Messari: KYC is key to curb insider trading in prediction markets

Messari research analyst Austin Weiler argued that identity checks are the only realistic way to curb insider trading on prediction markets, warning that enforcement on non-KYC, fully onchain platforms is nearly impossible.

He pointed to KYC programs that let venues block access to sensitive markets before trading begins and apply targeted bans tied to real identities. Political and geopolitical contracts were cited as areas where state actors or certain officials could be restricted to limit trading on material nonpublic information.

In his words: “For KYC’d platforms, the most effective mechanism is to restrict access upfront for users to specific markets. This does not fully eliminate abuse, since insiders can still share information with third parties, but it adds an important obstacle and raises enforcement standards.”

By contrast, Weiler described structural limits for non-KYC systems that make enforcement “extremely challenging and, in some cases, nearly impossible.” When wallets are not linked to real-world identities, platforms and investigators lack reliable ways to confirm whether traders are insiders or have access to material nonpublic information.

He added: “Prediction markets can attempt to monitor unusual trading behavior, cap trade sizes, or slow trading during sensitive geopolitical periods. However, these measures are easily bypassed. Bans targeting government officials are only realistically enforceable in KYC-based systems. While all onchain activity is transparent, transparency alone does not solve the attribution problem. Without identity verification, it is extremely difficult to link an onchain wallet to a specific official, state actor, or insider with confidence.”

KYC policies vary across leading platforms. Kalshi, which operates under U.S. Commodity Futures Trading Commission oversight, requires personal information at sign-up and may request identity documents. Polymarket applies KYC to U.S.-based users, while versions available outside the United States operate without mandatory checks; some users report accessing those markets via VPN, and the platform’s public materials do not confirm those access pathways. Opinion, a decentralized platform, provides no public information on KYC requirements.

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Scrutiny of prediction venues has intensified after high-profile wagers tied to events in Venezuela, including accounts of an anonymous trader turning roughly $30,000 into more than $400,000 just hours before U.S. forces captured former Venezuelan President Nicolás Maduro.

Members of Congress, including Representative Ritchie Torres, have backed the Public Integrity in Financial Prediction Markets Act of 2026. The bill would bar government officials from trading on prediction markets when they hold material nonpublic information.

Weiler’s assessment highlights the divide between regulated venues that verify users and decentralized platforms that prioritize open access. He contended that KYC raises the bar for enforcement by allowing platforms to filter who can trade certain markets and by tying consequences to real identities, while acknowledging that proxy trading can still occur on KYC platforms and that transparency alone does not reveal who is behind an onchain trade.