The lawsuits, filed in Franklin Circuit Court, add to a growing fight over whether online prediction markets should be regulated as federally supervised derivatives markets or as gambling products subject to state law. Coleman’s office alleges that Kalshi and Polymarket allow users to bet on game outcomes, betting odds, and individual player statistics while presenting those trades as “event contracts” to avoid Kentucky gambling rules, according to the Lexington Herald-Leader.

The attorney general’s office also said nearly 89% of Kalshi’s trading activity was tied to sports betting, generating more than $23 billion in contract trading volume in 2025. Kentucky said its claims are based on alleged violations of the state’s consumer protection laws, the Loss Recovery Act, and rules governing prediction markets. Coleman’s office is asking the court to impose penalties of up to $2,000 for each violation of the Kentucky Consumer Protection Act and $10,000 for each violation involving consumers older than 60.

Kentucky initiates legal proceedings against prediction platforms

Kentucky also named Coinbase in the Kalshi-related case, alleging that the company acted as an affiliate or partner in unauthorized sports contracts, according to Spectrum News 1. The complaint argues that Kalshi used affiliate relationships to expand access to sports-event contracts while avoiding Kentucky’s sports-wagering licensing system. The state also accused the companies of failing to provide gambling addiction resources required under Kentucky law.

In Kentucky, only licensed horse-racing organizations can receive approval to operate sports wagering, with the Kentucky Horse Racing and Gaming Commission serving as the regulator. Aside from that, a separate state law, the Wagering Consumer Protection Act, takes effect on July 15. It will prohibit licensed sportsbooks from contracting with prediction-market operators such as Kalshi or Polymarket. The third lawsuit targets VGW, the operator behind Chumba Casino, Global Poker, and LuckyLand Slots.

Coleman’s office said VGW runs sweepstakes casino sites that mimic slot machines and table games using virtual “Sweeps Coins,” which users can purchase with real money and exchange for cash prizes. The lawsuits filed by Kentucky are part of a broader state-federal showdown over prediction markets. Several states have moved against prediction-market operators, arguing that sports-event contracts and similar products amount to illegal gambling. The federal response has been aggressive.

CFTC goes after states for orders against prediction platforms

In April, the Commodity Futures Trading Commission (CFTC) sued Arizona, Connecticut, and Illinois after those states issued cease-and-desist orders against prediction-market companies. Arizona had also filed criminal charges against Kalshi for alleged violations of state gambling law. A federal court later issued a temporary restraining order blocking Arizona’s criminal prosecution. The CFTC has since expanded its legal campaign. On April 28, the agency sued Wisconsin after the state filed civil actions against Kalshi, Polymarket, Crypto.com, Robinhood, and Coinbase.

The commission also sued New York, Minnesota, Rhode Island, and New Mexico to block those states from applying gambling laws to CFTC-registered contract markets. “States cannot circumvent the clear directive of Congress,” CFTC Chairman Michael S. Selig said in the Wisconsin filing. “If you interfere with the operation of federal law in regulating financial markets, we will sue you.” The CFTC argues that Congress gave it exclusive jurisdiction over event contracts traded on designated contract markets.

Under that argument, state gambling laws cannot override federal regulation of CFTC-approved markets. Kentucky is also facing a separate lawsuit from the prediction-market industry. A coalition including Kalshi, Crypto.com, Polymarket, and Robinhood sued the state on June 12 over Kentucky’s 14.25% excise tax on prediction-market transaction fees. The tax is the first targeted levy of its kind in the United States, according to the Associated Press. The Coalition for Fair Markets has argued that the tax discriminates against federally regulated derivatives markets.

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According to records, no election cycle or crypto blowup had managed to drag the category past that line before. However, the month-long tournament did it in the opening seven days. When looking at the market share split, Kalshi continues to take the bulk of it. Its weekly spot volume hit $5.1 billion, a platform high and the only individual record set during the week. Polymarket came in second at $3 billion. Kalshi went into the tournament already ahead, and the World Cup was shaping up as Polymarket’s chance to fight back. Instead, Kalshi stretched its lead.

