Prediction markets processed more than $44 billion in bets last year, but regulators say many of the top-performing participants are now automated trading bots rather than humans.
At Polymarket, automated bots now power over 30% of active accounts. Data from top earners on the platform shows this 14 of the top 20 accounts It is controlled by robots.
More than 37% of these automated accounts are online.
Lawmakers target insider trading risks
Polymarket trading activity fell 8.9% in April for the first time since August, as competitors gained market share.
According to Dion AnalyticsThe platform and its US operation recorded $10.2 billion in bets in April, down from $11.2 billion the previous month.
Meanwhile, rival platform Kalshi saw trading volume jump 13% to $14.8 billion in April.
This decline occurred as Polymarket tried to rebuild its presence in the United States while coming under increasing scrutiny from politicians concerned about insider trading.
Senator Elizabeth Warren wrote to the Commodity Futures Trading Commission in March, along with more than 40 other members of Congress.
They wanted laws that would prevent government officials from profiting from classified material on these platforms.
“The CFTC asserts that event contracts are a type of swap subject to its jurisdiction and, therefore, must ensure that federal employees understand the current restrictions on insider trading in the predictive market.” The lawmakers said.
Many Polymarket users have raised doubts about them placing profitable bets on sensitive global events, including military actions in Venezuela and a potential conflict with Iran.
One case led to the first criminal charges related to insider trading on a website Forecasting market in the United States.
A US Army Special Forces soldier has been arrested on charges of using secret intelligence to bet on the arrest of Venezuelan leader Maduro.
Regulators use artificial intelligence tools to monitor trades
Organizers say they are fighting back with the same technology that was used It allowed robots to take over the markets.
CFTC Chairman Michael Selig told reporters that the agency is using artificial intelligence tools to examine trade patterns, detect anomalous behavior, and is collaborating with blockchain tracking companies like Chainalysis to monitor offshore platforms like PolyMarket.
According to a May 15 AIMPACT update, the CFTC is using artificial intelligence to scan vast amounts of trading data, helping staff identify suspicious accounts and decide whether to launch investigations or issue subpoenas.
According to Selig, Artificial Intelligence is becoming critical as the volume of data increases quickly.
The company combines blockchain analytics tools with market anomaly detection technologies to monitor both cryptocurrencies and traditional financial markets.
The CFTC has received numerous allegations of bizarre trading and is actively looking into “hundreds to thousands” of potential cases. Enforcement efforts are likely to expand in the future.
Selig stated that the agency will take action against American users who try to hide their locations by using VPNs to access blocked services.
This enforcement applies to global markets.
Even while platforms like Polymarket operate outside the US and lack US licenses, the CFTC has said it will seek enforcement against cross-border trading involving Americans and may use extraterritorial authority if necessary.
Platforms react to demand.
Polymarket and Kalshi have improved internal trading and market manipulation checks, and brought in third-party blockchain data providers to meet regulatory requirements.
The Commodity Futures Trading Commission (CFTC) offered prediction market platforms some regulatory relief on Wednesday, issuing a no-action letter relieving them of some swap reporting requirements.
The exemption applies to exchanges and clearing houses that handle event contracts.
Agency staff said they would not pursue enforcement against platforms that skirt these reporting rules, after requests from companies seeking clarity on how event contracts are structured.
Although event contracts exist They are officially classified as swaps Because they have yes-or-no outcomes, the CFTC believes they operate more like futures and options due to their standardized terms and exchange trading.
According to the new guidance, companies can report these transactions directly to the Commission in a similar way to the futures and options markets.
The relief now applies to 19 companies, including Polymarket US, Kalshi, Gemini Titan, and Bitnomial. Other companies listing event contracts may require coverage under the same terms.
