Predictive markets in the Democrats' sights after insider trading suspicions

The tone is rising seriously around Polymarket and Kalshi in the United States. Dozens of Democratic lawmakers are demanding increased oversight of prediction markets, which they consider increasingly exposed to the risks of insider trading. Their position is firm: no state agent can use privileged information to take a position on the market.

Democrats sound the alarm against insider trading on markets

On March 29, 2025, more than 40 Democratic senators and representatives sent a joint letter to Mike Selig, chairman of the Commodity Futures Trading Commission (CFTC), as well as to the leaders of the U.S. Office of Government Ethics (OGE).

The message is unambiguous: federal officials must stop betting on prediction markets based on confidential information obtained in the course of their duties.

Among the signatories are heavyweights of the Senate: Elizabeth Warren, leader within the banking committee, and Cory Booker, a central figure of the agricultural committee. Maxine Waters and Angie Craig, respectively Democratic chairs of the financial services and agriculture committees in the House, also signed.

The letter points to specific and troubling incidents. Contracts seemed to attract very well-directed bets on military operations in Venezuela and Iran, on the exact duration of a speech by the White House spokesperson, or on the dismissal of Kristi Noem. Coincidences that are difficult to ignore.

The legal argument of the legislators is solid. The CFTC having classified the contracts of Polymarket and Kalshi as regulated derivatives, U.S. legislation fully applies: any official who exploits non-public information to make a profit commits insider trading, period.

Polymarket and Kalshi, pressure mounts

This political offensive does not fall on deaf ears. Kalshi and Polymarket have already anticipated the pressure by tightening their internal rules in recent weeks.

Kalshi has implemented technological filters to block sensitive profiles, political candidates, athletes, before they bet on events they can influence. Polymarket, for its part, now explicitly forbids positions based on stolen information or illegal “tips.”

However, are these adjustments sufficient? Not in Washington’s eyes. Federal prosecutors have reportedly already contacted these platforms to assess whether some cases justify prosecution. 

Meanwhile, the CFTC is working on developing a new regulatory framework, publicly questioning the vulnerability of these markets to manipulation and abusive practices, including when they rely on the blockchain.

For the crypto ecosystem, the signal is clear: onchain transparency is no longer a shield against compliance requirements. These platforms, long presented as mere aggregators of collective information, are now treated as financial products with systemic risk. The bigger they grow, the more intense the control.

Decentralized prediction markets have long ridden legal ambiguity, presenting themselves as simple aggregators of collective opinion. But as soon as American officials could bet on decisions they themselves make, political tolerance collapses. Crypto is no exception to a rule as old as finance: the bigger a market grows, the more the regulator settles in.