Sports contracts become a major volume driver as World Cup kicks off

Sports contracts have been the main driver for Kalshi’s volumes for months. The expanded 48-team World Cup has effectively turbo charged this driver. Dozens of matches across a multi-week schedule mean a constant supply of fresh markets. The $5.1 billion weekly spot volume isn’t just a number that looks good against Polymarket since it’s the highest figure ever recorded by any platform within this sector. Polymarket’s $3 billion would have been a standout in almost any other week.

The $3 billion mark equals its record posted in the week ending April 12. That said, the gap that existed between the two largest prediction market platforms before the World Cup began continues to hold. Polymarket isn’t standing still. A beta version of combos on Polymarket for World Cup matches was launched two days ago. This is basically parlay-style bundles that allow users to stack several World Cup outcomes into one position, mirroring the multi-leg bets traditional sportsbooks use, a response to capture some of the sports category volume dominated by Kalshi.

VP of engineering Josh Stevens said more is coming over the next few weeks, pointing to additional market types, more sports categories, and continued work on the UI and UX. The takeaway is that combos are a starting point rather than the full pitch. Polymarket is trying to out-build its way back into the race instead of outspending it. The more interesting move is happening beneath the big two. Robinhood began routing some of its World Cup contracts through Rothera, the CFTC-regulated exchange it co-owns with Susquehanna, rather than sending all of them to Kalshi. Rothera posted $170.3 million for the week.

That number is tiny. Set against Kalshi’s $5.1 billion, it barely registers. But Rothera only began trading on June 1, 2026, and cleared about $2 million in its first week. The jump to $170.3 million as the tournament got underway shows how fast Robinhood can move volume once it decides to keep flow in-house. In fact, just yesterday, data from Dune Analytics shows that Rothera posted $109.2 million in a single day.

The direction is what counts. Robinhood users have made up close to a quarter of Kalshi’s trading volume, and every contract rerouted to Rothera is volume that Kalshi no longer books. A platform that owns its own distribution and decides to keep more of it in-house is a different kind of competitor than another standalone exchange trying to win traders one at a time.

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Bitbank, an exchange registered with Japan’s Kanto Local Finance Bureau as crypto exchange operator No. 00004, said in an official notice that using platforms like Polymarket from within Japan for financial gain could constitute a gambling offense under domestic law. Bitbank specifically named Polymarket in its announcement and referenced other “betting-natured” prediction market services operated by overseas firms. Accounts that make deposits to or withdrawals from prediction market services will be flagged and lose their account login access, all their crypto deposits and withdrawals, Japanese yen withdrawals, and trading capabilities.

Bitbank warns users to desist from moving funds to prediction platforms

In its statement, Bitbank stated that these measures are to follow the law and protect users from legal risks. It also added that it bears no liability for damages resulting from these restrictions. In Japan, gambling is mostly against the law, except for a few specific things like horse racing and lotteries. Prediction markets currently sit in a “gray zone” where the law is not fully clear. Japan is currently listed among jurisdictions subject to frontend restrictions from Polymarket.

Several other countries are blocked entirely or limited to close-only trading activity due to regulatory requirements. South Korea’s communications regulator, the Korea Communications Standards Commission, is evaluating whether Polymarket qualifies as an illegal gambling service. If it is eventually classified as such, it would lead to ISP-level blocking across the country. Cryptopolitan previously reported that the country opened its first criminal investigation into domestic Polymarket users after heavy trading activity around the June 3 national election.

The Gangwon Provincial Police Agency is examining whether the activity on the platform violated local gambling rules after receiving a referral from the national police headquarters. The Brazilian government has also made moves, banning 27 prediction platforms in April 2026, including Polymarket and Kalshi, after the National Monetary Council issued Resolution No. 5,298 and banned derivative contracts tied to non-economic events such as elections and sports outcomes. Spain followed in May by temporarily banning the platforms and ordering internet providers to block them.

France, Germany, Italy, India, Australia, Argentina, and Indonesia have all either restricted access to prediction market platforms or escalated enforcement operations against them. Meanwhile, Cryptopolitan reported that the Commodity Futures Trading Commission (CFTC) under Chairman Michael Selig recently proposed a framework for evaluating which event contracts serve the public interest and which violate federal law.

Rather than imposing an outright ban, the CFTC introduced a three-step “balancing test” that would evaluate a contract’s hedging utility, price discovery value, and potential to encourage illegal activity. However, a coalition of 39 state officials argues that prediction markets function as unregulated gambling operations. Supporters of prediction markets have pushed back against the gambling classification, stating that it misses what these platforms actually produce.

