The CFTC is investigating prediction market reward programs, while Polymarket spends millions of dollars a day to maintain liquidity and could be drawn into a regulatory vortex over wash trading and fraudulent trading.
On September 29, according to foreign media reports, the U.S. Commodity Futures Trading Commission (CFTC) is investigating reward programs at prediction markets, out of concern that prediction markets are using misleading advertising/promotions to attract traders. A source said the investigation could result in targeted scrutiny of prediction markets or a direct enforcement investigation. While CFTC Chairman Michael Selig has not yet decided on a specific approach, some kind of "action" is expected before the end of the week.
Prediction market platform Kalshi has already terminated its trading volume incentive program, while Polymarket and other prediction markets that rely on rewards to maintain platform liquidity depth and user growth could become key CFTC targets. As for what prompted the CFTC to act, it is reportedly because the CFTC believes prediction market companies have not taken seriously the compliance advisory it issued in August...
On August 12, the CFTC issued an advisory opinion on prediction market reward programs, specifically addressing market making, liquidity, trading, and reward program filings at prediction markets. In the document, the CFTC emphasized that prediction market companies are attempting to encourage heavy traders and to encourage companies to act as market makers, in hopes of expanding market participation and trading volume, and that these reward programs may contain compliance issues.
Beyond registered trading cashback and "guaranteed profit" promises, the CFTC warned that some rewards targeting high-volume market participants could also increase wash trading, and that market maker reward programs could also fuel fraudulent behavior and market manipulation.
This cannot be entirely blamed on prediction market companies ignoring the CFTC's views. For prediction market platforms like Polymarket, maker liquidity and holding rewards, new user subsidies, and referral rewards are already the primary strategies for increasing market depth and user growth. Sometimes, in order to give a prediction contract in a certain field (such as sports competitions) stronger liquidity, project teams even sign private contracts with market makers.
Amid fierce market competition, no one dares to voluntarily abandon these measures, because once they stop, contract liquidity depth and user experience could both deteriorate, leading to user attrition.
It is still unclear which companies will be affected by the CFTC's upcoming action, but prediction market platforms operating in the U.S., such as Kalshi and Polymarket, are all offering reward measures that could attract regulators' attention.
And Polymarket may become a key focus of the CFTC. According to polyscalping data, since Polymarket began charging trading fees in January 2026, it has generated $229 million in trading fees, while Polymarket has cumulatively distributed $128 million in rewards, accounting for 54.3% of trading fees.
Polymarket is currently one of the most liquid prediction markets on the market, and the price it pays for this is spending millions of dollars every day to maintain liquidity depth.
According to DeFiLlama data, Polymarket's 24H fees rank fifth among blockchains at $3.21 million, about $1 million higher than sixth-place Hyperliquid. However, Polymarket's 24H revenue is only about $400,000, ranking just 16th in the industry, meaning roughly $2.8 million was rewarded in various forms to platform traders and market makers.
Comparison of Polymarket's 24H fees and revenue rankings
Polymarket's platform reward program has five main channels: LP Rewards, maker rebates, taker rebates, Holding Rewards, and referrals. LP Rewards have been in effect since November 2023 (Odaily note: at that time Polymarket had not yet begun charging fees); Holding Rewards began in July 2025, mainly the annualized yield on holding pUSD; maker rebates, taker rebates, and referral rewards all began this year.
The five reward channels have cumulatively distributed about $128 million, with the proportions and specific amounts shown in the chart below.
In May of this year, Polymarket opened Perps trading, and to quickly build up liquidity depth it also launched a Perps liquidity reward program. The Perps liquidity reward budget is fixed at $75,000 per day, distributed among active perpetual markets. At this pace, this item alone amounts to $27 million in annualized spending.
The above are only Polymarket's regular reward programs. During certain special events and competitions, Polymarket also rolls out additional reward programs to encourage traders and market makers to participate.
For example, during the crypto TWAP transition period in August of this year, Polymarket provided an additional $1 million in liquidity rewards to the market; during the World Cup and popular events, Polymarket also increases additional event incentives. In the March Madness event on Polymarket's U.S. sports site, liquidity rewards for a single event reached $100,000.
These reward programs not only maintain Polymarket's liquidity depth, but also play a significant role in user growth. According to Dune data, in the early months of 2026, Polymarket's new user growth suddenly accelerated, a timing that coincides exactly with its rollout of various reward programs.
In January 2026, Polymarket's monthly new users reached 233,000, the first time Polymarket broke 200,000 since January 2025 (the month Trump was elected president), and this timing coincides exactly with Polymarket's launch of its maker rebate program; in March 2026, Polymarket's monthly new users hit a new high of 259,000, a timing that also coincides exactly with Polymarket's launch of its referral reward program.
Of course, Polymarket's explosive new user growth was not determined by reward programs alone — there were also factors such as regulatory maturity, expanded advertising and marketing promotion, and fortuitous development opportunities (such as the World Cup). But judging from the degree of timing overlap, the various reward programs Polymarket launched this year have a strong correlation with user growth.
In summary, reward programs are crucial to Polymarket's business operations and user retention. And if the CFTC takes substantive action to crack down on prediction market reward programs, then Polymarket, as the prediction market company with the largest reward amounts and ratios on the market, will surely become the first target of attention.
Kalshi, which touts a compliance narrative and has a keen "political sense," has already begun winding down its trading volume incentive program. On September 28, Kalshi filed documents with the CFTC stating that it would change the end date of its platform's trading volume incentive program from October 1, 2027 to October 13, 2026. The filing did not explain Kalshi's reasons for the decision.
In mid-to-late September, some users had already discovered "5,500-dollar trades" — wash trading behavior — in ETH perpetual contract trading on the Kalshi platform. For several consecutive days, trades of roughly $5,500 accounted for 50% of ETH perpetual notional volume. This is precisely the typical pattern of prediction market wash trading that the CFTC called out in its August document. Therefore, there is reason to believe Kalshi's sudden announcement regarding its trading volume incentive program was to avoid regulatory scrutiny.
Polymarket will likely find it hard to stop as abruptly as Kalshi did. For Polymarket, reward programs are deeply embedded in its liquidity and user growth system. Once rewards are sharply reduced or halted, liquidity would retreat, market makers would lower quote depth, bid-ask spreads in popular markets would widen, and long-tail markets might even lose sufficient counterparties.
Polymarket's future situation will depend heavily on how the CFTC interprets prediction market reward programs. If regulators insist on treating "trades made by users to obtain