Government Enlists AI to Police Prediction Markets as Bots Dominate Trading
Automated trading bots now control more than 30% of active accounts on Polymarket, the largest U.S. prediction market platform, with 14 of the top 20 earner accounts run by algorithms rather than humans. The shift comes as regulators deploy their own AI systems to detect insider trading across platforms processing $44 billion in annual wagers.
The Commodity Futures Trading Commission uses AI tools to scan trading patterns, detect suspicious behavior, and work with blockchain analytics firms like Chainalysis to monitor offshore platforms. CFTC Chairman Michael Selig said the agency is investigating "hundreds to thousands" of potential insider trading cases and will expand enforcement efforts.
Lawmakers Push for Insider Trading Restrictions
Senator Elizabeth Warren and more than 40 members of Congress wrote to the CFTC in March demanding laws that would ban government officials from profiting on prediction markets using secret information. The letter cited existing restrictions on federal employee trading that the CFTC says should apply to these platforms.
At least one case has already resulted in criminal charges. A U.S. Army Special Forces soldier was arrested for allegedly using classified intelligence to place winning bets on the arrest of Venezuelan leader Nicolás Maduro. Other users drew suspicion for well-timed bets on military actions in Venezuela and potential conflict with Iran.
Market Share Shifts as Platforms Tighten Controls
Polymarket's trading volume fell 8.9% in April to $10.2 billion, down from $11.2 billion in March, as the platform faced increased regulatory scrutiny. Rival platform Kalshi gained ground, with volume jumping 13% to $14.8 billion.
Both platforms have upgraded their detection systems for insider trading and market manipulation, bringing in external blockchain data providers to meet regulatory demands. The CFTC issued a no-action letter Wednesday exempting 19 platforms-including Polymarket US and Kalshi-from certain swap reporting requirements, offering regulatory clarity on how to classify and report event contracts.
The CFTC said it will pursue enforcement against U.S. users who mask their location with VPNs to access prohibited services, and may use extraterritorial authority to pursue cross-border trades involving Americans.
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