TLDR
- Former Trump Chief of Staff Mick Mulvaney says prediction market contracts are “gambling” and should be regulated by states, not the CFTC
- Mulvaney launched a coalition called “Gambling Is Not Investing” to push for state-level oversight
- Kalshi faced backlash after settling the Ayatollah Khamenei market using a death carveout rule, paying out based on the last traded price before his death
- The Khamenei market on Kalshi had over $54 million in trading volume
- Polymarket settled the same market as “yes” but that settlement is currently under review
Prediction markets Kalshi and Polymarket are at the center of a growing debate over who should regulate them and how they handle major real-world events. A weekend of controversy involving bets on Iran’s Supreme Leader has added fuel to that fire.
Former Trump White House Chief of Staff Mick Mulvaney has started a new group called Gambling Is Not Investing. The group argues that state gambling regulators, not the Commodity Futures Trading Commission, should oversee prediction markets.
“The simple answer is that it’s gambling. It just is,” Mulvaney told CNBC. He used the example of betting on the Lakers winning a basketball game to make his point.
The CFTC has argued it should be the primary regulator of prediction markets. Mulvaney disagrees, saying the CFTC is built to regulate markets, not protect consumers.
Mulvaney also raised national security concerns. He suggested that if people are trading on classified information, foreign adversaries like Russia or China could extract intelligence from prediction market activity.
He called for an investigation into contracts that paid off for people who predicted a U.S. strike on Iran. Members of Congress have raised similar concerns.
When asked who funds his coalition, Mulvaney said the group is not required by law to disclose that information and declined to name its backers.
The Kalshi Khamenei Controversy
The controversy reached a peak this past weekend when Iran Supreme Leader Ayatollah Ali Khamenei was killed in U.S. and Israeli military strikes.
Kalshi had an active market asking whether Khamenei would be removed as Supreme Leader by a set date. That market drew more than $54 million in trading volume.
After reports of his death, Kalshi settled the market using a death carveout rule. This rule prevents markets from settling based on a person’s death. Kalshi paid traders based on the last traded price before news of the death broke.
Many traders were unaware of the rule. Those who bet he would be ousted expected a full payout and were angry when they received less.
Kalshi founder Tarek Mansour posted a defense on X. He said the rule was always part of the published market terms. He also apologized for not making it more visible and said the site will improve how it presents the rule.
Kalshi also said it reimbursed all fees and net losses on the market.
How Polymarket Handled It Differently
Polymarket, which does not appear to have the same death carveout, settled the Khamenei market as “yes.”
That settlement is now under review after being disputed by some users.
Kalshi separately announced two insider trading cases it recently closed, the same week OpenAI said it fired an employee for insider trading on the platform.
