Asaf

Fourth - Exchange-Insider Sponsoring. A platform or affiliated insider manufactures volume to make a market look more liquid and credible than it is - attracting retail and institutional participants under false pretenses. There's a lot more to dig through here. Always happy to field additional questions - as clearly 25m for Q&A was not enough!

Third - Real-World Narrative Distortion. Prediction market prices are now cited as real-time probability estimates by media, analysts, and policymakers. Systematically cycling YES(Trump) at prices slightly above the prevailing market nudges the implied probability upward - not dramatically, but measurably. A manipulated price gets picked up in news articles. It shapes how people read the race.

Yesterday at Consensus, I walked through real cases of market abuse in onchain prediction markets. From insider trading on the US-Iran-Strikes event contract to wash trading on the US Election market. Full room and great questions from the crowd. The one that kept coming up: why would anyone wash trade the US election market? You can't change who wins. Here's what I walked through on stage.

The attack surface is expanding. More venues. More contract types. More capital. More users - many of them new, with no visibility into what's happening beneath the surface. Geopolitical events. Economic data releases. AI-driven outcomes. Each new category brings manipulation typologies that didn't exist the year before. Solidusians are here to hold line on market integrity and making sure there's a level playing field.

15 cents of every dollar traded in one of the most-watched markets of the election cycle may have been manufactured volume. Prediction markets are supposed to tell us something true about the world. That only works if the underlying markets are honest.

$253M. One market. 27 days. That's how much wash trading we flagged in Polymarket's 2024 US Election market.

@faryarshirzad - couldn't agree more, event-based contracts are not new - but the attack surface for potential market abuse has expanded drastically. Check out our report; we've covered novel ways to manipulate unsuspecting investors. Happy to double-click with you. soliduslabs.com/reports/polyma…

Coinbase submitted a comment letter to the @CFTC on prediction markets. Four points from @coinbase’s submission: 1) Event-based contracts are not new. The CFTC has long overseen derivatives and futures markets that embed real-world contingencies. Prediction markets may look novel, but they sit comfortably within existing statutory authority—no new mandate required. 2) Like futures markets, these instruments aggregate dispersed information into prices. They provide a mechanism for hedging uncertainty and forming expectations—an economic function regulators have supervised for decades. 3) Congress assigned this domain to the CFTC for a reason: consistent, national oversight of derivatives markets. Fragmented state-by-state intervention risks undermining that framework and creating regulatory conflict in markets that are inherently interstate. 4) The CFTC already has the authority to review, condition, or prohibit contracts that are contrary to the public interest—including those that raise manipulation or harm concerns. That power should be used to police edge cases, not to foreclose the category. Prediction markets are maturing. The question is not whether they fit within the law—they do—but how to ensure they develop with integrity, clarity, and appropriate guardrails. We appreciate the Commission’s engagement and look forward to continued dialogue.

@variance_lover @variance_lover - we've done some digging on the ghost fills and manipulation you might be experiencing. Happy to double-click with you and compare notes soliduslabs.com/reports/polyma…

I’ve been one of the biggest market makers on Polymarket for a long time. At peak I was doing $10M+ daily volume and paying thousands in fees every single day. The current state is the worst the platform has ever felt. Ghost fills still everywhere. Markets constantly breaking. Payouts randomly missing. Exploits going on for months while the team says “it’s fixed”. You spend more time defending against bugs than actually trading. Meanwhile, communication is a joke. They say “we’re listening” → ignore emails, ignore DMs. They say “we’ll work with top users” → instead it’s random private Telegram groups with whoever shouts the loudest. They say “issue fixed” → it clearly isn’t. At some point you stop believing anything they say. The fee situation is another one. If you’re generating serious volume and paying serious fees (thousands a day), most exchanges shower you with attention and perks. I'm not asking for that but would be nice to at least be acknowledged that you exist and have basic communication, especially after they've announced publicly multiple times that they will start doing this. Instead we got a week-long hype campaign for a “big update” that turned out to be… a hidden fee increase. How dumb do you think your users are? And then stuff like April 5th, missed referral/rebate payments, no announcement, no explanation, nothing. Just silence. That’s not a bug, that’s trust damage. The bigger issue is it feels like nobody on the team has actual trading experience. The design decisions show it. Every update introduces new edge cases, new exploits, new ways to break the order book. People have made many millions exploiting this stuff. Many of these accounts are obvious, trackable, preventable. The community has been pointing it out for months. Ignored. Only now that the markets are borderline unusable does it seem like there’s urgency. Right now the platform is honestly close to untradeable: – ghost fills – manipulation – unreliable payouts – constant bugs – zero transparency And surprise, volume is dropping. Meanwhile Kalshi is catching up fast (have basically overtaken in volume in almost every category except for politics) and Hyperliquid is entering with a team that actually understands trading systems. I want Polymarket to succeed. And yes, maybe the upcoming ghost fill fix helps. But if this pattern continues, terrible communication, fake timelines, ignoring core users, then this won’t be a place serious traders stick around. You can’t build a market while eroding the trust of the people who provide the liquidity, especially not as a many multi billion dollar company! I have spoken to many large polymarket whales (of which a considerable amount have already given up on the platform) and they all share this sentiment. @Polymarket @mustafap0ly @SuhailKakar @_kanarazu_

