Messari: Only KYC Can Curb Insider Trading on Prediction Markets

• Messari says KYC-based prediction markets offer the only realistic path to curb insider trading.
• Non-KYC on-chain markets struggle with attribution, making enforcement extremely difficult.
• Lawmakers are stepping in with proposals to ban officials from trading with insider knowledge.

Concerns about insider trading on prediction markets are rising again after a string of high-profile bets tied to geopolitical developments and fast-moving global events. As prediction platforms expand into mainstream political and macro markets, regulators and traders are questioning whether the sector can realistically prevent users with material non-public information from exploiting these markets for profit.

Austin Weiler, a research analyst at blockchain intelligence firm Messari, argues that meaningful enforcement is only practical on prediction markets that apply Know Your Customer (KYC) standards.

“For KYC’d platforms, the most effective mechanism is to restrict access upfront for users to specific markets,” Weiler told Cointelegraph. For example, platforms could block government employees, state-linked actors, or politically exposed persons from trading on sensitive political and geopolitical markets.

Weiler acknowledged that KYC alone cannot fully eliminate insider trading. An insider can still share information with a third party who places the trade. Nevertheless, according to Weiler, identity verifications increase the cost of abuse as well as boost the capability for enforcing rules. KYC makes sanctions more likely, builds a trail for documentation, and enables platforms to cooperate with regulators for further monitoring once there is a red flag on transactions.

Why non-KYC prediction markets face an enforcement wall

Weiler asserted that enforcing is extremely difficult on non-KYC and fully on-chain markets. “Nearly impossible” is how he has labeled such situations many times.

Since the platforms lack a connection between cryptocurrency wallets and actual identities, a determination cannot be made regarding the availability of material information to the traders. Transparency on the blockchain may work to ensure flows, but attribution is impossible.

“While all on-chain activity is transparent, transparency alone does not solve the attribution problem,” Weiler said. “Without identity verification, it is extremely difficult to link an on-chain wallet to a specific official, state actor, or insider with confidence.”

Prediction markets can still attempt safety measures even without KYC. The platforms can watch for peculiar activity, set a trade size limit, or slow down trading when large geopolitical developments occur. However, according to Weiler’s theory, these mechanisms end up failing in their objectives. One can get around a size limit by having several accounts or by routing a trade through a middleman and distributing a position across several markets. Consequently, a person can be detected but not deterred.

How KYC differs across Kalshi, Polymarket, and decentralized rivals

The requirements for KYC in the prediction market industry vary significantly, and this serves to condition insider trading risk in this market.

Kalshi operates within a regulated system overseen by the United States Commodity Futures Trading Commission (CFTC). It enforces KYC as part of platform onboarding and requires personal information. It can also request additional identity verification documents depending on the case.

Polymarket applies KYC to its U.S.-based users through its U.S. app experience. However, the broader platform has operated in ways that do not always require identity verification for non-U.S. users, according to widely shared community reports. The company has not clearly confirmed all details in its official user guide.

Meanwhile, decentralized alternatives typically provide little or no public detail on KYC practices, and some do not support it by design. Opinion, a decentralized prediction market backed by YZi Labs, does not publicly disclose a clear KYC framework.

Cointelegraph reportedly reached out to Kalshi, Polymarket, and Opinion for comment on identity verification practices but did not receive responses at the time of publication.

Geopolitical bets put prediction markets under the microscope

Scrutiny intensified after reports tied to Venezuela, where an anonymous trader reportedly turned around $30,000 into more than $400,000 just hours before U.S. forces captured former Venezuelan President Nicolás Maduro. That type of timing has fueled suspicion around insider knowledge and raised calls for stricter controls.

In Washington, elected officials have started taking action. U.S. Rep. Ritchie Torres has rallied behind legislation such as the Public Integrity in Financial Prediction Markets Act of 2026, which makes it illegal for public officials to trade in prediction markets when they have material non-public information.

Weiler’s assessment is direct: “Prediction markets could quickly scale, but the industry will not stop insider trading without identity-related enforcement.” KYC policies cannot eliminate a leak, but it is the only system that makes a ban on insider trading feasible.

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