By Audrey Elwood, Chief Columnist
Recently there have been multiple developments in the relationship between governmental figures and the online prediction markets. George Santos became the first person to be fully banned from the website Kalshi this week. Alongside this, Donald Trump Jr. ‘s venture capital fund 1789 Capital was the leading investor in a $1 billion seed round for prediction market, Polymarket.
A prediction market does not function like normal gambling, or a normal stock market. Buyers can invest in a share of a prediction of an event, then they can either hold until the event occurs or doesn’t occur, or they can sell before the date and get a percentage of what they would have earned had they held.
The sports betting market was opened to legalization after the 2018 Supreme Court case Murphy v. National Collegiate Athletic Association. This struck down the previous federal Professional and Amateur Sports Protection Act, which then left the issue to the states. Since then, 39 states have legalized sports gambling in some form.
The prediction market is not solely focused on sports, with propositions on reality TV, economics, policy and weather becoming increasingly popular.
George Santos is a former U.S. representative from New York. Santos placed bets on whether he would attend President Trump’s State of the Union in February. He posted on social media that he planned to attend, but then did not, artificially boosting the returns on the platform. The Commodity Future Trading Commission (CFTC) established that he had used manipulative activity “designed to affect the price of the swap,” and thus fined him $35,000.
“Hey @Kalshi thanks for the lifetime ban from your gambling platform,” Santos stated on social media. “Let’s see how much longer you guys are around for.” Santos was previously convicted of fraud in 2023 and sentenced to a seven-year sentence that was commuted by Trump.
1789 Capital, spearheaded by Donald Trump Jr., invested $300 million dollars in Polymarket, a blockchain-based decentralized prediction market. A seed funding round is when a company raises money from private investors outside of the stock market in exchange for equity in the company. After this new round of funding, Polymarket’s estimated value has risen by $6 million, from $15 million to $21 million. Critics have raised concerns of corruption due to Trump Jr.’s proximity to government and increasing proposed legislation on limiting prediction markets.
State legislation is starting to place increased restrictions on prediction of markets. Notably, Washington and Nevada both have restricted and banned Kalshi this summer.
“The introduction of contract-based trading, where decisions are based on a percentile decision, can lead to very easy access to insider trading,” senior Philosophy, Politics and the Public major Drew Freeborn said. “I mean you don’t see NFL players being able to bet on games, the same thing should apply to people who work in government.”
It is unclear if Santos will face any criminal charges, but there are multiple active criminal cases due to insider trading on online prediction market platforms. Recently, U.S Senators John Curtis (R-UT) and Adam Schiff (D-CA) and Representatives Steven Horsford (NV-04) and Mark Amodei (NV-02) have introduced a bill to combat insider trading within the prediction markets. The “Prediction Markets are Gambling Act” would aim to ban federally regulated platforms like Kalshi from offering sports betting and casino-style contracts by modifying the Commodity Exchange Act.