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The U.S.-regulated platform said the change is designed to strengthen its ability to identify and prevent insider trading in markets tied to corporate earnings, product launches, national security developments, and similar events.

Kalshi announced the policy after recommendations from its Independent Surveillance Audit Committee, which reviewed the platform’s monitoring framework and identified areas where oversight could be improved. 

The company said the additional employment data will help detect potential conflicts of interest before suspicious activity occurs and improve market integrity across high-risk contracts.

The employer disclosure requirement expands the information Kalshi collects from users. The platform already gathers addresses, dates of birth, phone numbers, identity documents, and partial Social Security numbers during verification. 

Employment information, however, has not previously been included as part of the onboarding process.

Audit Committee Recommends Stronger Monitoring Tools

According to findings cited by the committee, Kalshi’s existing system would generally require investigators to manually determine whether a trader had access to insider information after questionable activity had already been identified. 

The report concluded that collecting employment records could improve surveillance capabilities, strengthen preliminary investigations, and increase deterrence against unlawful trading.

Alongside the employer disclosure initiative, Kalshi is launching enhanced whistleblower features that allow users to report suspicious activity directly from individual market pages. 

The company said these tools are intended to help identify potential misconduct more quickly and support ongoing compliance efforts.

Kalshi also disclosed that it submitted more than 20 referrals to regulators and law enforcement agencies during the first quarter of 2026. The referrals were connected to concerns involving possible insider trading and market manipulation.

One of those referrals involved former Representative George Santos of New York. Kalshi reported suspicious trading linked to a market focused on whether Santos would attend President Donald Trump’s State of the Union address. Santos has denied any wrongdoing.

Industry Faces Growing Scrutiny Over Insider Trading Risks

The compliance changes come as federal authorities pursue insider trading-related cases involving rival prediction market platform Polymarket. 

Earlier this year, Polymarket updated its market integrity policies and broadened restrictions covering insider trading and market manipulation.

In April, federal prosecutors charged a U.S. Army soldier accused of using classified information related to Venezuelan leader Nicolas Maduro’s capture to place profitable trades on Polymarket. 

In May, a Google employee was charged with allegedly using confidential information from Google’s annual search trends report to earn roughly $1.2 million through trading activity on the platform.

Kalshi said employment information generally will not be verified in advance. Instead, proof of employment may be requested when suspicious trading patterns trigger an investigation. 

As prediction markets continue to expand, regulators and lawmakers remain focused on whether the industry can effectively address insider trading concerns and maintain fair trading environments.

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Data from Artemis showed the figure rose about 28% from the previous week and surpassed the peak recorded in mid-May. 

The increase highlights growing capital commitment on the platform and reflects changing trading activity following the introduction of a new product.

Unlike trading volume, which can fluctuate sharply over short periods, open interest measures the total value of active positions that remain open. 

As a result, it provides a clearer view of how much capital traders continue to keep on a platform. Kalshi’s latest record suggests users are maintaining exposure for longer periods rather than entering and exiting positions quickly.

BTCPERP Launch Drives Open Interest Growth

A major factor behind the increase was the launch of BTCPERP on June 3. The product became the first Bitcoin perpetual futures contract regulated by the U.S. Commodity Futures Trading Commission. 

Since perpetual futures do not have an expiration date, traders can keep positions open indefinitely, allowing open interest to accumulate over time.

Before introducing BTCPERP, Kalshi primarily offered event contracts tied to specific outcomes and settlement dates. 

Those contracts automatically cleared from the books after resolution, limiting their ability to build sustained open interest. 

The new perpetual structure changed that dynamic and created a mechanism for longer-term capital retention.

The impact became visible almost immediately. The launch provided traders with a regulated alternative for maintaining Bitcoin exposure while contributing to a sharp rise in outstanding positions across the platform.

Market Volatility Encouraged New Activity

The timing of the launch coincided with heightened volatility in the cryptocurrency market. 

During the week, Bitcoin recorded its largest weekly decline of the year, falling more than 13% from highs near $74,000 to lows around $59,000 before ending the period near $63,000.

Kalshi’s contracts appeal to traders seeking defined risk because losses are limited to the amount initially committed. 

