Polymarket says it has beefed up its surveillance ahead of the U.S. midterms, trying to prove that prediction markets can police suspicious trading before they turn into a regulatory embarrassment.
- Polymarket says it can flag anomalous trading with blockchain analytics, machine learning, and trade surveillance
- The company says it has referred more than 100 cases to law enforcement
- U.S.-linked wallets were estimated by Allium to have traded about $571 million in political contracts over one year
- Prediction markets remain under fire over insider trading, federal employee use, and state gambling claims
That scrutiny is not abstract. Prediction markets work when they pull together real information, but they also attract abuse from people with privileged access, political players, and anyone hoping to cash in on nonpublic information before the rest of the market catches on.
Shana Bautista, Polymarket’s global head of investigations and intelligence, told Reuters the company now uses blockchain analytics, machine learning, trade surveillance, open-source research, and third-party services to detect suspicious activity as the election cycle heats up.
“I can tell you that we have the systems in place to be able to identify anomalous activity when the midterms do come.”
Bautista, a former FBI investigator and Coinbase analyst, said Polymarket’s market integrity program is not new, but the company is now putting more detail on the record about how it works.
“The market integrity program itself is not new, but what we’re putting on the record now is considerably more detail about how it operates.”
In plain English, Polymarket is trying to show it can catch weird trading patterns before they turn into a legal mess. That is a smart move. It is also the sort of claim regulators hear all the time, right before they ask for proof.
Polymarket says it has referred more than 100 cases to law enforcement. The most serious example involved a wallet tied to a U.S. soldier accused by prosecutors of using classified information to trade contracts related to the possible capture of Venezuela’s Nicolás Maduro.
According to prosecutors, the soldier earned about $409, 881 through 13 Venezuela-related Polymarket trades. He has pleaded not guilty. He is also challenging whether the contracts legally qualify as swaps, which matters because swaps fall under U.S. commodities law and bring the Commodity Futures Trading Commission into the picture.
A federal judge paused the CFTC’s civil case in August while the related criminal proceeding continues. That leaves the core question unresolved: was this a straightforward market abuse case, a regulatory classification fight, or both?
Polymarket says other referrals involved possible insider wagers tied to U.S. military actions in Iran. That is the ugly side of prediction markets in one sentence. If a market lets people bet on geopolitics, it will always draw suspicion that somebody knows too much.
The company is also trying to convince regulators that U.S. users remain mostly blocked from its international platform. That issue traces back to Polymarket’s 2022 settlement with the CFTC, after the regulator found it had offered event-based binary options contracts without registering properly.
Under that settlement, Polymarket paid a $1.4 million civil penalty and agreed to wind down markets that did not comply with U.S. law. It also had to prevent U.S. customers from accessing its international operation.
Bautista said the company’s current controls are strong enough to stop the vast majority of American users from getting through.
“It is difficult at scale to be able to consistently and always evade all of the guardrails we have.”
That may be true. It is also not the same as saying nobody gets through. And on-chain activity can be monitored without making it easy to prove who is behind a wallet or where that person is located. Public blockchains are transparent. Human identity is not.
That gap is where the debate gets messy. On-chain research firm Allium estimated that wallets it associated with the United States traded about $571 million in political contracts on Polymarket over a one-year period despite the restrictions. Allium said the United States was the largest national group it identified.
That number is worth paying attention to, but it is not a courtroom-certified count of actual U.S. people. Allium cautioned that its estimate was directional because blockchain data cannot establish the identity or physical location of every trader. In other words: the chain can show activity, not citizenship.
Still, the estimate suggests the guardrails are not airtight. If a platform says it can keep Americans out, but a large amount of U.S.-linked wallet activity still shows up, regulators are going to ask uncomfortable questions. As they should.
The political pressure is coming from more than one direction. More than 40 Democratic lawmakers asked the CFTC and the U.S. Office of Government Ethics for guidance on restricting federal employees from using nonpublic information to trade prediction contracts.
Lawmakers themselves are also under scrutiny. Rep. Bryan Steil has sought a prediction market trading ban for lawmakers as part of a broader stock-trading proposal, and the U.S. Senate voted unanimously in April to bar senators and staff from trading on prediction markets such as Polymarket and Kalshi.
That is not a subtle warning. If elected officials or federal employees can trade on outcomes they may help shape, or know about before the public does, prediction markets stop looking like clean information tools and start looking like a shortcut for insider advantage.
Kalshi, another prediction market platform, has faced similar attention. The larger fight is not really about one company’s branding or one product category. It is about who gets to regulate event contracts when those contracts look half like financial instruments and half like gambling.
That is also the point of the state-level fight over sports event contracts. Several states argue those products are gambling and should require state licenses. Prediction market companies reject that argument, saying the contracts fall under federal commodities regulation and therefore belong under CFTC jurisdiction.
This is more than legal hair-splitting. If states win, prediction markets could be pushed closer to sportsbooks, with all the licensing, tax, and compliance baggage that comes with that model. If the federal view wins, the platforms keep room to operate as commodities-style markets with a gambling-adjacent edge. No surprise that neither side wants to blink.
Polymarket’s U.S. position has shifted, but the sequence matters. Under President Donald Trump’s administration, regulators dropped an investigation into whether the company had breached its 2022 settlement. CEO Shayne Coplan said the company had been cleared of wrongdoing.
Polymarket later returned to the U.S. market after acquiring a CFTC-registered exchange last year, creating a separate regulated operation from its international blockchain platform. That gives the company a cleaner legal path in the U.S., but it also makes the split between regulated products and the international platform harder to ignore.
That split is the whole game here. On one side is the regulated venue, where the company wants to look like a serious financial market. On the other is the global blockchain platform, where U.S. access restrictions, pseudonymous wallets, and cross-border enforcement headaches make everything more complicated.
Prediction markets still have a real case to make. Done properly, they can surface useful information faster than polls, because people are putting real money behind their views. But the same mechanism that rewards insight also rewards cheating if the controls are weak.
So the question is not whether prediction markets can be useful. They can. The question is whether they can stay honest enough to deserve trust when the money, politics, and legal risk all hit at once.
Key questions
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Can Polymarket spot suspicious trading?
Polymarket says yes. It says it uses blockchain analytics, machine learning, trade surveillance, open-source research, and third-party services to identify anomalous activity and has referred more than 100 cases to law enforcement. -
Did Polymarket keep all U.S. users off its international platform?
Not completely, at least according to Allium’s directional estimate. The firm said wallets it associated with the United States traded about $571 million in political contracts over one year, though that does not prove the traders were physically in the U.S. or even all U.S. persons. -
Why is the soldier case so important?
It is the clearest example of the insider-trading risk regulators fear. Prosecutors allege the soldier used classified information to make $409, 881 through 13 Venezuela-related Polymarket trades, and the case also raises a legal fight over whether the contracts count as swaps. -
Are prediction markets gambling or commodities?
That fight is still unresolved. States argue sports-related event contracts are gambling and need state licenses, while prediction market companies say federal commodities law and the CFTC should control. -
Does blockchain transparency solve insider trading?
No. Blockchain makes trades visible, which helps investigators, but wallet activity does not automatically reveal the real-world identity or location of the trader. Transparency helps; anonymity still complicates enforcement.
