She also said the company was already working to address the issue. Kalshi maintains that its offerings are traditional derivatives products rather than wagers, a distinction that sits at the heart of the wider debate over how prediction markets should be regulated.
Prediction markets have expanded rapidly since Donald Trump’s election. Kalshi and rival Polymarket have reported valuations of $40 billion and $21 billion, respectively. Their growth has been helped in part by a more welcoming approach from the CFTC, particularly under current agency leadership. But that relationship now appears to be getting more complicated. The Kalshi investigation comes as Washington faces growing pressure to take a closer look at the sector.
Following their midterm victories, Democrats are preparing for tougher oversight in the next Congress, while Polymarket is also facing a broad CFTC investigation. That probe reportedly includes questions about whether the platform breached a 2022 settlement requiring it to block access for US users.
For Kalshi, one of the main issues under examination is the self-certification process used by regulated exchanges to introduce new products. Under this system, exchanges can begin offering new contracts as early as the following day after certifying that they meet CFTC requirements, including rules designed to prevent market manipulation.
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They do not need to wait for explicit agency approval. However, the process has attracted criticism from major Wall Street players. CME Group CEO Terry Duffy has previously raised concerns about prediction market contracts that he believes could be vulnerable to manipulation. In July, the CFTC also warned operators against using overly broad language when self-certifying new products.
Numbers Behind Trader Losses
The regulatory questions surrounding prediction markets are not the only concern facing the industry, as research suggests that making money on these platforms may be harder than many retail traders expect. A recent Galaxy Research study examining 2.9 million human-paced accounts on Polymarket found that more than 69% finished below break-even, and traders collectively recorded $338.9 million in losses.
The study analyzed on-chain trading activity, including positions, entry prices, holding periods, and payouts, while excluding accounts believed to be automated. The median retail account lost around $3, which could mean that most traders suffered relatively small losses, although some were down thousands of dollars.
Galaxy also found that specialized traders were slightly less likely to turn a profit than those trading across different topics. Only 28% of specialists finished profitably, compared with 30.4% of generalists. To top that, sports-focused traders performed the worst, while technology and science specialists recorded better results.