AYESHA RASCOE, HOST:
It's been quite a week in the strange world of prediction markets. Those are the sites like Kalshi and Polymarket where people bet on everything from the war in Iran to the weather in Paris. In fact, the police in France are looking into whether someone tampered with a weather-reading device at the Charles De Gaulle Airport to win a polymarket bet. Political candidates have been betting on their own campaigns, and a Special Forces soldier was charged for allegedly using classified military information for a big Polymarket payday. Bobby Allyn has dived deep into this world for NPR. He joins us now to talk about what's coming next for prediction markets. Thanks for joining us.
BOBBY ALLYN, BYLINE: Good to be here.
RASCOE: So we saw the first criminal charges this week ever filed in the U.S. over a prediction market bet. Is this a sign that there will be more to come, or was this more of a one-off?
ALLYN: So the boosters of prediction markets and, you know, the CEO of Polymarket are saying, yes, that this U.S. Army Special Forces soldier, who has now been indicted by the Justice Department for allegedly making $400,000 on these military secrets, that that happening shows that we're going to see more of this. But the truth of the matter is, on Polymarket, there are suspiciously well-timed bets about things like military strikes, about world leaders being toppled, about what's going to happen in some international negotiation involving the Trump administration. And none of those have ever initiated any kind of real criminal investigation or charges coming down.
RASCOE: And we've seen so many examples of suspected insider trading on these sites. How was a soldier the first one to be caught and charged by the Justice Department?
ALLYN: Yeah. You know, it's a curious case and an interesting question because most Polymarket traders are using cryptocurrency and hiding behind crypto wallets, which basically keeps their trades anonymous. Trying to figure out who's behind these Polymarket accounts - it can be really hard. But in this instance, the soldier who made all this money used his personal email to open his Polymarket account. And when I and others did stories saying, whoa, this trade looks really suspicious and kind of fishy, he contacted Polymarket and said, hey, I've been logged out of my account. Can you please shut it down? And then shortly after that - this is all according to the indictment - he changed the email address associated with that profile. So that's how they caught him.
RASCOE: And so, like, just to set the record straight on this, how is this legal? Like, how is it legal to be betting on, like, you know, military actions or things of that nature?
ALLYN: There are laws in place that say prediction markets cannot have any kind of bets on things like assassinations, on terrorism, on war. But we see these kinds of markets regularly on Polymarket. And that's because their most popular market operates overseas in Panama, kind of outside the reach of regulators. The U.S.-based prediction markets have more rules, but the Trump administration has taken a kind of anything-goes, hands-off approach. They say they are a cop on the beat, but for the most part, these platforms are policing themselves. And the laws that apply to, say, Kalshi are not being applied to Polymarket. And so the long and short of it is they're kind of in this gray area, and it's being litigated all across the country.
RASCOE: Well, talk to me more about that because there has been a lot of pushback to Polymarket and Kalshi at the state level. What are those fights about?
ALLYN: Yeah. There's more than two dozen lawsuits from state officials alleging that Polymarket and Kalshi are nothing other than unlicensed sports gambling operations. And remember - on a site like Kalshi, I mean, you're seeing billions and billions of dollars in bets every week, but, like, 80% of that is associated with sporting events. But they have found a workaround state regulations by being overseen by the Commodity Futures Trading Commission. So technically, if you ask Kalshi, they are not a sports betting app. But they are an app that provides event contracts on future events, right? And so what all of these state-level battles are over is this question. Who should have jurisdiction over this industry - the federal government or states? And it's really unsettled right now.
RASCOE: That's NPR's Bobby Allyn. Thank you so much for joining us.
ALLYN: Thanks, Ayesha. Transcript provided by NPR, Copyright NPR.
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