As volatility increased across crypto markets, traders appeared to rotate toward products that offered capped downside exposure. 

The combination of market turbulence and the launch of BTCPERP helped drive participation higher.

Kalshi Pulls Ahead of Polymarket

The latest figures place Kalshi well ahead of rival prediction market platform Polymarket. During the same period, Polymarket reported approximately $419.9 million in open interest. 

Kalshi’s $810 million total represents nearly double that amount.

The widening gap is notable because both platforms began the year with similar levels of open interest. 

While Polymarket remains focused on traditional prediction markets, Kalshi has increasingly positioned itself closer to a regulated derivatives venue. 

The record figure suggests that the strategy is attracting substantial capital, though market participants will be watching closely to see whether the growth remains durable once volatility subsides.

The post Kalshi Weekly Open Interest Reaches Record $810 Million After BTCPERP Launch first appeared on Coinfea.

The temporary ban in Spain is expected to last for about 3-4 months as regulators finalize their investigations. Spanish authorities have also noted that unauthorized operators do not implement safety measures, such as strict identity verification and access controls. These platforms also lack control access measures for self-excluded individuals or those who are legally banned from gambling. France previously blocked these platforms due to similar concerns about event-based gambling without proper licensing.

ISPs in Spain to implement network-level blocks

Spanish internet service providers (ISPs) are enforcing government-ordered blocks to implement coordinated network-level restrictions. The Ministry of Social Rights, Consumer Affairs, and the 2030 Agenda has issued an official order that the Directorate General for Gambling Regulation (DGOJ) is using to compel Spanish ISPs to cut off local access. Major national telecommunications providers are also expected to deploy specific protocols to effect the temporary block.

The ISPs’ Domain Name System (DNS) servers will redirect requests when users in Spain attempt to access the Kalshi and Polymarket domains. Notably, traffic will be redirected to a government landing page displaying an official advisory notice, rather than to the platforms’ actual IP addresses. ISPs will also block traffic at the network layer to prevent users from switching to DNS servers such as Cloudflare or Google DNS to bypass DNS blocks.

In addition, the IP addresses linked to Kalshi and Polymarket will be added to routing blacklists. All incoming and outgoing data packets trying to communicate with those two destinations will be automatically dropped. Additionally, major Spanish ISPs are expected to use DPI tools to monitor packet headers in real time. The ISPs’ hardware will detect and block the connections when users try to reach the specific content delivery networks (CDNs) or API endpoints used by the two prediction markets.

Regulators around the world are rushing to gain control of prediction markets as the sector surpasses $127 billion in total global trading volume. These platforms have completely blurred the lines between speculative sportsbooks and financial derivatives. There is a mismatch in how governments and innovators define the use of these platforms, arising from differences in how they define them.

Meanwhile, operators and advocates view prediction markets as powerful tools for societal forecasting by leveraging “the wisdom of crowds” through financial incentives. These platforms produce real-time, accurate data on global events that outperform traditional polling. Proponents also argue that these prediction markets function like financial markets. They allow institutions to hedge real-world risks such as policy changes, geopolitical shifts, or inflation.

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ZachXBT warned that the site contains a wallet drainer designed to steal funds from users who connect their wallets. Tech investor William LeGate’s interaction with the fraudulent product’s account on Twitter prompted ZachXBT’s warning, as LeGate was giving it visibility to a wider audience of potential victims. Blockchain investigator ZachXBT recently flagged a fraudulent prediction market product called PolyArb, warning that the site contains a wallet drainer designed to steal funds from users who connect their wallets.

ZachXBT says scammers are now targeting prediction platforms

Prediction markets have been a popular target for scammers, and that interest has only grown since open interest hit a record high of $1.3 billion in April 2026. There has also been growing public interest in the sector. Kalshi led the market with $636.4 million in open interest, followed by Polymarket at $589.8 million. Kalshi also posted $13.4 billion in spot volume for the month, up 12.6% from March.

ZachXBT posted the warning on X after noticing that tech investor William LeGate had interacted with the PolyArb account, explaining that it is a fake prediction market product with a wallet drainer on the site. He also stated that LeGate’s interaction with them “gives them reach for new potential victims.” Security researcher bbsz also explained that PolyArb is a cluster operated by an individual who runs both drainers and occasional malware campaigns across different front ends.

