US CFTC Launches Extensive Investigation into Polymarket – Is the Prediction Market Boom Coming to an End?

Original｜Odaily Planet Daily (@OdailyChina)

Author｜Wenser (@wenser2010 )

Polymarket's deceptive marketing has finally drawn the attention of regulators.

Recently, the U.S. Commodity Futures Trading Commission (CFTC) launched a broad investigation into prediction market platform Polymarket, covering its social media activities and other business operations. Previously, U.S. Republican Senator John Curtis and Democratic Senator Adam Schiff jointly sent a letter to CFTC Chairman Mike Selig, urging an investigation into Polymarket's paid influencer deceptive marketing and use of fraudulent promotional tactics to market gambling-like products to U.S. audiences.

As the World Cup drives prediction market trading volumes steadily higher, this action could throw cold water on the sector's development. More importantly, the CFTC's investigation into Polymarket has exposed conflicts of interest between the U.S. federal government and states, and between officials and capital. (Recommended reading: 'WSJ: Fake Websites, Fake Trades, Real Promotions – Polymarket's Traffic Scam').

The Wild West Era of Prediction Market Marketing Ends, Regulatory Policy Enters Deep Water

If Polymarket's earlier incidents—such as using college students to post fake profit videos and paying influencers to exaggerate prediction profits—were the crude attempts of early prediction market expansion, then the CFTC's formal investigation is clear evidence that the prediction market's wild growth phase is over.

Prediction Market Platform Data Explodes, Traditional Internet Giants Take Notice

Entering June 2026, with the official start of the World Cup, prediction markets have seen unprecedented attention, with trading volumes climbing steadily.

a16z crypto data shows that prediction market trading volume has hit new all-time highs for the third consecutive week. The total market volume reached $14.4 billion two weeks ago, a significant increase from around $5–$6 billion at the beginning of the year, while the previous all-time high of approximately $10 billion was set just a week earlier. From a platform perspective, data has also seen substantial growth:

• Latest data shows Kalshi's weekly notional trading volume surpassed $10 billion for the first time.
• Polymarket officially stated its annualized revenue has significantly exceeded $1 billion, a milestone reached just six weeks after removing its U.S. trading platform's waitlist. Data shows daily trading volume on its U.S. platform grew from approximately $50 million in mid-May to over $200 million on June 20 (based on Dune Analytics data).
• Robinhood's prediction market platform business is growing rapidly, with annualized revenue reaching $500 million. In Q2, as of June 25, Robinhood's event contract trading volume reached approximately 12.3 billion contracts. At a standard rate of $0.01 per contract, the quarterly prediction market revenue is estimated to be at least $123 million. Its recently launched Rothera prediction market platform achieved over 900 million trades in its first week, driving nearly 60% growth in Robinhood's event contract trading volume.

Such impressive data has also attracted the attention of tech giant Meta. According to media reports, Meta CEO Mark Zuckerberg has urged the company to explore partnerships with prediction markets Polymarket and Kalshi. Meanwhile, Meta is developing its own prediction market application called Arena.

All signs indicate that prediction markets have transformed from a niche sector a few years ago into a hot industry experiencing exponential expansion. Faced with this trend, regulatory authorities are unlikely to sit idly by. Polymarket's recent deceptive marketing incident served as a timely "soft weapon," providing a perfect opportunity for regulatory intervention. I believe that going forward, regulators will gradually clarify the boundaries of supervision for prediction market platforms in areas such as marketing, event contract content, and trading fees, aiming to strengthen investor protection and clearly distinguish them from traditional gambling businesses.

At the same time, as the investigation deepens, the power struggle between the CFTC as a federal regulator and state-level regulatory authorities is also emerging.

When the US CFTC Clashes with Nine US States: The Battle for Prediction Market Regulatory Authority

Last Tuesday, the CFTC officially sued the state of Kentucky, attempting to reaffirm the agency's jurisdiction over prediction market platforms.

In the lawsuit filed with the U.S. District Court for the Eastern District of Kentucky, the CFTC stated that Kentucky's attempt to shut down federally regulated designated contract markets interferes with the federal regulatory system established by Congress for the national swaps market. It asserted "exclusive jurisdiction" over related event contracts and prediction market products.