During Solidus' offsite, we created our own version of a prediction market on company KPIs - from product launches to revenue targets - needless to say, we're the biggest fans. With that, we're also recognizing that Pred Mar expands the attack surface of bad actors. Let's fix it. soliduslabs.com/reports/polyma…

@AOC You’d be surprised at the level of sophistication applied today to detect and prevent market abuse. If you’re interesting to dig deep, we visit Congress often and we’d be happy to showcase to you the frontier work that’s been done.

This is absolutely not enough. Just on the policy piece alone, there are SO many individuals - staff, advisors, consultants, cabinet secretaries, spouses, and more - that can trade on insider information. This is just a fig leaf to deflect from criticism. We need to do more.

@mansourtarek_ Looking forward to co-innovating together!

On Insider Trading. Some say insider information can make prediction markets more accurate. But the same argument can be made for stock markets, where insider trading is banned. Insider trading erodes trust. When people believe a market is unfair, they stop trading. Liquidity dries up, volume collapses, and the market dies. Also, allowing it could incentivize bad actors to leak information they shouldn’t. So Kalshi bans insider trading. How do we police it? Just like stock markets. We spent years building a market surveillance system similar to those used by the NYSE and Nasdaq: 1. Detect: Our surveillance system (called Poirot, after the French detective) flags suspicious patterns in real-time by running trades through pattern recognition models. Insider trades stand out because they often are weird and are bigger in size: people don’t usually commit fraud for $25. 2. Investigate: We have a market regulation team that conducts investigations. They review KYC data, funding sources, prior trading history, and trade rationale. They contact traders when needed. 3. Enforce: If we find wrongdoing, penalties range from warnings and fines, to referrals to the CFTC (and sometimes DOJ) for civil/criminal prosecution. Transparency helps. All activity on Kalshi is public. We also report it to the CFTC daily. Because of that, our traders help by sending us whistleblower tips. To those traders, I know some of you are frustrated that we don't tell you what happens after you send a tip. I get the frustration. Legally, we need to keep our investigations private – but please know your help is super valuable. In the past year, we ran over 200 investigations and froze relevant accounts. Of these, over a dozen have become active cases and several have been referred to law enforcement. Today we go further: 1. Wharton Forensics Lab: We’re bringing Wharton Forensic Analytics Lab Director Daniel Taylor, one of the premier forensics experts in the country, to advise us. He will help us investigate intricate "cousin of the spouse of the dude at Tesla" insider cases. 2. Brian Nelson: We’re adding Brian, former Under Secretary of the Treasury for Terrorism and Financial Intelligence, to counsel us on financial compliance and market integrity. 3. Surveillance Audit Committee: We’re forming an independent committee of market integrity experts like Lisa Pinheiro to provide quarterly reports to Brian and publish relevant statistics. 4. System upgrades: We're partnering with Solidus Labs. Their institutional-grade behavior monitoring and pattern recognition tools will be added to our systems. 5. Robert DeNault as Head of Enforcement: Bobby is a force of nature and a self-professed financial crime nerd. He was a white-collar criminal attorney and spent law school studying presidential investigations and the Panama Papers. He’s also a great guy - we love Bobby. All industries have bad actors and no system is perfect, Kalshi's included. But we are committed to improving daily. Lots of work ahead!