US CFTC Launches Broad Investigation into Polymarket, Is the Prediction Market Boom Cooling Off?

Original｜Odaily Planet Daily (@OdailyChina)

Author｜Wenser (@wenser2010 )

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

Recently, the U.S. Commodity Futures Trading Commission (CFTC) launched a broad investigation into the prediction market platform Polymarket, covering aspects of its business such as social media activities. Earlier, 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 methods to market gambling-like products to U.S. audiences.

As the World Cup drives prediction market trading volumes to new highs, this move could pour cold water on the sector's development. More importantly, the CFTC's investigation into Polymarket highlights conflicts of interest between U.S. federal and state authorities, as well as between officials and capital. (Recommended reading: "WSJ: Fake Websites, Fake Trades, Real Promotion: Polymarket's Traffic Scam").

End of the Wild West Era for Prediction Market Marketing; Regulatory Policies Entering Deeper Waters

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

Prediction Market Platforms See Explosive Data Growth, Attracting Strong Interest from Traditional Tech Giants

Entering June 2026, with the World Cup officially underway, prediction markets have garnered unprecedented attention, with trading volumes climbing steadily.

Data from a16z crypto shows prediction market trading volumes have hit record highs for the third consecutive week. The total market volume reached $14.4 billion for the first time two weeks ago, a significant increase from approximately $5-6 billion at the start of the year, and surpassing the previous all-time high of around $10 billion set just a week earlier. From a platform perspective, data has also seen substantial growth:

• Latest data shows Kalshi's weekly notional trading volume exceeded $10 billion for the first time.
• Polymarket officially stated its annualized revenue has significantly surpassed $1 billion, a milestone reached just six weeks after its U.S. trading platform was taken off the waiting list; data shows daily trading volume on the U.S. platform grew from approximately $50 million in mid-May to over $200 million by June 20 (based on Dune Analytics data).
• Robinhood's prediction market platform business is growing rapidly, with annualized revenue reaching $500 million. As of June 25 in Q2, Robinhood processed approximately 12.3 billion event contract trades. At a standard rate of 1 cent per contract, this quarter's 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 a 60% increase in Robinhood's event contract trading volume.

Such impressive data has also caught 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 similar prediction market application named Arena.

All signs point to prediction markets having evolved from a niche sector a few years ago into a hot industry experiencing exponential growth. Facing this trend, regulatory bodies will inevitably take notice, and Polymarket's recent deceptive marketing scandal serves as a convenient "soft weapon," providing an opportunity for regulatory intervention. In my view, regulators will likely gradually clarify boundaries concerning prediction market platforms in areas like marketing, event contract content, and transaction fees, aiming to strengthen investor protection and make a clear distinction from traditional gambling businesses.

Simultaneously, as the investigation deepens, the power struggle between federal regulators like the CFTC and state-level regulatory authorities is coming to the surface.

When the CFTC Clashes with Nine U.S. States: The Battle for Prediction Market Regulatory Power

Last Tuesday, the CFTC formally sued the state of Kentucky, attempting to reassert its jurisdiction over prediction market platforms.

In the complaint filed with the U.S. District Court for the Eastern District of Kentucky, the CFTC argued 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.

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

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

There are two main reasons behind this dispute:

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

The final outcome will likely depend on the interpretation and rulings of state courts, and potentially the Supreme Court, regarding the Commodity Exchange Act (CEA).

Furthermore, a conflict has also ignited between exchanges and the CFTC. Previously, the CFTC approved Kalshi's application to launch perpetual futures trading, leading the Chicago Mercantile Exchange (CME) to sue the regulator.

Reportedly, 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 May 29 approval for prediction market platform Kalshi to launch perpetual futures contracts linked to Bitcoin's spot price, the CME claims the CFTC improperly treated "futures" with expiration dates as "swaps," violating Congressional directives and the Commodity Exchange Act. It requests the court to vacate the related perpetual futures action. The CME also alleges Selig acted unilaterally without a full panel of five commissioners.

A CFTC spokesperson responded by calling the lawsuit a "legal war" against the agency and the government's crypto policy, stating, "Filing this lawsuit is extremely reckless."

Of course, the CME's strong reaction is understandable. By allowing Kalshi to offer crypto perpetual contracts, the CFTC has essentially allowed prediction market platforms like Kalshi and crypto exchanges like Coinbase and Kraken to encroach on the CME's "trading turf." The driving force behind this might also be related to the Trump family.

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

Recently, Kalshi was reported to be in talks for a new funding round at a valuation of approximately $40 billion, with the deal possibly closing in Q3. After completing a $1 billion funding round in May (with investors including Sequoia Capital, Andreessen Horowitz, Coatue, and Morgan Stanley), Kalshi's valuation rose from $12 billion to $22 billion. Now, that figure 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.

Such impressive market data and strong capital market enthusiasm are arguably linked to Donald Trump Jr., a prominent figure in the Trump family.

Reportedly, Donald Trump Jr. has placed bets on both sides of the prediction market track:

On one hand, he served as a paid strategic advisor for 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 yielded over 10 times returns.

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

Additionally, Trump has previously emphasized the federal government's regulatory power over prediction markets and once stated that "Kalshi and Polymarket will thrive under his leadership."

To some extent, this helps mitigate the conflict of interest between capital and official regulators; the Trump family acts as a prime "lubricant" in this contradictory situation.

Thus, a network of interests connecting federal regulators like the CFTC, various 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 prediction markets," marked by wild growth, is coming to an end, while the "prosperous summer" for the industry is slowly arriving.