Previously, Kentucky sued platforms like Kalshi and Polymarket, accusing them of operating unlicensed illegal sports betting and gambling businesses within the state. As of June, over 12 U.S. states, including Kentucky and New York, have taken legal action against Polymarket and Kalshi, alleging they operate illegal sports betting. Kentucky has become the ninth state sued by the CFTC in the prediction market regulatory dispute.

This action highlights the escalating conflict between federal derivatives regulation and state-level gambling oversight.

The main reasons behind the dispute are twofold:

• First, the practical interests of state-level gambling industry tax revenue. Traditional sports betting generates substantial tax revenue for states (e.g., high-tax online gambling). If prediction markets completely replace the gambling industry, potential annual state tax losses could reach hundreds of millions of dollars (estimates place it around $600 million).
• Second, the definition of regulatory boundaries between the gambling industry and prediction markets as an emerging sector. The CFTC aims to classify "event contracts" as commodity derivatives, futures, or swaps, enforcing the principle of federal preemption.

The ultimate outcome of this dispute may depend on state courts and potentially the U.S. Supreme Court's interpretation and ruling on the Commodity Exchange Act (CEA).

Furthermore, conflicts between exchanges and the CFTC have also ignited. Previously, the CFTC approved Kalshi's application for perpetual futures trading, which led the Chicago Mercantile Exchange (CME) to sue the regulator:

It is reported that the CME has sued the CFTC and its Chairman Michael Selig in the U.S. District Court for the District of Columbia. Regarding the CFTC's approval on May 29 of Kalshi's launch of perpetual futures contracts linked to Bitcoin spot prices, the CME argued that the CFTC treated "futures" with expiration dates as "swaps," violating Congressional directives and the Commodity Exchange Act. It requested the court to vacate the relevant perpetual futures actions. The CME also claimed that Selig acted unilaterally without a full five-member commission panel.

A CFTC spokesperson responded that the CME is waging a "legal war" against the agency and the government's crypto policy, calling the lawsuit "extremely reckless." (It's almost like they had "Your lawsuit is too hastily filed" written on their foreheads.)

Of course, the CME's outcry is understandable. The CFTC's decision to allow Kalshi's crypto perpetual contracts essentially lets prediction market platforms like Kalshi and crypto exchanges like Coinbase and Kraken encroach on the CME's core trading territory. The driving force behind this might also be related to the Trump family.

The Trump Family's Prediction Market "Two-Sided Bet": Donald Trump Jr. Bets on Both Kalshi and Polymarket

Recently, it was revealed that Kalshi is in talks for a new funding round at a valuation of approximately $40 billion, with the deal potentially closing as early as Q3. After completing a $1 billion funding round in May (with investors including Sequoia Capital, Andreessen Horowitz, Coatue, and Morgan Stanley), Kalshi's valuation jumped from $12 billion to $22 billion. Now, that number is poised to double.

Kalshi CEO Tarek Mansour stated the company is considering an IPO no earlier than late 2027 or 2028. Kalshi officially reported that as of April 2026, its annualized trading volume reached $178 billion, a 32-fold increase year-over-year.

It's hard to separate these impressive market figures and the intense enthusiasm from capital markets from the involvement of Donald Trump Jr., a prominent member of the Trump family.

Reportedly, Donald Trump Jr. has his bets hedged across the prediction market sector:

On one hand, he served as a paid strategic advisor at Kalshi in early 2025, receiving approximately $300,000 in company equity. At that time, Kalshi's valuation was under $2 billion, meaning this investment alone has already yielded over 10x returns.

On the other hand, he also serves as an advisor to Polymarket and made a strategic investment in the latter through his venture capital firm, 1789 Capital, where he is a partner.

Coupled with Trump's previous repeated emphasis on federal agencies' regulatory power over prediction markets, and his mention that "Kalshi and Polymarket will thrive under his leadership,"

To a certain extent, conflicts of interest between capital and official regulators have thus been mitigated; the Trump family acts as the "perfect lubricant" in this contradictory situation.

Thus, a network of interests connecting the CFTC and other federal regulators, U.S. states, and Trump family investment entities is gradually taking shape.

As for the CFTC's investigation into Polymarket, it may simply be a necessary step in regulating the prediction market industry.

The "Spring of Wild Growth" for prediction markets is coming to an end, and the "Prosperous Summer" for the industry is slowly arriving.