Key takeaways

An unusual trading pattern has emerged in a Kalshi perpetual futures contract, while certain low-probability event contracts on Polymarket's international exchange show abnormally high trading volumes. This has prompted industry participants to examine trading activity on these two major prediction market platforms.

Such data discrepancies have raised concerns about market quality. Both platforms deny the existence of wash trading within their systems. Both platforms are seeking higher valuations in private markets and plan potential IPOs next year, with trading volume consistently used as evidence of platform growth.

Volume anomalies draw attention

Trading volumes for certain products on prediction market platforms Kalshi and Polymarket have drawn questions from some industry observers who worry that volumes may be inflated. On Polymarket, observers found an anomaly on its international exchange, which is not regulated in the United States: in prediction markets containing multiple contracts, lower-probability contracts had higher trading volumes than higher-probability ones. This phenomenon appeared in markets related to elections, sports events, and central bank decisions.

Meanwhile, on September 20, a user on X discovered odd trading characteristics in Kalshi's Ethereum perpetual futures market: orders of approximately $5,500 accounted for the bulk of the contract's trading; 24-hour volume was severely disproportionate relative to actual order book liquidity. Analysis showed that on September 20, nearly half of Kalshi's Ethereum perpetual contract dollar volume came from trades in the $5,495–$5,505 range.

These two phenomena have led some observers to worry that platforms are tolerating volume inflation; in the worst case, wash trading — where traders collude to buy and sell the same asset to create a false appearance of trading activity. Both Kalshi and Polymarket deny wash trading in any product and deny that the above anomalous patterns constitute unnatural trading activity. Tamika Bent, a partner at law firm K&L Gates, said prediction market designated contract markets (DCMs) "have an obligation to monitor market conditions, price movements, and trading volumes in real time, investigate anomalies, and maintain market integrity. DCMs should monitor abnormal trading volumes and investigate any signs of market disruption."

Valuations and IPO ambitions

Polymarket is raising funds in private markets after launching its U.S. exchange, targeting a valuation exceeding $20 billion; Kalshi is in talks to raise funds at a target valuation of $40 billion, and has expanded beyond prediction markets into mainstream cryptocurrency trading. Both platforms use trading volume as a growth metric to support their valuations. But as both companies plan to pursue listings as early as next year, the authenticity of trading volume data has been thrust into the spotlight. Andreas Geytler, a finance professor at the University of Ulm in Germany, wrote in a research paper regarding the anomalous Kalshi perpetual futures volumes: "If a substantial portion of the disclosed perpetual contract trading volume is artificially manufactured... then headline trading volume and its growth trend would overstate the genuine trading demand underpinning the valuation. This distinction is most critical for retail investors — they are the primary potential buyers after prediction market exchanges go public."

Kyle Guesueli, Polymarket's head of revenue and analytics, told that the hot trading in low-probability contracts is not wash trading or artificial activity, but rather professional traders (known in the industry as "sharps") discovering pricing mismatches across contracts and actively arbitraging. "This is actually good for the market, as it helps imbalanced prices return to reasonable ranges." Kalshi last week denied wash trading on its platform, saying it had tracked hundreds of traders involved in the initial social media exposure. But multiple experts interviewed believe the ratio of daily contract trading volume to actual static liquidity is worth watching, as this kind of market structure inefficiency can breed unnatural trading. Kalshi spokesperson Jack Suchy said the company has "no concerns" about this ratio. Separately, reports said the U.S. Commodity Futures Trading Commission (CFTC) is investigating trading related to Kalshi's Ethereum perpetual futures contract, could not independently verify the report. A CFTC spokesperson said the agency does not confirm or deny any investigations. CFTC Chairman Michael Selig said last Wednesday on a program: "We have a zero-tolerance policy for all types of manipulative trading in markets, including wash trading, insider trading, or fraud. As new types of markets continue to develop, fraud will follow."

Low-probability contracts see outsized activity

Media previously reported that on Polymarket's international exchange, trading activity in low-probability events was anomalous in contracts related to the 2028 presidential election. The contract on "whether JD Vance can become the 2028 Republican presidential nominee" had trading volume even lower than contracts related to Elon Musk, even though Musk is not eligible to run for president. Similar anomalous volumes appeared in markets related to potential 2028 Democratic candidates. Competitor Kalshi did not show this phenomenon: trading volumes for low-probability 2028 presidential candidate contracts were lower than for high-probability candidates. Analysis of all September trading data found that on the CFTC-regulated Polymarket U.S. exchange, contracts related to 2028 presidential candidates did not exhibit this anomalous pattern.

Anomalous trading also appeared in sports contracts on Polymarket's international exchange. In the 2026 World Cup market, the contract related to tournament favorite Spain had trading volume of $152 million; lower than Egypt's $158 million, even though Egypt's championship probability never exceeded 0.5%; it was also slightly lower than the Morocco contract, whose championship probability never exceeded 2%. Most striking was the Ethiopia next prime minister prediction contract: incumbent Prime Minister Abiy Ahmed had a 98% winning probability in the contract, with corresponding trading volume of only about $170,000; while Gedion Timothewos's probability remained below 3% for consecutive months, yet trading volume approached $56 million. Although the election ended in June, this contract has still not been settled.

