U.S. CFTC Launches Extensive Investigation into Polymarket, Is the Prediction Market Boom Cooling Down?

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 aspects of its business operations including social media activities. Previously, U.S. Republican Senator John Curtis and Democratic Senator Adam Schiff co-signed a letter to CFTC Chairman Mike Selig, urging an investigation into Polymarket's use of paid KOLs for deceptive marketing and fraudulent promotional tactics to market gambling-like products to U.S. audiences.

At a time when the World Cup is driving prediction market trading volumes to new heights, this move could pour cold water on the sector's development. More importantly, the CFTC's investigation into Polymarket highlights conflicts of interest between the U.S. federal and state governments, 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 Enter Deeper Waters

If Polymarket's previous incidents — such as using college students to post fake profit videos and paying KOLs to exaggerate prediction profits — were early-stage wild expansion attempts, then the CFTC's formal investigation marks the definitive end of the prediction market's rapid growth phase.

Prediction Market Platforms See Explosive Data Growth, Traditional Tech Giants Take Notice

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

a16z crypto data shows that prediction market trading volumes have hit new all-time highs for the third consecutive week. Total market volume reached $14.4 billion two weeks ago, a significant increase from the roughly $5-6 billion at the beginning of the year. The previous all-time high of around $10 billion was set just one week prior. From the platform side, data has also surged significantly:

• Latest data shows that Kalshi's weekly notional trading volume exceeded $10 billion for the first time.
• Polymarket officially stated that its annualized revenue has significantly surpassed $1 billion, a milestone achieved just six weeks after its U.S. trading platform was removed from a waitlist. Data indicates that the U.S. platform's daily trading volume 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 processed approximately 12.3 billion event contract trades. Based on a standard fee of $0.01 per contract, the prediction market revenue for the quarter is estimated to be at least $123 million. Furthermore, its recently launched Rothera prediction market platform achieved over 900 million trades in its first week, contributing nearly 60% of the 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 similar prediction market application called Arena.

Various signs indicate that prediction markets have evolved from a niche sector a few years ago into a hot industry experiencing exponential expansion. Facing this trend, regulatory authorities are unlikely to stand idly by. The recent deceptive marketing scandal involving Polymarket serves as a convenient 'soft opening' for regulatory intervention. In my view, regulatory bodies will likely gradually clarify the boundaries for prediction market platforms concerning marketing, event contract content, and transaction fees, aiming to enhance investor protection and create a clear distinction from traditional gambling businesses.

At the same time, as the investigation deepens, the jurisdictional power struggle between federal regulators like the CFTC and state-level regulatory authorities is also coming to light.

CFTC vs. Nine U.S. States: The Battle for Prediction Market Regulatory Authority

Last Tuesday, the CFTC formally sued the state of Kentucky in an attempt 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 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 claims '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 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.

There are two main reasons behind the dispute:

• First, the tangible interests of states, such as tax revenue from the gambling industry. Traditional sports betting has generated significant tax income for various regions (e.g., high-tax online gambling). If prediction markets fully replace the gambling industry, states could face potential tax losses of hundreds of millions of dollars annually (some estimates suggest 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 federal preemption doctrine.

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

Additionally, the conflict has also flared up between exchanges and the CFTC. Previously, the CFTC approved Kalshi's application for perpetual futures trading, which led CME to sue the former——

Reportedly, 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, CME argues that the CFTC treated 'futures' with an expiry date as 'swaps,' violating Congressional directives and the Commodity Exchange Act, and requests the court to overturn the relevant perpetual futures actions. CME also claims that Selig acted unilaterally without a full panel of five commissioners.

A CFTC spokesperson responded by calling CME's 'legal warfare' against the agency and the government's crypto policy 'extremely reckless.' (They practically wrote 'Your lawsuit is filed too hastily' on their forehead.)

Of course, CME's indignation is understandable. The CFTC's approval of Kalshi's crypto perpetual contracts effectively allows prediction market platforms like Kalshi and crypto exchanges like Coinbase and Kraken to encroach on its core business territory. The driving force behind this might also be somewhat related to the Trump family.

The Trump Family's 'Dual Bet Strategy' in 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 a deal potentially 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 number is poised to double.

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

It's hard to ignore the connection between such impressive market data and strong capital market enthusiasm and Donald Trump Jr., one of the prominent figures of the Trump family.

Reportedly, Donald Trump Jr. has taken a 'hedged approach' in 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 single investment has already yielded over 10x returns.

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

Furthermore, Trump has previously emphasized the federal government's regulatory power over prediction markets and even mentioned: 'Kalshi and Polymarket will thrive under his leadership.'

To some extent, this eases the conflict of interest between capital and official regulatory bodies; the Trump family serves as an ideal lubricant in this contentious situation.

Thus, a network of interests connecting federal regulators like the CFTC, various U.S. states, and the Trump family's 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' characterized by wild growth is drawing to a close, and the 'Prosperous Summer' for the prediction market industry is slowly arriving.