Polymarket, the crypto-based prediction market that exploded into mainstream consciousness during the 2024 U.S. presidential election, is now trying to solve a problem that has plagued traditional financial markets for decades: insider trading. The platform announced updated rules this week designed to crack down on traders who exploit privileged, non-public information — a move that signals both the maturation of prediction markets and the thorny governance questions that come with it.
The timing isn’t accidental.
As Engadget reported, Polymarket published a revised set of market integrity rules on its blog that explicitly prohibit trading on material non-public information (MNPI). The rules also ban market manipulation, wash trading, and what the platform calls “misleading conduct.” Violations can result in account suspension, forfeiture of profits, and permanent bans. It’s the most comprehensive self-regulatory framework a prediction market has attempted to date.
But here’s the fundamental tension: Polymarket operates in a regulatory gray zone. It settled with the Commodity Futures Trading Commission in 2022 for $1.4 million and agreed to wind down operations for U.S. users, though enforcement of that restriction has been widely questioned. The platform is based offshore, its users trade with cryptocurrency, and the legal status of prediction markets in the United States remains unsettled. So when Polymarket writes rules against insider trading, it’s essentially building a compliance architecture without the legal scaffolding that supports similar rules on the New York Stock Exchange or Nasdaq.
That’s either admirably proactive or performatively insufficient, depending on whom you ask.
The Insider Trading Problem That Won’t Go Away
Prediction markets are uniquely vulnerable to insider trading in ways that traditional financial markets are not. On a stock exchange, insider trading typically involves corporate officers or their associates trading on earnings data, merger plans, or other material information before it becomes public. The universe of potential insiders is relatively well-defined. On Polymarket, the universe is vastly larger and far more diffuse.
Consider a market on whether a particular CEO will resign by a certain date. The CEO’s family, lawyers, board members, executive assistants, HR personnel, and potentially dozens of others might possess that information before it hits the press. A market on whether a government will impose tariffs could be exploited by trade officials, diplomats, or anyone with advance knowledge of policy decisions. A market on a Supreme Court ruling could theoretically be traded on by law clerks.
None of these people are subject to SEC insider trading rules when they place bets on Polymarket. That’s the gap the platform is now trying to fill with its own policies.
The updated rules define MNPI broadly. According to the platform’s blog post, traders are prohibited from using “information that is not generally available to the public and that a reasonable person would consider important in deciding whether to buy or sell shares in a market.” That language closely mirrors the standard used by the SEC, which is clearly intentional — Polymarket is borrowing the vocabulary of traditional securities regulation to give its rules intellectual and legal heft.
The platform also introduced a reporting mechanism. Users can now flag suspicious trading activity directly to Polymarket’s integrity team. And the company says it will use on-chain analytics and behavioral monitoring to detect unusual patterns, such as large positions taken shortly before a market-moving event resolves.
Whether any of this actually works is another matter entirely.
Polymarket’s enforcement powers are inherently limited. It can ban accounts. It can seize funds held on the platform. But it cannot subpoena records, compel testimony, or refer cases for criminal prosecution the way the SEC or DOJ can. And because many users interact with the platform through cryptocurrency wallets that offer varying degrees of pseudonymity, identifying bad actors is technically challenging. A banned user can, in theory, simply create a new wallet and return.
The company appears aware of these limitations. Its rules note that it may cooperate with law enforcement and regulatory agencies in investigating potential violations — a statement that serves as both a deterrent and an acknowledgment that Polymarket alone cannot fully police its markets.
Why Now? The Political Betting Boom and Its Consequences
Polymarket’s urgency around market integrity is inseparable from its rapid growth. The platform processed billions of dollars in trading volume during the 2024 election cycle, with its presidential election markets drawing attention from mainstream media, political operatives, and even the campaigns themselves. That visibility brought scrutiny.
Reports surfaced during the election of suspicious trading patterns. A French trader known as “Théo” placed enormous bets on Donald Trump’s victory that moved markets and attracted widespread media coverage. Questions swirled about whether some traders had access to early polling data, internal campaign information, or other non-public intelligence that gave them an edge. Polymarket investigated and said it found no evidence of manipulation in that case, but the episode highlighted the platform’s vulnerability to perception problems even when no rules were technically broken.
