Prediction markets have sparked a golden age of insider trading—but the party may be coming to an end

The problem of traders turning a buck on inside information is as old as markets themselves. But in the last year, the scope of insider trading has grown to unprecedented levels thanks to new platforms like Kalshi and Polymarket that offer bets on everything from major world events to celebrity trifles. 

In recent months, the rise of these prediction markets has given rise to a series of high-profile controversies. One saw a Polymarket user wager $32,000 that President Nicolas Maduro of Venezuela would be out of power—a bet placed only hours before U.S. special forces captured Maduro, earning the bettor a $400,000 payout. Similar well-timed wagers related to the current Middle East conflict led one publication this week to ask “Are White House insiders making a killing on the Iran war?”

Insider trading on prediction markets is hardly limited to geopolitics. The problem has also bubbled up in domains like elections, where a California gubernatorial candidate wagered on his own candidacy, and in the tech industry, where a trader made $1.2 million by correctly predicting Google’s “Year in Search” results before they were released. There are also fears professional athletes could use prediction markets to bet on their own performance, which has been a growing problem on conventional betting sites. 

Meanwhile, the incidents to emerge so far may be only the tip of the iceberg. Given the massive volumes on the platform, it’s a near certainty that other insiders in government and companies have used........

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