At the forefront after the United States and Israel attacked Iran, prediction markets saw the frenzy of conflict-related activities. Speculators rushed to guess when the first missile strikes would begin and who might be affected, making deals totaling hundreds of millions of dollars. They are already here big winners– and some huge losers. This weekend, following the death of Iranian Ayatollah Ali Khamenei, Kalshi faced a customer revolt over its handling of a $54 million market over the fate of Iran’s leadership. “People are absolutely furious,” says Nicholas Mahoney, a trader from Kalshi.
The market offered yes-or-no contracts on whether Chamanei would “fall out” as the nation’s supreme leader. On Saturday morning, as rumors of Khamenei’s death circulated online but no official announcement had yet been made, Kalshi promoted the market on social media. After his assassination was confirmed, many traders who bought yes contracts assumed they had made a profit – after all, Khamenei was apparently no longer the supreme leader.
Instead, Kalshi paused the market for a review on Saturday afternoon and then ultimately settled on the last position traded before his murder. This meant that many people who purchased “yes” trades did not receive the payouts they expected. Kalshi declined to comment on the incident.
After the first wave of criticism on Saturday, Kalshi CEO Tarek Mansour noted on social media that Kalshi’s rulebook had always included information about when leaders would leave the position to the markets. Derivatives markets in the United States are not legally authorized to offer kill contracts. However, Kalshi only added information about the cutout to the market’s website after the attack on Iran began, which meant some traders didn’t notice it. Reaction came quickly. (Pattern comment online: “You have literally ruined the entire credibility of your business.”) Some salespeople threatened class action lawsuits and said it had filed complaints with the Commodity Futures Trading Commission, a government agency that oversees prediction markets.
On Sunday, Mansour stressed that Kalshi had suffered financial losses in trying to resolve the problem and vowed to make sure no one lost money. “Kalshi has suffered a significant loss to keep users whole,” he wrote long apology. “I’m sorry for the disappointment. We will improve, thank you for being with us,” he wrote. In the future, Mansour says, Kalshi will make changes to more prominently highlight death carvings in similar markets. A source at Kalshi told WIRED that the company lost approximately $2.2 million in the incident.
Mansour’s apology did not satisfy some critics. “I removed the funds from my account and deleted the app,” Mahoney tells WIRED. “They should have settled the market the way people thought it would be settled.”
While this was the largest prediction market settlement dispute of its kind related to the war, it was not the only one. Some traders too criticized Polymarket for his approach to many markets due to events in Iran. How prediction markets handle sensitive contracts related to world events is an ongoing issue in the industry. Last year, for example, traders protested as Polymarket resolved a popular market over whether Ukrainian President Volodymyr Zelensky, known for his casual outfits, would wear a suit by a certain date.
The controversy over contracts related to the Iran war comes at a time when forecast markets are already under increased regulatory scrutiny. A growing bipartisan movement in the US is calling for tighter regulation of platforms, and Kalshim himself faces 19 separate lawsuits from state governments. This week, Trump’s former chief of staff, Mick Mulvaney, also launched an advocacy group called Gambling Is Not Investing, which aims to push for more guardrails in the sector.
Despite the recent turmoil, enthusiasm around prediction markets remains high. Traders who want to continue forecasting what will happen in Iran are in luck – Kalshi was market on who will be Khamenei’s successor. Millions of dollars are already at stake.