Prediction Markets Scrutinized Over 'Death Markets'

The U.S. Commodity Futures Trading Commission (CFTC) is now drafting its first comprehensive rulebook for prediction markets. This move follows mounting pressure from lawmakers and consumer advocates over contracts that some argue resemble unregulated gambling, especially those related to war and assassinations. A new bipartisan bill, the Event Contract Enforcement Act, would legally require the CFTC to prohibit markets related to terrorism, assassination, war, and illegal activities. The controversy intensified after significant trading activity preceded the recent U.S. and Israeli strikes on Iran. On Polymarket, over $802 million was traded on Iran-related contracts, with one analytics firm identifying new accounts that made approximately $1 million just hours before the attacks were public knowledge. On-chain analysis reportedly uncovered six wallets that collectively earned $1.2 million by betting on the strikes. This has amplified concerns that these platforms could be used to monetize classified or non-public information. In late February, the CFTC's Division of Enforcement issued an advisory after two cases on Kalshi involved the misuse of non-public information. Critics argue that when contract prices surge without a clear public trigger, it looks less like forecasting and more like profiting from privileged access. The regulatory landscape is complicated by a jurisdictional battle between the CFTC, which views these as financial derivatives, and state gaming regulators who see them as gambling. Kalshi operates as a federally regulated exchange under the CFTC, which prohibits contracts that allow traders to profit directly from death. Polymarket, conversely, operates some of its activities offshore, making U.S. oversight more difficult. The recent killing of Iran's Supreme Leader Ali Khamenei highlighted the platforms' different approaches. Polymarket's market resolved to "yes," paying out on his death. Kalshi, citing its "death carve-out" rule, halted trading and settled the market at the last traded price before the news broke, leading to user outcry and a $2.2 million payout to resolve complaints. Historically, the concept of "assassination markets" dates back to at least a 1995 essay by cypherpunk Jim Bell. Modern platforms have seen similar controversies, such as a multi-million dollar Polymarket contract in September 2025 on whether a YouTuber would survive a 40-day fast. Adding another layer to the situation, Donald Trump Jr. serves as an advisor to both Polymarket and Kalshi. The Trump administration has generally taken a more favorable view of the industry, which saw billions of dollars traded during the 2024 U.S. election cycle alone. Foreign governments are also taking action. Singapore, for instance, has classified platforms like Polymarket as unlawful gambling operators under its Gambling Control Act 2022 and blocked access to them as of January 2025.