Key Takeaways
- CFTC targets prediction markets’ volume-based incentives over wash trading risks.
- Exchanges face stricter self-certification rules for trading reward programs.
- Regulatory push follows prediction market trading volumes exceeding $25 billion.
Regulators are questioning whether the trading volume behind the prediction market boom reflects real conviction or manufactured activity.
The Commodity Futures Trading Commission’s Division of Market Oversight issued an advisory on August 12, reminding designated contract markets of their obligations when self-certifying market-maker, liquidity, trading, or incentive programs under Regulations 40.5 and 40.6.
Alex Momot, co-founder of market maker Peanut.trade, told CCN the underlying activity on major platforms is largely organic, and that regulatory fragmentation, not manufactured volume, is the industry’s real bottleneck.
Why the CFTC Is Pushing Back Now
The advisory responds to a rising number of incentive-program filings tied to event contract products that the agency says contain procedural or substantive deficiencies. Those gaps make it harder for CFTC staff to confirm that exchanges gave adequate notice of program terms or properly assessed compliance with core regulatory principles before rewards went live.
Growth explains the urgency. Trading volume across CFTC-registered prediction markets topped $25 billion in 2025, a small slice of the Commission’s broader futures oversight but a fast-expanding one, and enough to draw sustained scrutiny into how that volume gets generated.
Market Maker’s View: The Volume Is Organic
Momot disputed the premise that incentive-driven trading explains much of the volume on major platforms.
“On major prediction markets, almost all of the volume is genuine,” he said. “And we don’t even need to analyze onchain activity to see that. We can simply look at how major countries have responded to platforms like Polymarket and Kalshi. Many have moved to restrict or ban them precisely because they saw significant domestic demand.”
He pointed to major events as evidence that the demand is real rather than engineered.
“When there is a major event, whether it’s an election or a global sporting event like the World Cup, the volumes we see are real and organic,” Momot said. In his view, the bigger problem is that “many regulators have simply banned them and pushed the question down the road” instead of building a coherent legal framework.
Momot also pushed back on the idea that incentive programs could be quietly inflating headline figures at scale.
“If a market maker were doing this in coordination with a platform, the platform would effectively have to subsidize that activity,” he said, adding that major platforms already face enough regulatory pressure without adding the risk of inflated volume on top of it.
Building Incentives Without Gaming the Numbers
Mamot argues that prediction markets need professional market makers to fix thin order books and wide spreads, a structural gap that incentive programs are partly designed to close.
Momot said the industry can borrow directly from crypto exchange design. “Prediction markets can borrow from the more mature and regulated world of traditional crypto exchanges,” he said, pointing to tiered systems and fee discounts as a natural next step “as the market matures and fees become standard across most prediction markets.”
Institutional market makers, he added, tend to operate on a different incentive structure altogether, sometimes negotiating equity stakes ahead of a platform’s potential IPO rather than chasing short-term rebate income.
Metrics That Matter More Than Raw Volume
When asked what investors should track instead of headline trading figures, Momot pointed to a narrower set of indicators.
“I would look first at the number of unique active traders,” he said, alongside trading volume and how average trade sizes compare against industry benchmarks, roughly $50 for a typical sports bet versus $200 to $500 for a financial or geopolitical position.
Spreads, he said, fluctuate around an industry standard of 1 to 3 cents and mostly reflect market-making risk rather than manipulation. Retention, by contrast, is not a reliable health signal in his view, since occasional users betting only on major events is normal behavior rather than a warning sign.
Wash Trading Risk Sits at the Center
The Commission warned that rewards built around high-volume participation can push traders to chase targets for their own sake rather than trade on genuine conviction.
That dynamic, regulators said, raises the odds of wash trading, in which a participant trades against themselves to inflate figures, and pre-arranged trading, in which two parties coordinate transactions to hit a threshold. Both practices sit squarely inside the conduct that the CFTC labels fraudulent, manipulative, or disruptive.
Market Maker Stipends Draw Separate Scrutiny
Incentive design was not the only target. Programs that guarantee market makers a profit or cover their losses through stipends and rebates drew a pointed warning of their own.
Removing the downside that normally disciplines participants, the agency said, can slide those arrangements toward the same manipulative territory as volume-chasing rewards.
What Exchanges Are Expected To Do
The advisory does not ban incentive programs outright. It sets clearer expectations for what a compliant filing under Rule 40.6(a) should include, covering both the procedural mechanics of a submission and the substantive detail needed to evaluate whether a reward structure could distort trading behavior.
Where filings fall short, staff can request more information, demand changes, or stay in a program until concerns are resolved.
Part of a Broader Regulatory Build-Out
Wednesday’s advisory comes three months after the Commission proposed a separate, more sweeping rule change.
On June 10, the CFTC published a notice of proposed rulemaking under Rule 40.11 setting out a three-step framework for evaluating whether event contracts touching unlawful activity, terrorism, assassination, war, or gaming count against the public interest.
Comments on that proposal closed July 27, and taken together, the two moves point to a regulator building out oversight infrastructure for a market it once treated as a niche corner of the futures world.
Bottom Line for Traders and Platforms
Exchange operators now face a narrower path to launching or amending reward programs without inviting delays or rejections. For traders, the advisory is a signal that headline volume figures on prediction market platforms may face greater regulatory scrutiny going forward, particularly when steep volume tiers or bonus thresholds are behind the numbers.
Platforms with pending or planned incentive filings are likely to face closer review in the coming months as the CFTC works through both the advisory’s disclosure expectations and the still-open Rule 40.11 rulemaking.
Regulation, Not Fake Volume, Is the Bigger Fight
Momot said greater transparency around market-maker agreements would help the industry police predatory deal terms, but argued the sharper problem sits outside the incentive-filing debate entirely.
“The much bigger issue is the fragmented regulatory approach, particularly in Europe and especially around the treatment of binary options,” he said, noting that a common European position is still taking shape while the US framework is further along.
His conclusion: prediction markets need to be recognized as a distinct category of market infrastructure rather than folded into gambling law or existing binary-option rules.
Fake volume, he said, “may eventually become a meaningful issue as the industry matures, but today it is clearly secondary.”
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The views, thoughts, and opinions expressed in the article belong solely to the author, and not necessarily to CCN, its management, employees, or affiliates. This content is for informational purposes only and should not be considered professional advice.
Dr. Guneet Kaur is a senior editor at CCN.com and a Science Fellow at Exponential Science. She is a fintech and blockchain expert with extensive experience in digital finance education, blockchain ecosystems, and cryptocurrency markets. She has worked with global media such as Cointelegraph, as well as education and blockchain platforms, to design and lead strategic content and learning initiatives. As an educator and assessor for top-tier executive programs, she bridges real-world fintech trends with academic insight.
Dr. Kaur is also a published researcher and peer reviewer across fintech and data science journals, including Financial Innovation Journal and International Journal of Big Data Intelligence and Applications. Her work spans data-driven analysis, Web3 innovation, and technical content development. With a strong foundation in both industry and academia, she translates complex financial technologies into practical applications, empowering learners, professionals, and institutions across the rapidly evolving digital finance landscape.
