Key facts
- EU regulator ESMA stated prediction markets are rife with insider trading.
- New wallets made $1.2 million hours before an Iran strike, with nine linked accounts traced to $2.4 million in winning bets.
- A U.S. Army master sergeant was charged over $400,000 in Polymarket profits on the capture of Nicolás Maduro.
- Suspected tampering with weather sensors used to settle Polymarket contracts led Météo-France to file a police complaint.
- ESMA noted that 67% of Polymarket gains went to 0.1% of accounts, with most users losing money.
- The EU's binary options intervention rules bar selling event contracts, which can qualify as derivatives, to retail investors.
The European Securities and Markets Authority (ESMA) has identified prediction markets as platforms "rife with inside trading" and manipulation, according to its latest risk monitor. The regulator highlighted three specific episodes where illicit gains were made. In one instance, new wallets reportedly made $1.2 million hours before an attack on Iran, and by May, nine linked accounts were traced by Bubblemaps to $2.4 million in bets that won 98% of the time. Separately, a U.S. Army master sergeant was charged over $400,000 in profits from Polymarket contracts related to the capture of Venezuelan president Nicolás Maduro. In April, suspected tampering with weather sensors used to settle Polymarket contracts prompted Météo-France to file a police complaint.
ESMA stated that platform responses to such issues are "largely reactive," occurring after profits are taken. However, Polymarket's chief legal officer, Neal Kumar, drew a different conclusion from the Maduro case, suggesting that these markets are not anonymous and individuals can be identified.
Prediction markets have seen limited adoption in the EU, which ESMA attributes to regulatory frameworks rather than a lack of interest. Event contracts can be classified as financial instruments under MiFID II, fall under MiCA, or be considered gambling under national laws. When deemed financial instruments, they are treated as derivatives, and national rules similar to ESMA's binary options intervention prohibit their sale to retail investors. While Kalshi and Polymarket restrict access for some EU countries, it remains unclear why all member states are not included, and the effectiveness of VPN bans is uncertain. Malta is reportedly developing a framework for these markets.
Volumes on these platforms have surged significantly. Data collected by ESMA stopped in November 2025 for Kalshi and January 2026 for Polymarket, showing quarterly volumes of $8.8 billion and $12 billion, respectively. By June, The Block reported their combined monthly volume reached $44.8 billion, with Kalshi alone accounting for $31.5 billion, partly due to World Cup betting. ESMA's report also indicated that sports constitute 73% of Kalshi's volume, while Polymarket's volume is split across politics, sports, and cryptocurrency. A Wall Street Journal finding cited by ESMA indicated that 67% of Polymarket gains went to just 0.1% of accounts, and a Bloomberg analysis suggested most users lose money.
In contrast, U.S. regulators have taken a different approach. The Commodity Futures Trading Commission (CFTC) has defended its jurisdiction and proposed barring certain contracts like war and assassination bets, while also pursuing crypto-related enforcement actions. The debate in the U.S. centers on which contracts are acceptable, with figures like CME's Terry Duffy and Kalshi's Luana Lopes Lara having clashed over manipulation concerns at a CFTC roundtable.