For most last year it looked like prediction markets had entered a fresh golden age of fraud. On Polymarket, traders made fortunes suspiciously planned bets to geopolitical events such as the raid on Venezuela and the war in Iran. It was unclear whether the U.S. government would bother prosecuting some of the most egregious bad actors because Polymarket’s crypto platform was technically foreign and not regulated or licensed in the country.
But now the Commodity Futures Trading Commission, which oversees forecast markets, wants you to know that it is watching this situation very, very closely. The agency is looking for suspicious behavior by traders in the United States who were sneaking into offshore markets, including crypto platform Polymarket – which is blocked in the US – using virtual private networks. “We will find them and we will take action,” the agency’s president, Michael Selig, told WIRED this week, speaking from the CFTC headquarters in the Patriots Plaza II office park in Washington.
Selig says the agency, which is particularly lean right now, is adding staff. Like many other AI-filled workplaces, the CFTC is also leaning toward automation to cope with its growing workload, including tools that analyze trading patterns and flag potential manipulation. “You have a lot of data,” Selig says. “When we feed it into AI, we get some really great information. It can help us understand different things, like where we might want to conduct an investigation or when we might need to send a subpoena to a trader.”
In addition to its internally developed surveillance systems, the agency’s arsenal includes third-party blockchain tracking tools such as Chainalytic for crypto platforms and market abuse detection software including Nasdaq Smarts for centralized markets. (Outside of Nasdaq Smarts, the agency didn’t specify what AI tools it uses and declined to share more specific examples.)
Prominent prediction companies have recently begun touting all the work they do to catch unreliable bettors. US exchange Kalshi, Polymarket’s main competitor, happily announced that it has suspended and punished clients flagged for insider trading and market manipulation.
In April, following significant backlash over suspected insider trading, Polymarket announced its own partnership with Chainalytic. It was part of a broader effort to crack down on market manipulation. While the company’s CEO, Shayne Coplan, he talked Having previously wondered why insider trading might be good for prediction markets, Polymarket changed its approach this spring, updating its market integrity policies and announcing a partnership with Palantir for its U.S. sports markets (the Chainalytic deal focuses on the offshore platform). The company did not respond to WIRED’s request for comment for this story.
According to Chainalytic spokeswoman Maddie Kenney, the company analyzes the same data for both clients. “The value that Chainalytica adds to our clients, including Polymarket and CFTC, is organizing data and enriching it with the attributes and insights we have collected over the years in this space,” he says. This certainly sounds like a good deal for Chainalytic!
The CFTC’s assertions that it is hunting insiders come at a time of increased scrutiny of prediction markets. In March, Connecticut Sen. Chris Murphy told WIRED that he suspected White House staffers were involved in trading confidential information on war-related contracts. In early April, seven members of Congress he asked CFTC to investigate foreign markets offering contracts for war-themed events. In their letter, lawmakers argued that the commission has the authority and responsibility to limit insider trading, especially in “morally obscene” military-related transactions. Most recently Selig he said Congress that the company is pursuing “hundreds, if not thousands” of insider trading tips.