Trust the Future You Trade: Lessons About Prediction Market Surveillance from the DACOM Summit

By: John Mikuta

Prediction markets are no longer a niche offering confined to a small corner of the internet.  The rapid growth of prediction markets has launched them into the mainstream as a meaningful part of the financial ecosystem.  But with that growth comes many of the same market integrity and compliance challenges that more traditional financial markets have long encountered.

Prediction markets have faced public scrutiny over high profile insider-trading incidents.  Notably, one Polymarket user made over $500,000 by predicting that Iran’s Supreme Leader Ayatollah Ali Khamenei would be out of power shortly before a United States-Israel air strike killed him on February 28, 2026.[1]  Separately, Commodity Futures Trading Commission (“CFTC”) recently opened investigations into potential insider trading on Polymarket contracts involving former President Joe Biden’s pardons, Iran-related events, and Google’s 2025 Year in Search rankings.[2]

Given the concerns about trading abuses on prediction markets from both the CFTC and the public at large, I wanted to learn more about trade surveillance tools that can be used to prevent insider trading and market manipulation.  To do so, I attended Solidus Labs’s DACOM Summit in New York City on September 16, 2026.  As I met with and heard from regulators, technology providers, compliance professionals, and representatives from various exchanges, I came away with one main takeaway: if prediction markets are going to achieve long-term legal legitimacy, they will need surveillance frameworks that are every bit as robust as those used in securities, futures, and other regulated financial markets.

One of the main themes of the conference was that markets are becoming increasingly multidimensional.  Prediction markets are just one growing component of the modern market structure, which includes traditional financial products and newer cryptocurrency markets.  Markets are evolving too—continuous trading environments and tokenization are transforming markets from a restricted, batch-processed model into a 24/7, frictionless system.  The newer innovations are bringing far greater numbers of retail participants into markets than current market and regulatory infrastructure was designed to accommodate.  As discussed throughout the Summit, these rapid changes call for advanced, sophisticated surveillance.

Notably, the CFTC has repeatedly emphasized its imperative that it—and the Designated Contract Markets (“DCMs”) it regulates—police illegal trading practices, including misappropriation of confidential information, pre-arranged trading, disruptive trading, fraud, and manipulation.[3]  David I. Miller, the CFTC’s Director of Enforcement, spoke at length about the CFTC’s enforcement priorities as they relate to prediction markets.

Miller emphasized that prediction markets are treated just like any other commodities, derivatives, or swaps market that the CFTC regulates.  He characterized the Division of Enforcement as an apolitical, neutral police force targeting fraud, abuse, and manipulation across every market—including prediction markets—that the CFTC oversees.  Miller highlighted the enforcement actions the CFTC has brought involving insider trading and other instances of fraud in the prediction market space.  But he also noted that exchanges have an independent obligation to police their own markets, ensure they are not subject to fraud or manipulation, and carry out disciplinary proceedings of their own when violations occur.

To that end, leaders from multiple prediction-market exchanges discussed their surveillance and disciplinary procedures.  Every CFTC-licensed DCM must comply with 23 statutory core principles, which include compliance with rules, prevention of market disruption, protection of markets, and disciplinary procedures.  But the most-discussed core principle was Core Principle 3—Contracts Not Readily Susceptible to Manipulation.  In listing, settling, and policing contracts, DCMs must ensure that their contracts are not readily susceptible to manipulation.

As discussed during the Summit, insider trading and manipulation can take two forms—trading activity based on misappropriation of material, non-public information, and trading activity by participants who can influence the outcome of a contract.  Exchanges must be diligent in safeguarding their markets from both forms of insider trading.  Kalshi, for example, has had success identifying and disciplining both types of offenders—an editor for a YouTube channel who made near-perfect trades on contracts related to the channel, and a candidate for governor of California who traded on his own candidacy.[4]

Another important theme of the Summit, perhaps unsurprisingly, was the growing emphasis on AI-enabled surveillance.  Given the influx of retail traders and the round-the-clock market availability discussed earlier, as well as the ever-growing number of new contracts being listed on prediction markets, manual review of trading alerts is quickly becoming impossible.  At the Summit, Solidus Labs highlighted its new AI features that can quickly identify trading anomalies and prioritize investigations.

Compliance and surveillance professionals at the Summit discussed how proper trade surveillance involves looking for subtle combinations of factors rather than a single obvious red flag.  It is not enough to detect unusual trades.  The challenge is understanding whether unusual trading activity aligns with unusual information and circumstances.  Advanced AI tools that can help surveillance teams quickly dismiss false-positive alerts and catch false negatives will likely be paramount in helping all financial exchanges meet their compliance obligations in the expanding market environment.

As I reflect on what I learned, I keep returning to the Summit’s theme, “Trust the Future You Trade,” which rings especially true.  If participants, let alone regulators and the public, believe markets are vulnerable to insider trading, manipulation, or unfair information advantages, liquidity and confidence will suffer.

Conversely, if exchanges and regulators can demonstrate robust surveillance, effective monitoring, and proactive enforcement, prediction markets have the potential to become a valuable tool for gathering information and hedging risk.  Because prediction markets reflect the aggregate opinion of their participants, who put money behind their views, the price of an event contract serves as a real-time probability estimate.  For example, a contract on whether the Washington Commanders will lose more than 10 games, trading at 35 cents, is essentially the market’s collective judgment that there is a 35% chance of that outcome.  The price accounts for a variety of information—injuries, roster moves, scheduling factors, and a general appraisal of how good the team is—and distills it into a single number.

Ultimately, if exchanges and regulators rise to the challenge, then prediction markets can fulfill their potential as sources of reliable, real-time insight.  If not, the prices they produce will be met with skepticism rather than confidence.

[1] Bobby Allyn, Prediction Market Trader ‘Magamyman’ Made $553,000 on Death of Iran’s Supreme Leader, NPR (Mar. 1, 2026), https://www.npr.org/2026/03/01/nx-s1-5731568/polymarket-trade-iran-supreme-leader-killing.

[2] Dr. Guneet Kaur, CFTC Quietly Opened Three Polymarket Insider Trading Probes, FOIA Records Show, Yahoo! Finance (Sept. 15, 2026), https://finance.yahoo.com/markets/crypto/articles/cftc-quietly-opened-three-polymarket-095710457.html.

[3] See John Mikuta, CFTC Plants the Flag on Regulating Prediction Markets, Ifrah on iGaming (Mar. 4, 2026), https://www.ifrahlaw.com/ifrah-on-igaming/cftc-plants-the-flag-on-regulating-prediction-markets/.

[4] See id.