CFTC Warns Prediction Markets About Reward Programs

The regulator fears that unclear incentives increase wash trading and other market abuse risks, especially as platforms like Kalshi and Polymarket keep growing.

Key Takeaways

• The CFTC warns prediction markets that reward programs for traders and market makers are often filed poorly.
• According to the regulator, those programs can lead to compliance problems, wash trading, and prearranged trades.
• The warning fits into tighter oversight of prediction markets, including new rules, advisories, and checks on contract certifications.

The U.S. derivatives watchdog CFTC has warned prediction markets that their reward programs for large traders and market makers are increasingly being filed poorly. According to the regulator, those programs can not only create compliance problems, but also leave room for market abuse such as wash trading and prearranged trades.

Poor Filings

The CFTC says it is seeing an increase in filings around incentive programs, but that they often fall short procedurally or in substance. That makes it harder for the regulator to judge whether a platform is properly informing investors and participants about the terms and whether the program actually complies with the rules.

The warning affects a sector that is trying to attract more liquidity and trading volume. Prediction markets work with event contracts and fall under oversight as designated contract markets, which means the way rewards are structured is directly relevant to whether the market keeps functioning in an orderly way.

Risk of Market Abuse

According to the CFTC, rewards for high-volume traders can push them to trade only to hit a threshold. In the regulator's view, that raises the risk of wash trading, prearranged trades, and other fraudulent, manipulative, or disruptive trading practices.

Market-maker programs are also under a microscope. The regulator warns that setups with stipends, rebates, or guarantees on net results can cover losses in a way that actually encourages unwanted behavior. That matters for platforms like Kalshi and Polymarket, because the CFTC is also trying to guide the sector with new rules and advisories. In a recent dispute around Kalshi, the issue was also how far the regulator can step in when it comes to trading itself, after the CFTC let a trade dispute escalate.

Tighter Oversight in the U.S.

The warning fits into a broader pattern of active CFTC involvement in prediction markets. The regulator has also fought legal battles before to defend its authority against states that view these platforms as violating local gambling rules. In June, the first draft rule for prediction markets was already on the table, and last month the CFTC again pointed to the importance of correct contract certifications.

For European crypto readers, this is especially relevant because it shows how quickly event contracts and other crypto-like trading products can come under tighter oversight once volumes grow. The U.S. approach could also become a reference point for how regulators elsewhere look at market structure, incentives, and compliance.