Prediction market leaders Kalshi and Polymarket are facing intensified scrutiny from industry experts and regulators over suspicious trading volume patterns that have emerged alongside their rapid expansion. While both companies deny allegations of wash trading—where traders collude to fabricate activity—observational data suggests irregularities that could undermine investor confidence ahead of potential public listings.
On Polymarket’s international exchange, which operates outside U.S. regulatory oversight, analysts have noted a counterintuitive trend: markets with lower odds of occurrence are attracting significantly more trading volume than those with higher probabilities. This pattern has appeared across election, sports, and central bank decision markets. For instance, during the 2026 FIFA World Cup, contracts linked to Egypt’s slim chances of victory saw $158 million in trades, surpassing the $152 million traded on Spain, the eventual winner. Similarly, a contract regarding Ethiopia’s next prime minister recorded nearly $56 million in volume for a candidate with less than a 3% chance of winning, while the incumbent’s contract saw minimal activity despite a 98% probability.
Kalshi is encountering separate concerns regarding its perpetual futures market for ether cryptocurrency. In late September, a user identified a concentration of trades sized around $5,500, which accounted for nearly half of the daily dollar volume. This created a disparity between reported trading volume and actual resting liquidity. Andre Guettler, a finance professor at Ulm University, warned that if a material share of this volume is manufactured, it could overstate the underlying demand, misleading retail investors who may consider buying into a future initial public offering.
Both companies are currently pursuing massive valuations. Polymarket is raising funds at a valuation north of $20 billion, while Kalshi is in talks for a round that would value the company at $40 billion. These figures rely heavily on the narrative of surging popularity driven by high trading volumes.
Company representatives have pushed back against the criticisms. Kyle Gesuelli, Polymarket’s head of revenue and analytics, attributed the low-odds activity on its international platform to sophisticated traders, or “sharps,” exploiting pricing inefficiencies rather than engaging in manipulative behavior. He argued that such activity is healthy for market balance. Kalshi spokesperson Jack Such stated the company has “zero concerns” regarding the liquidity-to-volume ratio and denied any wash trading, noting that hundreds of users were involved in the flagged transactions.
Despite these denials, the regulatory landscape remains tense. The Commodity Futures Trading Commission (CFTC) is reportedly examining the ether perpetual trades on Kalshi. CFTC Chairman Michael Selig emphasized a “zero tolerance policy” for manipulative trading practices, including wash trading and fraud, particularly as new market types evolve. A 2025 study by Columbia University researchers had previously estimated that up to 60% of Polymarket International’s weekly volume in December 2024 was indicative of wash trading, though that figure declined to 20% by October 2025. Polymarket attributes the improvement to expanded surveillance and the introduction of fees, while some observers continue to speculate that unusual volume patterns may be driven by speculation surrounding a potential cryptocurrency token airdrop.
If 20% of their volume is fake, the $20B valuation is basically smoke and mirrors. Hope the CFTC is watching closely.
I find it fascinating that low-probability events consistently draw the most volume. Correlation doesn’t imply causation, but it’s suspicious.
Polymarket blames ‘sharps,’ but Ethiopia at 3% odds getting half a billion dollars is statistically absurd, not organic.
A $40 billion valuation on suspect volume is a terrifying risk for retail IPO buyers. Regulators need to step in now.
$158 million on Egypt to win the World Cup? Those odds-defying numbers look like classic wash trading, not sharp money.