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Following controversial wagers on military developments in Iran, US Democratic senators are drafting legislation to tighten oversight of prediction markets.
Sens. Chris Murphy and Mike Levin are leading the proposal. They argue that recent trading activity on event-contract platforms reveals significant risks involving insider information, national security, and financial incentives tied to real-world conflict.
Prediction markets allow users to trade contracts based on the likelihood of future events, ranging from elections and economic data to sports and global shifts. Platforms like Kalshi and Polymarket have surged in popularity as both forecasting tools and speculative hubs. However, lawmakers now warn that certain contracts pose dangers that existing regulations fail to address.
Iran-related trades spark political backlash
The push for new legislation follows a series of trades placed immediately before US-linked military actions involving Iran. The timing has raised questions about whether traders had access to nonpublic information.
The analytics firm Bubblemaps identified a cluster of accounts that netted nearly $1.2 million in profits by betting on the removal or death of Iran’s supreme leader shortly before strikes occurred.
“It should be illegal to use advanced knowledge of military operations to turn a profit,” Levin said in a news story by Reuters. He argued that current rules provide too much latitude for markets that encourage speculation on war and violence.
The conflict: Concerns over incentives and national security
Proponents of the regulation highlight three primary concerns regarding geopolitical prediction markets:
- Insider Trading Risks: Government officials or contractors with access to private intelligence could use these platforms to profit from anticipated policy shifts or military strikes.
- Perverse Incentives: Lawmakers fear financial rewards could incentivize individuals to influence—or even incite—acts of war, terrorism, or political violence.
- Regulatory Ambiguity: These platforms sit at the intersection of finance, forecasting, and gambling. While the Commodity Exchange Act prohibits contracts deemed contrary to the public interest—such as those involving assassination—lawmakers say the rule is too vague and difficult to enforce.
Growing scrutiny of prediction market platforms
The scrutiny comes as the sector experiences rapid growth. Advocates argue these markets often outperform traditional polling and expert analysis by aggregating “the wisdom of the crowd.” During recent election cycles, for instance, many traders looked to these platforms for more accurate indicators of political outcomes.
However, critics say the same efficiency that makes them good at forecasting makes them dangerous when applied to sensitive topics.
In response to the backlash, Polymarket recently removed at least one market regarding the probability of a global nuclear explosion. Kalshi has maintained that it prohibits insider trading and does not list markets directly tied to individual deaths.
The uncertain legislative path for event contracts
While Levin and Murphy are moving forward with the bill, its path through Congress remains difficult. The effort is in its early stages, and it is unclear how broad the restrictions will be. Some lawmakers favor a targeted ban on contracts related to death or military action, while others are pushing for a total regulatory overhaul.
Even if the bill does not pass immediately, the effort underscores the mounting political pressure on prediction platforms. Lawmakers across several committees are now investigating whether current supervision is sufficient to prevent abuse without stifling legitimate forecasting.