Joe Saluzzi, head of equity market structure research at Themis Trading, commented: "These are near-impossible events. It sounds like someone is farming extremely low-risk volume... who in their right mind would trade this?" Based on Dune data query analysis: from June 21, when the election result was confirmed, to September 25, trading volume in the Ethiopia election contract surged more than 6.7 times. The market's single-day peak trading volume occurred on July 30, exceeding $15.3 million, more than a month after the election result was announced. A Polymarket spokesperson explained that the contract will settle after the newly elected government is formally sworn in this summer, with the inauguration date set for October 5. Guesueli said low-probability contracts on the international exchange are more active because the platform has more professional traders, who often use sophisticated software and algorithms to capture tiny pricing discrepancies for arbitrage; the U.S. exchange is dominated by ordinary retail investors.

Polymarket has a long history of wash trading controversy. Research published by a Columbia University researcher showed that in December 2024, trades matching wash trading characteristics accounted for 60% of weekly trading volume on Polymarket's international exchange; by October 2025, that proportion had fallen to 20%. Allen Siroly, the paper's lead author, said that by April 2026, the proportion had dropped to negligible levels. A Polymarket spokesperson said the platform upgraded its monitoring systems and introduced trading fees to reduce room for market manipulation. But Siroly believes the continued hot trading in low-probability contracts is still worth watching. Many prediction market industry observers attribute the anomalous data on Polymarket's international exchange to the platform's planned crypto token airdrop. Jay Maliyava, co-founder and CEO of prediction market trading terminal Kairos, explained that token airdrops are a common incentive mechanism for crypto platforms, used to reward early users and help platforms scale. Polymarket's international platform is built on the Polygon public blockchain. However, whether the airdrop will actually happen and which users will receive rewards remain unclear. Maliyava said platforms generally determine airdrop eligibility based on user holdings or trading volume. Polymarket declined to comment on airdrop rumors.

Kalshi perpetual contracts spark debate

Benoît Dubosson exposed anomalous trading behavior in Kalshi's Ethereum contract on X on September 20, posting speculation about the purpose of these trades. Others also questioned the authenticity of Kalshi's trading volume. Critics argue that the platform lacks the continuous order book liquidity of traditional exchanges; at the same time, the platform's incentive policies to attract traders to this new futures product, which run through the end of 2026, have induced this type of trading behavior.

Kalshi responded to the questions in a blog post last Tuesday: hundreds of users participated in these trades, and the platform has mechanisms to monitor self-trading and collusive trading. The platform explained that these trades are most likely speculators conducting cross-exchange arbitrage: when crypto spot prices on other exchanges move, creating tiny discrepancies with market makers' existing quotes, traders seize stale quotes for quick profits. Most experts interviewed agree that these trades do not necessarily constitute wash trading. But Rajiv Sethi, an economics professor at Barnard College, believes the problem remains. He said Kalshi's fee mechanism allows traders to earn stable profits by arbitraging in the perpetual contract market. The reason this can be consistently profitable is rooted in Kalshi's fee rebates introduced to attract early speculators to perpetual futures. Sethi said: "Simply put, Kalshi, through market makers, is transferring funds to aggressive takers."

Kalshi defends this incentive scheme: incentives for market makers and counterparty traders are crucial for cultivating initial liquidity in emerging markets. But experts argue that high-frequency liquidity turnover undermines the actual effectiveness of the incentive policy. As of Wednesday morning, Kalshi's Bitcoin and Ethereum perpetual contract trading volumes were 42 times and 66 times the platform's notional open interest (OI), respectively; this differs greatly from mainstream overseas perpetual futures markets. German finance professor Geytler said in an interview: "It does not look like real, natural trading." By comparison, Polymarket's Ethereum perpetual contract 24-hour trading volume is about three-quarters of open interest; industry leader Hyperliquid's 24-hour trading volume is only one-third of open interest. Neither perpetual exchange is open to U.S. users. Craig Pirrong, a finance professor at the University of Houston's Bauer College of Business, commented on Kalshi: "It creates the illusion of liquidity, almost a self-referential closed loop of interests. This liquidity exists only to harvest incentive subsidies."

Kalshi spokesperson Suchy explained that the difference in 24-hour trading volume partly stems from a lower contract leverage cap. Hyperliquid's Ethereum perpetual allows up to 25x leverage, while Kalshi allows only up to 4.9x leverage. He added that underlying infrastructure and U.S. regulatory requirements also create differences. Kalshi does not allow market makers to rapidly requote orders when prices move; U.S. regulations also do not permit platforms to incentivize users to keep funds deposited long term. Suchy also said comparing a CFTC-regulated exchange with offshore platforms is unfair: "The two have completely different systems and rules, and are an apples-to-oranges comparison." But traditional Bitcoin futures on the U.S.-regulated CME also typically do not show such extreme volume-to-open-interest ratios. Even so, Sethi believes the huge gap between trading volume and open interest should prompt Kalshi to re-examine some of the incentive schemes in its perpetual contract market. "I don't think this is wash trading. But I don't agree that the current situation is entirely without problems."