The researcher described it as a long-running effort built to appear credible. Cryptopolitan has previously reported on how the prediction market boom is drawing users looking for automated shortcuts to trading, like arbitrage bots and AI-driven trading strategies. This interest creates fertile ground for fraudulent products that mimic legitimate tools. A product like PolyArb, which positions itself as an arbitrage tool for prediction markets, targets exactly the audience most eager to find.

Despite that, legitimate prediction market platforms like Polymarket and Kalshi remain functional and are attracting serious institutional backing. New legitimate platforms are entering the space as well. For instance, Hyperliquid launched its HIP-4 prediction market feature in early May, processing 6.05 million contracts on its first day and capturing 0.7% of the prediction market. Cryptopolitan reported that Hyperliquid set a record for new users on May 3, with 2,441 new original wallets.

Polymarket raised $600 million, backed by Intercontinental Exchange (NYSE: ICE), the company that owns the New York Stock Exchange. Kalshi’s valuation recently rose to $22 billion. Notably, 67% of all Polymarket profits flow to just 0.1% of accounts, and fewer than 2,000 users capture nearly $500 million per account. Bloomberg’s review of wallets active since early 2025 found that over 100,000 accounts had lost at least $1,000.

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In a recent comment letter authored by a16z crypto’s Miles Jennings, Scott Walker, David Sverdlov, and Aiden Slavin, a16z argued that the CFTC needs to establish a uniform federal framework to prevent conflicting state laws. The a16z letter was issued in response to the CFTC’s Advance Notice of Proposed Rulemaking that was issued earlier this year under Chairman Selig. It argues that prediction markets are a natural extension of how information is collected in traditional markets, meaning that their potential goes beyond the current applications.

a16z advises on measures to check insider trading

Prediction markets are uncertain by design, so there will always be disagreements about whether an event really happened or not. a16z says the CFTC needs clear rules to settle those fights. They recommend using blockchain’s auditable nature for real-time monitoring and implementing KYC checks to create “prohibited trader lists.” Kalshi’s weekly volume surged from $300 million to $3 billion, prompting the firm to argue that clear rules are needed before AI agents begin trading autonomously on these markets.

a16z argues that Congress already set up one federal system for other markets, and so prediction markets should get the same treatment. The firm also clarified its position on “forbidden markets,” stating that the CFTC should permit event contracts on controversial topics, as long as the platform can show how it serves a legitimate public interest. Kalshi encountered issues and had to cancel its market on the Iranian regime change that was ultimately settled when Supreme Leader Ali Khamenei was killed.

The letter submitted by a16z coincides with Washington’s crackdown on insider trading on prediction platforms. On Thursday, the US Senate banned lawmakers and their staff from using platforms like Polymarket and Kalshi. The legislation was passed just one week after a U.S. special forces soldier was charged with using classified information to bet on the capture of Venezuela’s former president, Nicolas Maduro.

Cryptopolitan reported that similar concerns arose when traders placed uniquely timed bets ahead of US strikes on Iran, prompting Senator Elizabeth Warren to call for an investigation. In another case, Senator John Fetterman (D-Pa.) purchased Micron Technology (NASDAQ: MU) stock on March 30, catching the “exact bottom” before it surged over 60%. Fetterman’s committee oversees the CHIPS Act funding, which recently awarded Micron $6.1 billion. Kalshi also recently suspended a U.S. Senate candidate and two House candidates for betting on their chances during the elections.

Kalshi also previously suspended a MrBeast video editor for trading on privileged information and fined a candidate running for governor in California for betting on his own race. Polymarket recently updated its rules to prohibit insider trading. The platform also banned elected officials and government insiders from betting on events they can influence. Violators will either face wallet bans or fines, and they can even be reported to law enforcement.

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The US-regulated prediction market platform has found itself in the spotlight after traders filed a class-action lawsuit against the company for failing to pay out $54 million in bets on the Iranian leader’s death. The plaintiffs claim the prediction market invoked a contractual “death carveout” clause to dodge fulfilling the payouts after the Iranian Supreme Leader Ayatollah Ali Khamenei was killed by a joint US-Israeli strike on Saturday.

