Prediction markets emerged from the midterm elections with a victory and a looming challenge. Polymarket and Kalshi largely anticipated Democrats’ strong showing, reinforcing claims that trading activity can provide forecasts. Their success, however, may bring tougher scrutiny as Democrats prepare to take a more assertive oversight role in Congress.
Federal regulators under President Donald Trump have helped the platforms expand over the past two years. The companies added contracts tied to politics, sports, and financial markets. That growth is likely to face closer examination on Capitol Hill.
Senator Jeff Merkley warned that wagers involving elections, armed conflict, political violence, and government decisions could endanger the public interest. He urged Congress to respond with legislation.
Representative Maxine Waters, who is seeking to lead the House Financial Services Committee, has pledged action against business models she considers harmful, including prediction platforms.
In the Senate, Senators Elizabeth Warren and John Curtis questioned the legal standing and oversight of election contracts in a letter addressed to both companies. The U.S. Supreme Court is reviewing whether to hear a dispute over regulatory authority.
A former financial regulator said the firms could become a target for congressional Democrats, much as cryptocurrency companies have. Concerns cross party lines, the official said.
The shift marks another reversal for an industry whose regulatory prospects improved after Trump’s election. It may also show how Democrats approach companies linked to the president’s family. Donald Trump Jr. advises both platforms, and his investment firm has backed Polymarket. Crypto businesses connected to the Trump circle could face similar inquiries.
Lawmakers have questioned whether traders can exploit confidential information, whether betting on real events should be allowed, and whether the contracts breach state-specific gambling laws.
The platforms maintain that they are regulated financial exchanges, not conventional gambling businesses. They say their contracts help investors and companies manage uncertainty while offering the public insight into changing expectations. Kalshi says it monitors trading for manipulation and insider activity. In a November 2 letter, its federal affairs chief John Bivona disclosed dozens of active inquiries involving election trading.
The companies have attracted interest from financial institutions, technology firms, and media outlets. Their midterm projections were broadly borne out as Democrats won both chambers, although surprise victories in Texas and South Carolina were exceptions.
Both firms say they are prepared to work with lawmakers. Polymarket welcomed bipartisan discussions and described its safeguards as suitable for institutional trading. Kalshi chief executive Tarek Mansour says officials need a clearer understanding of the platform: prices reflect users’ activity, not company decisions. He said he would comply if called to testify.
What leading crypto firms like Riot Blockchain Inc. (NASDAQ: RIOT) wish is to see a stable regulatory system that isn’t dependent on who is in the White House or which party has majorities in Congress. Such regulatory certainty would enable long-term planning.
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