US Uses AI to Detect Insider Trading on Polymarket

For much of the past year, prediction markets seemed to herald a new era of unchecked fraud. On Polymarket, traders accumulated fortunes through suspiciously timed wagers on events like the Venezuelan raid and the Iran conflict. It remained unclear whether the U.S. government would take action against the most blatant offenders, given that Polymarket’s crypto-based platform operated offshore, beyond domestic regulation or licensing.

Now, however, the Commodity Futures Trading Commission (CFTC), which oversees prediction markets, is signaling it is monitoring activity with intense scrutiny. The agency is actively searching for suspicious behavior from U. S. traders who circumvent restrictions by using virtual private networks to access offshore platforms, including Polymarket’s blocked crypto exchange. “We’re going to find them, and we’re going to bring actions,” chairman Michael Selig told WIRED from the CFTC’s Washington, DC, headquarters in Patriots Plaza II.

Selig noted that the agency, currently operating with a lean staff, is expanding its workforce. Like many workplaces embracing AI, the CFTC is also turning to automation to manage the growing workload. Tools that analyze trading patterns and flag potential manipulation are now part of the arsenal. “You’ve got so much data,” Selig explained. “When we feed it into AI, we get really great information. It can help us understand things, like where we might want to investigate, or when we might need to send a subpoena to a trader.”

Beyond its proprietary in-house surveillance systems, the agency employs third-party tools such as Chainalysis for blockchain tracing on crypto platforms and Nasdaq Smarts for market abuse detection in centralized markets. The CFTC declined to specify which other AI tools it uses or share additional examples.

Prominent prediction market companies have begun highlighting their own efforts to catch questionable bettors. U. S.-based exchange Kalshi, Polymarket’s main rival, announced it has suspended and penalized customers flagged for insider trading and market manipulation.

In April, following significant backlash over suspected insider trading, Polymarket launched its own partnership with Chainalysis. This move was part of a broader crackdown on market manipulation. Although CEO Shayne Coplan had previously suggested insider trading could be beneficial for prediction markets, Polymarket shifted course this spring by updating its market integrity rules and partnering with Palantir for its U. S.-based sports markets. The Chainalysis deal focuses on the offshore platform. The company did not respond to WIRED’s request for comment.

Chainalysis spokesperson Maddie Kenney said the company analyzes the same data for both clients. “The value Chainalysis adds for our customers, including Polymarket and the CFTC, is organizing the data and enriching it with the attributions and insights we’ve accumulated over years in the space,” she stated. It certainly seems like a favorable arrangement for Chainalysis.

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The CFTC’s assurances that it is hunting insiders come at a time of intense scrutiny on prediction markets. In March, Connecticut senator Chris Murphy told WIRED he suspected White House staffers were engaged in insider trading on war-related contracts. At the beginning of April, seven members of Congress asked the CFTC to investigate overseas markets offering war-themed event contracts. In a letter, the lawmakers argued the commission had the authority and responsibility to curb insider trading, especially on “morally obscene” trades related to military action. Selig recently told Congress that the agency is pursuing “hundreds, if not thousands” of insider trading tips.