Trading volumes on prediction market platforms Kalshi and Polymarket are drawing scrutiny from industry observers who suspect the figures may be inflated. On Polymarket’s international exchange, which is not overseen by U.S. regulators, analysts have noted a pattern where markets with multiple contracts show higher activity on those with lower odds of occurring compared to high-probability outcomes. This anomaly appears in election, sports, and central bank decision markets. For instance, a contract regarding the next Prime Minister of Ethiopia shows nearly $56 million traded on a candidate with less than 3% probability, while the incumbent with 98% odds has only about $170,000 in volume.
Simultaneously, questions have arisen regarding Kalshi’s perpetual futures market for ether. A CNBC analysis found that on September 20, nearly half of the dollar volume traded came from transactions sized between $5,495 and $5,505. Critics argue this suggests wash trading or inorganic activity designed to boost reported metrics. Both companies deny these allegations. Polymarket attributes the low-odds activity to "sharps" exploiting mispricing, while Kalshi claims the patterns result from arbitrage opportunities and specific fee structures. The Wall Street Journal reported that the Commodity Futures Trading Commission is examining trades on Kalshi’s ether perpetual future contract, though the CFTC declined to confirm this investigation.
The integrity of trading volume data is critical for prediction markets as they transition from niche crypto-adjacent platforms to regulated financial instruments seeking institutional adoption. High valuations for both Kalshi and Polymarket, reportedly north of $20 billion and $40 billion respectively, rely heavily on demonstrating organic user growth and liquidity. If volume metrics are artificially inflated through wash trading or incentive-driven churn, it undermines the credibility required for public listings and regulatory approval. The divergence between volume and open interest on Kalshi’s perpetuals, significantly higher than offshore competitors like Hyperliquid, raises operational risk concerns regarding whether the liquidity is genuine or merely harvested from rebates.
Regulatory oversight remains a pivotal factor in resolving these discrepancies. While Polymarket’s U.S. exchange, regulated by the CFTC, does not exhibit the same low-odds anomalies as its international counterpart, Kalshi’s status as a designated contract market imposes a duty to monitor for abnormalities. The potential CFTC investigation into Kalshi highlights the tension between aggressive growth strategies and compliance obligations. Investors and regulators will likely scrutinize the sustainability of these business models, particularly if the underlying economic activity fails to support the headline volumes used to justify their private market valuations.
