Allegations of $5 billion in market manipulation have hit Kalshi, but the prediction market operator firmly denies ever being contacted by any regulator. A recent report from the Wall Street Journal revealed that the Commodity Futures Trading Commission (CFTC) is scrutinizing patterns of repeated transactions valued at around $5,500 per trade in Kalshi’s Ether perpetual futures market. This consistent pattern sparked suspicions of wash trading to inflate volume.
However, Kalshi’s rebuttal was equally sharp.
Kalshi’s head of communications, Elisabeth Diana, dismissed the narrative as rumors deliberately spread by competitors. “We have not been contacted by the CFTC and are not aware of any inquiry,” Diana said. She explained that repetitive transaction patterns are normal within liquidity incentive programs and common across financial markets, concluding with a warning to the public: “Don’t believe everything you read on X.”
The trades valued at roughly $5,500 per execution were far from occasional. Over the past month, the stream of transactions contributed more than $5 billion to Kalshi’s total Ether perpetual volume. Responding to public scrutiny, Kalshi published a post on its official blog explaining that the uniform trade size was solely the result of its structured liquidity program.
According to the Wall Street Journal report, Kalshi utilized three aggressive tactics to attract liquidity providers: offering equity stakes to traders hitting volume targets, waiving trading fees, and distributing monthly cash payouts. The scheme accelerated their business growth. Just one week after launching perpetual futures products in May, trading volume on Kalshi’s platform surpassed $1 billion.
Dual Pressure from the Senate and States
Scrutiny over trading volume comes alongside mounting political pressure on Kalshi’s business model. Eleven Democratic senators on the Senate Banking Committee have asked Chairman Tim Scott to hold a public hearing on the prediction market industry. The request followed revelations of a closed-door meeting between Republican lawmakers and Kalshi CEO Tarek Mansour.
For several senators, the instruments offered by prediction platforms raise fresh regulatory concerns. They argue that betting contracts tied to corporate performance could potentially be categorized as security-based swaps under Securities and Exchange Commission (SEC) rules.
Who Has the Right to Regulate?
The jurisdictional dispute has now moved from congressional hearing rooms to the courtroom. The National Council of Legislators from Gaming States (NCLGS) recently submitted an amicus brief to the U.S. Supreme Court (SCOTUS). The legal filing backs the state of New Jersey in its ongoing legal battle against Kalshi, urging justices to clarify the regulatory boundaries over prediction markets - whether oversight belongs to individual states or the federal government.
Following the SCOTUS petition filed by New Jersey on September 2, Kalshi now has until November 9 to prepare and submit its formal response to the court.
For developers of prediction market products, these cascading disputes highlight the real cost of building a business in regulatory grey areas. Kalshi’s challenge is no longer just maintaining daily trading volume, but convincing politicians and judges that its platform operates on a solid legal footing.
Source: Cointelegraph.
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Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