The political prediction market space has also attracted new competitors and regulatory attention. Kalshi, a CFTC-regulated prediction market, won a federal court battle in 2024 to offer election contracts, bringing a regulated alternative into direct competition with Polymarket. The contrast is uncomfortable for Polymarket: Kalshi operates under federal oversight with KYC (know your customer) requirements and compliance obligations. Polymarket operates offshore with crypto wallets.
If Polymarket wants to maintain its dominant market position — and eventually re-enter the U.S. market in some form — it needs to demonstrate that it can maintain market integrity without a regulator looking over its shoulder. These updated rules are a down payment on that argument.
The broader regulatory environment is shifting too. The CFTC has been actively considering how to regulate prediction markets, and there’s bipartisan interest in Congress in creating a clearer legal framework. Some lawmakers see prediction markets as valuable tools for information aggregation and forecasting. Others worry about the potential for manipulation and the blurring of lines between gambling and financial speculation.
Polymarket’s self-regulation play is partly about shaping that conversation. By implementing rules that mirror traditional market integrity standards, the company is signaling to regulators that prediction markets can govern themselves responsibly — or at least that Polymarket can. It’s a classic move from the tech industry playbook: write your own rules before someone writes them for you.
But self-regulation has a mixed track record. The crypto industry broadly has struggled with it. FTX had compliance policies on paper. So did Terra. The gap between written rules and actual enforcement is where fraud tends to flourish. Polymarket will be judged not by the elegance of its rulebook but by whether it actually catches and punishes bad actors — and whether those enforcement actions are transparent enough for outsiders to evaluate.
The platform’s new rules also address a subtler form of market manipulation: the creation of markets designed to benefit their creators. Polymarket allows users to propose new markets, and the updated guidelines make clear that creating a market with the intent to trade on inside knowledge of its resolution is prohibited. This is a real risk. Imagine someone who knows a corporate announcement is imminent proposing a market on that exact event and then loading up on shares. The rules now explicitly ban this.
Wash trading — the practice of simultaneously buying and selling the same asset to create the illusion of volume — is also targeted. In crypto markets, wash trading has been endemic, and prediction markets are not immune. Inflated volume numbers can attract real traders who believe a market is more liquid than it actually is, creating opportunities for manipulation.
The Bigger Question: Can Prediction Markets Grow Up?
Polymarket’s rule update arrives at an inflection point for the entire prediction market industry. These platforms have demonstrated genuine utility. During the 2024 election, Polymarket’s odds were widely cited as more accurate than traditional polling averages, and prediction markets on topics ranging from Federal Reserve rate decisions to geopolitical events have shown real forecasting value. The academic case for prediction markets as information aggregation tools is strong.
But utility alone doesn’t guarantee survival or legitimacy. Prediction markets need trust. And trust requires credible enforcement of fair trading rules. Traditional financial markets spent decades — and endured multiple crises — building the regulatory infrastructure that underpins investor confidence. The SEC was created in 1934 in response to the 1929 crash. Insider trading law evolved through landmark cases like SEC v. Texas Gulf Sulphur in 1966 and United States v. O’Hagan in 1997. The rules we take for granted today were written in blood and lost fortunes.
Polymarket is trying to compress that process. It’s writing insider trading rules not in response to a scandal but in anticipation of one. That’s commendable foresight. It’s also an acknowledgment that the platform’s current growth trajectory is unsustainable without a credible integrity framework.
The crypto-native user base presents unique challenges. Many participants in prediction markets are drawn precisely by the pseudonymity and lack of regulatory oversight that traditional markets impose. Tightening rules risks alienating these users. But loosening them risks attracting the kind of manipulation that could destroy the platform’s credibility and invite heavy-handed regulatory intervention.
So Polymarket walks a tightrope. It needs rules strict enough to deter manipulation but flexible enough to preserve the open, permissionless ethos that made it popular. It needs enforcement mechanisms strong enough to be credible but not so aggressive that they drive users to less regulated competitors. And it needs to do all of this while operating in a legal gray area, without the subpoena power, surveillance tools, or institutional authority that traditional market regulators possess.
The updated rules are a start. A meaningful one. But rules on a blog post are just words until someone gets caught, punished, and made an example of. The real test comes when Polymarket identifies its first major insider trading case and has to decide whether to act decisively — and publicly — or quietly handle it behind closed doors.
For an industry that prides itself on transparency and the wisdom of crowds, that choice will say more than any rulebook ever could.
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