Activist group demands closure of Kalshi’s election market due to alleged manipulative whale activity.

Regulated Exchange or Not? The Battle Over Event Contracts on US Elections

In the ongoing legal fight between regulated exchange Kalshi and its offshore rival Polymarket, one thing is clear: the debate over event contracts on US elections has reached a boiling point. Despite Kalshi’s emphasis that it is a regulated exchange, unlike Polymarket, activist group Better Markets continues to cite activity on Polymarket as one reason to restrict Kalshi from offering traders political bets.

A Regulated Exchange in Question

Kalshi has long argued that it operates within the bounds of regulatory frameworks, setting itself apart from its larger, crypto-based rival. However, this distinction has not convinced Better Markets, which advocates for stricter financial regulations. In a 39-page friend-of-the-court brief filed Wednesday supporting the Commodity Futures Trading Commission’s (CFTC) appeal of a case it lost to Kalshi, Better Markets highlighted recent reports about a handful of Polymarket accounts that have made tens of millions in bets on Donald Trump winning the presidency.

The French Whales and Their Motives

According to Polymarket, these accounts are all controlled by the same French national. Theories floated in Wall Street Journal and Newsweek articles suggest that this trader may be manipulating the market or creating a false impression of momentum for Trump, aiming to influence the election’s outcome or provide him with a pretext for challenging the results if he loses.

Manipulation and Volatility

Better Markets echoed these concerns, stating that if trading on Polymarket constitutes any form of election or market manipulation, it will likely artificially skew contract prices, creating volatility that harms smaller retail investors who have placed their own bets. The group urged the US Court of Appeals to overturn a lower court’s decision that allowed Kalshi to offer election markets.

Undermining Election Integrity and Hurting Investors

However, Filip Pidot, a prediction market veteran and board member of the Coalition for Political Forecasting, disputed these claims. He believes there is "virtually no chance" the French trader is placing these bets for electoral purposes. Instead, Pidot thinks the motives are clearly profit-driven.

Profit-Driven or Electoral Manipulation?

"If the goal was to move the price, you’d do the opposite," Pidot explained. "Instead of having several accounts trading strategically with limit orders, you’d just keep plowing money in blindly and let yourself get filled at worse and worse prices, since that would be optimal if your goal was to artificially inflate the price."

Polymarket’s Response

In response to these allegations, Polymarket told the Times that the trader is "taking a directional position based on personal views of the election" and found no evidence of attempted manipulation.

Billions in Volume, But at What Cost?

While Polymarket has seen billions in volume this year from political betting, Kalshi was forced to sit on the sidelines until this month when an administrative stay pausing its election contracts was lifted. The appeals court decision allowed Kalshi to offer event contracts on US elections.

The Battle Rages On

Despite the lift on Kalshi’s contract offerings, the debate remains intense. Thursday afternoon in New York, both platforms showed Trump ahead, with a 62.5% probability of winning on Polymarket ($2.1 billion in volume) and 59% on Kalshi ($60 million). PredictIt (58%, about $10 million) and Manifold Markets (58%, play money) also reflected similar probabilities.

The Future of Event Contracts

As the battle over event contracts on US elections continues, one thing is clear: regulation and oversight will be crucial in determining the future of these markets. Will Kalshi’s emphasis on being a regulated exchange be enough to sway public opinion and regulators? Only time will tell.