Prediction markets like Polymarket and Kalshi faced criticism from Democratic U.S. lawmakers following bets made on the potential removal of Iran’s Supreme Leader Ayatollah Ali Khamenei. The scrutiny was triggered by recent Israeli air strikes in Tehran that resulted in Khamenei’s death. Concerns were raised about the legality and ethics of such bets, especially when tied to military actions that could benefit individuals with privileged information.
Reports indicated that significant sums, such as $529 million in contracts related to attack timing and $150 million on Khamenei’s removal, were wagered on Polymarket. Bubblemaps revealed that certain accounts made a $1.2 million profit from Polymarket bets just before the weekend’s events. Meanwhile, Kalshi also offered a market on the possibility of Khamenei being ousted.
Democratic Senator Chris Murphy condemned the situation, expressing intentions to introduce legislation to ban such practices. Another Democrat, Rep. Mike Levin, highlighted a Polymarket bet placed shortly before the strikes, emphasizing the need for transparency and oversight in prediction markets.
Amid growing concerns, Democratic senators previously raised alarms about prediction markets potentially violating U.S. regulations and incentivizing the disclosure of classified information. While Polymarket defended its approach as leveraging collective wisdom for unbiased forecasts, Kalshi emphasized its prohibition of death-related bets and insider trading, refunding fees to users involved in the Khamenei market.
The legality of prediction markets has come under scrutiny, particularly after their surge in popularity post the 2024 U.S. election. These markets allow users to trade contracts on various events, with costs fluctuating based on probabilities and paying out upon confirmation of outcomes. U.S. laws prohibit wagers against public interests, including those related to war or assassination, and may consider trading on non-public information as illegal.
Despite operating in a regulatory grey area, prediction markets have witnessed extensive global trading, attracting interest from traditional financial institutions. For instance, the New York Stock Exchange’s parent company invested in Polymarket, and Plus500 introduced prediction markets through a partnership with Kalshi on its U.S. retail interface. Regulatory authorities like the Commodity Futures Trading Commission are working to establish federal oversight frameworks for prediction markets.