After huge bets on the Iran strikes, do Polymarket and Kalshi face a trust crisis?
It’s a number that Donald Trump’s business-focused mind would surely be proud of: Nearly $530 million was wagered on Polymarket trying to predict the timing of when the United States and Israel would strike Iran. And at least half a dozen gamblers struck it rich after they lucked out.
Or did they? A number of the biggest winners from wagering on the Iran strikes had created their accounts that same month and bought their stakes in the trade long before the bombs were unloaded. It’s similar to a pattern seen by keen-eyed (or lucky) gamblers who managed to predict the capture and arrest of then-President of Venezuela Nicolás Maduro just before it happened—and hit the jackpot in the process.
For some users, it’s a revolution. “They allow you to make money directly on real-world events in a way that has not been done before,” says Karl Lockhart, assistant professor of law at DePaul University. Lockhart believes that the prediction markets are using real-world events—from the words President Donald Trump might say in his State of the Union speech to the time and date of when the attacks on Iran would take place—as little more than a “marketing strategy.” He points out that Kalshi, for instance, could remove many if not all of its political contracts and still be sitting pretty because sports account for 90% or more of revenue.
But it’s the political stuff that gets people engaged—and enraged, especially, it seems, when they realize that some in the market appear to have a better base of understanding of what’s coming around the corner. The Israeli government said last month it had arrested military reservists for allegedly aiming to profit off of insider information about when the country would launch attacks.
It’s not just in politics and warfare that suspicious activity is happening: OpenAI recently let go of an employee for placing bets on Kalshi using information they had by dint of being employed by the AI company.
Insider trading on stock markets is forbidden under law. For prediction markets, however, there’s nothing improper about it. Some even suggest that the engagement of those who have additional knowledge is a boon, because it helps accurately set the odds for markets. “It feels like—to some degree—these entities are flying pretty close to the sun,” says Kelly, who is a specialist on betting and corruption.
There’s no suggestion that either platform is corrupt, and both platforms’ U.S. arms are regulated by the Commodity Futures Trading Commission.
But there’s an increasing unhappiness among those trying to make it rich on the platforms who feel they’re disadvantaged compared to gamblers with inside information. And when they do win—as in the case of those who laid bets on whether Iranian Supreme Leader Ali Khamenei would be “out” of his role, only to find their bets refunded because “out” didn’t cover “dead”—the victory can feel bittersweet, or be snatched from them entirely. (Neither Polymarket nor Kalshi responded to a request for comment.)
Regulators increasingly feel compelled to act. Alongside states including Nevada, Massachusetts, New York, and Tennessee, where gaming regulators and attorneys general have filed lawsuits or issued cease-and-desist orders against Kalshi and Polymarket over alleged unlicensed gambling, there’s a broader consensus forming about the need to intervene. Former Trump official Mick Mulvaney is spearheading an initiative to more tightly oversee how these markets operate.
The head of steam against prediction markets feels like a turning point—but it will have to come soon. The more attention that’s drawn to them, the more people are likely to pick up their wallet and connect it to the platforms.
“It’s one of these markets that is driven by interest, because we’re inundated with information about it,” says John Holden, associate professor in business law and ethics at Indiana University’s Kelley School of Business. However, when people get onto the markets, they seem to quickly realize that they’re not on equal footing with every other user.
“To them, it feels like gambling, because the odds are stacked against them no matter what,” notes DePaul University’s Lockhart. Then they get pissed, as Trustpilot reviews for both websites demonstrate. And that’s terminal for their popularity. As Lockhart says, it “destroys the public’s confidence in the market.”