more things you turn into markets, the more insiders you create. And a lot of them, it turns out, will come up with the same idea.
At the very least, people have gotten mixed messages about what prediction markets are for. It’s easy to imagine a “MrBeast’s editor”–type “insider” thinking about what they’re up to in several different ways. If you thoroughly conceive of yourself as a trader, and also as a worker at a firm to which you have a fiduciary duty, you’re going to be pretty careful on Kalshi. On the other hand, if you’re an ideologically committed prediction-market enthusiast who takes seriously the idea, espoused by Kalshi’s founders and others, that trading on certain types of “little known” information is “fair game,” you might be able to convince yourself that you’re somehow going to be fine or that what others might call insider trading is actually the whole point (this is the position held by some smaller unregulated prediction platforms). You might just understand your insider status as an unprecedented perk of your unprecedented job and Kalshi as the place where the information you have gets priced. Or maybe you’re just not too worried about the law and perceive, as many outside observers and Kalshi traders do, that everyone seems to be insider trading anyway and mostly getting away with it, that only suckers care about the rules, that you won’t get caught, and that if you do, it won’t matter much.
This laissez-faire view would be wrong, but not entirely: While the CFTC suggested that what MrBeast’s editor did was likely illegal, and he’s on the hook to pay Kalshi thousands of dollars, it does not appear that the government is going to intervene here. In fact, there have been no enforcement actions from the CFTC around insider trading on prediction markets at all, leaving the interpretation of the law as it pertains to MrBeast-type scenarios — and the dozens of others introduced by a platform where one can, uh, invest in the question of who will be eliminated next on The Bachelorette — up to Kalshi (which, it should be said, is in frequent communication with the commission).
The CFTC has signaled that new prediction-market rules are imminent but did so at the tail end of a speech in which its new commissioner, Michael Selig, talked about the “important role they play in the broader financial system.” He also criticized his predecessors for creating “uncertainty” around prediction markets. (Donald Trump Jr. is also an adviser to Polymarket, and his venture firm has invested in Polymarket.) A regulatory body motivated by the appearance of corruption on prediction markets, Murphy suggests, could find that MrBeast-type “mention markets” are “readily susceptible to manipulation.” And if you take a look at Kalshi’s listings, you’ll find they are full of markets that all but invite small, difficult-to-prove scheming. Likewise, there are plenty that don’t have significant “financial, commercial, or economic consequence” and move to limit them too. An even-more-motivated regulator might argue that such prohibitions should extend to sports (again, Kalshi’s main business at the moment), which is a position that’s being litigated at the state level across the country.
Those ideas might sound minimally responsible, but they’re probably not what the CFTC is focused on right now. Judging by the agency’s posture and public statements, it seems at least as likely that platforms like Kalshi will let people trade on more types of events, not fewer, and that legal questions of economic consequence and manipulabilty will be interpreted with extreme generosity. Regulators do seem highly motivated, that is, not by a sense that prediction markets represent novel new problems but rather by a desire to do anything they can to make sure they work, to give them space within an existing regulatory regime, and — to the greatest extent possible — to let prediction markets enforce these regulations themselves.
Soon, as a result, there could be a much wider range of opportunities to trade on valuable insider information and a larger pool of users — or traders, or bettors — who actually have some. This would leave quite a few people wondering, as they look around at the world through a lens of full marketization, If I did use what I know to get an edge and make a few bucks, would I really get caught? And how bad would it really be if I did?
