Kalshi Hits the Brakes as Regulators Target User Incentives in Prediction Markets

Original ｜Odaily Planet Daily

Author ｜Golem

On September 29, foreign media reported that the U.S. Commodity Futures Trading Commission (CFTC) is investigating incentive programs in prediction markets due to concerns that these markets may be using misleading promotions to attract traders. A source indicated that the investigation could lead to targeted scrutiny of prediction markets or direct enforcement actions. Although CFTC Chairman Michael Selig has not yet decided on specific measures, some form of "action" is expected before the end of this week.

The prediction market platform Kalshi has already terminated its trading volume incentive program, while Polymarket and other prediction markets that rely on rewards to maintain liquidity depth and user growth may become key targets for the CFTC. The reason for the CFTC's actions is reportedly because they believe that prediction market companies have not taken their compliance advisory issued in August seriously...

CFTC's Regulatory Opinions on Prediction Markets

On August 12, the CFTC released a consultation on incentive programs in prediction markets, specifically addressing market making, liquidity, trading, and incentive program filings. In the document, the CFTC emphasized that prediction market companies are attempting to encourage heavy trading and are incentivizing companies to act as market makers to expand market participation and trading volume, which may raise compliance issues.

In addition to cash-back trading incentives and promises of "guaranteed profits," the CFTC warned that some incentives aimed at high-volume market participants could lead to wash trading, and market maker incentive programs could foster fraud and market manipulation.

It cannot be entirely blamed on prediction market companies for not taking the CFTC's opinions seriously. For platforms like Polymarket, order book liquidity, position rewards, new user subsidies, and referral rewards are already key strategies to increase market depth and user growth. Sometimes, to enhance liquidity for specific prediction contracts (such as sports competitions), project teams may even sign private contracts with market makers.

In a fiercely competitive market, no one dares to abandon these measures voluntarily, as stopping them could worsen contract liquidity depth and user experience, leading to user attrition.

It is currently unclear which companies will be affected by the CFTC's upcoming actions, but prediction market platforms operating in the U.S., such as Kalshi and Polymarket, are offering rewards that may attract regulatory scrutiny.

Polymarket may become a focal point of CFTC attention. According to polyscalping data, since Polymarket began charging transaction fees in January 2026, it has generated $229 million in transaction fees, while Polymarket has issued a total of $128 million in rewards, accounting for 54.3% of the transaction fees.

Polymarket's Reward Program Costs Millions Daily

Polymarket is currently one of the most liquid prediction markets on the market, and it pays a price of millions of dollars daily to maintain liquidity depth.

According to DeFiLlama data, Polymarket ranks fifth in 24-hour fees on the blockchain at $3.21 million, about $1 million higher than sixth-ranked Hyperliquid. However, Polymarket's 24-hour revenue is only about $400,000, ranking 16th in the industry, which means about $2.8 million is awarded to platform traders and market makers in various forms.

Comparison of Polymarket's 24H Fees and Revenue Rankings

Polymarket's reward program has five main channels: LP Rewards, maker rebates, taker rebates, Holding Rewards, and referrals. LP Rewards began implementation in November 2023 (Odaily note: at that time, Polymarket had not yet started charging fees); Holding Rewards will begin in July 2025, primarily as annualized returns for holding pUSD; maker rebates, taker rebates, and referrals all began this year.

The total amount of rewards issued across these five channels has reached approximately $128 million, with the proportions and specific amounts shown in the figure below.

In May of this year, Polymarket opened Perps trading and launched a Perps liquidity reward program to quickly accumulate liquidity depth, with a fixed daily budget of $75,000 allocated among active perpetual markets. At this rate, this single item will incur an annual expenditure of $27 million.

The above is just Polymarket's regular reward program. During special events and competitions, Polymarket also launches additional reward programs to encourage traders and market makers to participate.

For example, during the transition period of crypto TWAP in August this year, Polymarket provided an additional $1 million liquidity reward to the market; during the World Cup and popular events, Polymarket also increases additional event incentives, with a single liquidity reward reaching $100,000 during the March Madness event on Polymarket's U.S. sports site.

Spending Money to Drive User Growth

These reward programs not only maintain the liquidity depth of the Polymarket platform but also play a significant role in user growth. According to Dune data, in the first few months of 2026, Polymarket's new user growth suddenly accelerated, coinciding with the launch of various reward programs.

In January 2026, Polymarket's monthly new user count reached 233,000, marking the first time it surpassed 200,000 since January 2025 (the month Trump was elected president), coinciding with the launch of the maker rebate program; in March 2026, Polymarket's monthly new user count hit a new high of 259,000, which also coincided with the launch of the referral reward program.

Of course, the explosive growth of new users on Polymarket is not solely determined by the reward programs; there are also factors such as regulatory maturity, expanded advertising and marketing promotions, and coincidental development opportunities (such as the World Cup). However, the degree of temporal overlap suggests a strong correlation between the various reward programs launched by Polymarket this year and user growth.

Will Polymarket Be Drawn into the Regulatory Maelstrom Again?

In summary, reward programs are crucial for the business operations and user retention of the Polymarket platform. If the CFTC takes substantive action to regulate the incentive programs in prediction markets, Polymarket, as the prediction market company with the largest reward amounts and proportions, is likely to become the first target of scrutiny.

Kalshi, which emphasizes compliance narratives and has a keen "political sense," has already terminated its trading volume incentive program. On September 28, Kalshi submitted a document to the CFTC stating that the end date for its trading volume incentive program would be changed from October 1, 2027, to October 13, 2026, without explaining the reason for this decision.

In mid to late September, users had already discovered that there were "$5,500 transactions" in ETH perpetual contracts on the Kalshi platform, with transactions of about $5,500 accounting for 50% of the nominal volume of ETH perpetual contracts for several consecutive days. This is precisely the typical pattern of wash trading in prediction markets that the CFTC pointed out in its August document. Therefore, it is reasonable to believe that Kalshi's sudden announcement of the termination of its trading volume incentive program is to avoid regulatory scrutiny.

Polymarket may find it difficult to stop as easily as Kalshi. For Polymarket, the reward program is deeply embedded in its liquidity and user growth system. If rewards are significantly reduced or stopped, it could lead to liquidity withdrawal, market makers lowering quote depths, widening bid-ask spreads in popular markets, and even causing long-tail markets to lose sufficient counterparties.

Polymarket's future situation will heavily depend on the CFTC's interpretation of the incentive programs in prediction markets. If regulators insist on viewing "trades made by users to obtain rewards" as non-genuine transactions, then following insider trading, Polymarket may once again be drawn into a regulatory maelstrom caused by false trading and fraudulent transactions stemming from its reward programs.

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