Traders drag Kalshi to court over failure to payout bets

The traders filed the lawsuit on Thursday in the US District Court for the Central District of California, focusing on a Kalshi prediction contract that asked whether Khamenei would leave office before March 1, 2026. The accusers argue that the Supreme Leader is no longer in office and that the outcome was neither ambiguous nor non-binary.

On the contrary, the prediction market said that Khamenei’s death rendered the contract null and void. However, plaintiffs pushed back on Kalshi’s claims, arguing that escalating US-Iran tensions, including American naval presence already stationed near Iranian waters, paved the way for an imminent war. Khamenei’s death was not merely foreseeable but the only possible outcome to the contract, resolving “yes” for many traders.

The plaintiff termed Kalshi’s invocation of the clause after Khamenei’s death as “predatory” and “deceptive”. Kalshi’s CEO, Tarek Mansour, addressed the matter in an X post dated March 6. The executive claimed the prediction market did not “deviate from its market rules” and emphasized that the rules were clear that death did not resolve the market to “Yes”.

He added that Kalshi’s rules prevent traders from directly benefiting from death, saying it’s a good thing, and that the platform is US-based. He further explained that Kalshi reimbursed all losses to traders out of pocket and did not make any money from the contract. “Not a single user walked away losing money from this market.” However, some traders claim otherwise.

Regulators crack down on prediction platforms

One user replied to Mansour’s X post with a screenshot showing he had only been paid $8.54, despite his original stake of $49.90. He called Mansour a liar and a fraud before urging the CEO to pay traders. Another user shared a screenshot showing they received $50.08 from the contract despite spending $199.96 for a max payout of $2,504.

Meanwhile, Prediction markets have attracted regulators’ attention and are now under intense scrutiny. On March 5, Cryptopolitan reported that Polymarket had quietly removed a contract last week that allowed traders to place bets on nuclear weapon detonation this year, with resolution dates of March 31, June 30, and before 2027. The publication noted that a coached version of the page revealed that the contract had received more than $650,000 in trading volume.

The company briefly archived the contract, and the page now returns a “404 Page Not Found” message with “Oops…we didn’t forecast this” written. The company also deleted an X post on the contract, which showed a 22% probability of a nuclear detonation occurring this year. The prediction contract raised concerns because government officials who make military decisions can bet on it, potentially influencing the outcome.

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The prediction platform said it opened 200 investigations into suspicious insider trading activities over the past year, and over a dozen of the investigations led to active cases. On popular request, Kalshi today released information on two insider trading cases it recently closed in a bid to showcase its efforts in countering illegal trading.

Kalshi sheds light on its investigations

In its report, Kalshi mentioned that the first case involved a US politician who bet about $200 on his own candidacy for Governor of California in May 2025. The candidate went on to share the trade on social media, which alerted Kalshi’s Surveillance Department and immediately got his account frozen. The platform said politicians are allowed to use its services, but shouldn’t bet on themselves.

“As a candidate in a race, you can (and probably should) follow and use Kalshi’s market forecast, but you should not trade on it,” Kalshi precisely noted. In the second case, the trader bet up to $4,000 on YouTube streaming markets. The culprit was identified as Artem Kaptur, who reportedly edited videos for the popular YouTuber, Mr. Beast.

Kalshi found that the editor likely had access to material non-public information connected to his trading, which enabled him to bet with near-perfect trading success, more suspiciously, on markets with low odds, it said. None of the traders were able to withdraw profits from the illegal bets, according to the report. The first trader was banned for five years and penalized 10 times his initial trade size, while the second trader got only a two-year ban, with a financial penalty five times the size of his initial trade size.

The fines will be donated to a non-profit, Kalshi said. “We’ve reported each of these cases to the CFTC, as we are required to do, and Kalshi will be donating the fines imposed to a non-profit that provides consumer education on derivatives markets,” the prediction market wrote. The stakes on Kalshi are higher now that it has significantly grown its monthly volumes. From the beginning of February to date, Kalshi has posted $8.5B in trades.

Though the platform is still lagging from January’s record of over $9.5B, it still carries peak levels of monthly transactions, after exponential growth in early 2026. As a result, Kalshi is seen as one of the highly regulated and accurate platforms, capable of giving insights into economic issues such as interest rate decisions based on group predictions. Sports remain the biggest source of activity on Kalshi, while Polymarket remains the venue for current events and niche issues.

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