CFTC Warns of Potential Manipulation in Prediction Markets in Filing Against Kalshi

The U.S. Commodity Futures Trading Commission (CFTC) has raised concerns about the susceptibility of prediction markets to manipulation in its latest filing against Kalshi, a U.S.-based prediction market platform.

The CFTC mentioned examples of recent manipulative actions on competitor platforms, suggesting that Kalshi’s markets could face similar issues.

In a filing dated September 14, the CFTC cited previous incidents where prediction markets had been exploited.

Traders Manipulated Contracts on Polymarket

One example involved traders on Polymarket attempting to manipulate contracts related to Vice President Kamala Harris’ potential victory in the 2024 U.S. presidential election.

Additionally, a fabricated poll on PredictIt, showing musician Kid Rock leading Senator Debbie Stabenow in a senate race, significantly impacted the pricing of contracts for Stabenow’s reelection.

Kalshi, which allows users to bet on election outcomes, had previously faced legal challenges from the CFTC.

On September 6, District Court Judge Jia Cobb ruled in favor of Kalshi in part, allowing the platform to offer election-related betting, according to Kalshi’s founder, Tarek Mansour, in a social media post.

However, shortly afterward, the CFTC filed an emergency motion, which led to a temporary stay on Kalshi’s election markets on September 9.

Despite the legal obstacles, Kalshi briefly launched its first U.S. election market on September 12, only for the platform to take it down a few hours later following another stay order from the appeals court.

The CFTC continued to challenge the legality of Kalshi’s election betting operations, filing a notice to appeal on the same day.

Judge Cobb, in her September 12 opinion, criticized the CFTC’s actions, stating that the regulator had overstepped its authority in attempting to shut down Kalshi’s election markets.

Kalshi Says a Stay Would Cause Financial Harm

In response, Kalshi argued that enforcing a stay would cause significant financial harm to the company, while similar products continued to operate on unregulated platforms.

The CFTC dismissed this argument in a September 13 filing, referring to it as “sophomoric.”

The agency likened the situation to a pharmacy selling illegal drugs just because they are available on the black market, emphasizing that allowing election betting on Kalshi could cause substantial harm in the lead-up to the U.S. presidential election.

At the core of the legal battle is the question of whether Kalshi’s operations fall under U.S. laws regulating gambling and thus should be subject to the CFTC’s oversight.

While Judge Cobb’s ruling on September 6 was seen as a win for Kalshi and the broader cryptocurrency industry, the case remains unresolved, with further legal challenges ahead.

Last month, leading financial data and news service provider Bloomberg LP revealed that it aims to incorporate election odds data from the crypto betting platform Polymarket into its widely used Terminal.

Polymarket, a blockchain-based prediction market operating on the Polygon network, has become a prominent platform for tracking real-time election odds.

The platform allows users to bet on a wide range of event outcomes, leveraging transparent on-chain data and smart contracts for trade execution and payouts.

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