Bank regulators and federal lawmakers have expressed concerns about the appearance of contracts on prediction market Polymarket that are tied to the likelihood of bank failures, Bloomberg reported Friday (Sept. 25).
A modestly sized market for bank-failure contracts has appeared on Polymarket’s international platform. These sorts of contracts are not allowed on the firm’s U.S. exchange, which is regulated by the Commodity Futures Trading Commission, according to the report.
The contracts have drawn scrutiny in Washington due to concerns that they could grow in volume and help fuel a bank run, that they could encourage bad actors to trigger a panic and that insiders could trade on the platform, per the report.
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Supporters of the contracts say they could act as a real-time check against false rumors, according to the report.
Polymarket Chief Legal Officer Neal Kumar told Bloomberg, per the report: “Bank bailouts and failures are amongst the most consequential events in America. Our markets aggregate information that is typically only available to the most sophisticated financial institutions, but through our prediction market, are now available in a format everyone can access.”
Rival prediction market Kalshi does not offer contracts tied to individual bank failures, per the report. Kalshi spokesperson Elisabeth Diana told Bloomberg that bank-failure contracts are “in poor taste.”
PYMNTS reported in December that prediction markets let users bet on everything from the future price of bitcoin to the future president of the United States. They have also become a flashpoint between federal and state regulators, who each claim jurisdiction.
Supporters say prediction markets provide tangible value in the real world by providing the ability to aggregate and price collective belief at a time of uncertainty, geopolitical instability, rapid technological change and other destabilizing macro forces.
Some states have argued in the media and in the courts that prediction markets amount to illegal gambling operations because they meet the legal definition of gambling but fail to obtain licenses from state gaming commissions.
Prediction markets have also faced allegations that they may have enabled insiders to make money on the timing of the strike on Iran, though the CEO of Kalshi countered that topics about the war had already been banned in regulated markets.
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