The U.S. Commodity Futures Trading Commission, or CFTC, has issued fresh guidance on incentive programs used by prediction-market platforms. The guidance does not, by itself, mean that incentive programs are unlawful. It does, however, show that the regulator has concerns about how some firms design, file, and operate such programs.
The issue matters because prediction markets depend on active participation and strong liquidity. Platforms may offer rewards to attract traders or encourage market makers to provide liquidity. Such programs can help a market develop deeper activity. At the same time, the design of a reward system can create risks if users have a reason to trade only to reach a volume target or if a market maker can receive payments that reduce or remove the normal risk of loss.
The CFTC said it has seen an increase in filings for incentive programs that are often “procedurally or substantively deficient.” According to the agency, such filings can make it harder to determine whether a platform has given proper notice of the program and whether it has made a sufficient assessment of compliance.
This is best understood as a compliance warning rather than a general attack on prediction markets. The CFTC has taken steps that support the development of the sector, while also reminding platforms that federal rules still apply. That combination is important. A platform may have a lawful business model and still face regulatory problems if a particular reward program is poorly designed or poorly filed.
Why Incentive Programs Matter
Prediction markets need buyers and sellers. A market with very few participants can have wide price gaps and weak liquidity. That can make it harder for a trader to enter or exit a position at a fair price.
For that reason, platforms may have commercial reasons to reward active users or market makers. A high-volume trader may add activity to a market. A market maker may place orders on both sides of a contract and help create a more useful market for other users.
The CFTC does not appear to reject that basic purpose. Its concern is the method used to create the activity.
A reward can change user behavior. If a user receives a benefit only after a certain level of trading volume, the user may have a reason to trade more than would otherwise make economic sense. The CFTC said some rewards for high-volume participants may encourage users to trade solely to reach volume targets. The agency said this can increase the risk of wash trading, pre-arranged trading, fraud, manipulation, or disruptive conduct.
That does not mean every high-volume trader is acting improperly. High volume can have legitimate reasons. The legal concern is whether the structure of the program creates an artificial reason for trades that would not otherwise occur.
The Filing Problem
The first concern is procedural.
A regulated platform cannot treat a regulatory filing as a simple formality. If a platform wants to introduce or change an incentive program, the filing must give the regulator enough information to understand the program and assess its legal effect.
The CFTC said some recent filings have been deficient in substance or procedure. The agency said this can prevent it from determining whether a platform gave adequate notice of the program’s terms and whether the platform sufficiently evaluated compliance.
From a legal-risk perspective, this is significant. A platform may believe that a reward program is commercially reasonable, yet that belief does not replace the need for a complete filing. A weak filing can create a separate compliance issue even where the underlying commercial idea may be lawful.
The safer approach is therefore clear: platforms should describe the program with enough detail to allow the CFTC to understand who receives rewards, why they receive them, how the amount is calculated, what conduct qualifies, what conduct does not qualify, and what controls exist against abuse.
A platform should also avoid language that creates uncertainty about the actual operation of the program. The more complex the reward system, the more important clear documentation becomes.
Risk From Volume Targets
The CFTC’s strongest substantive concern relates to volume-based rewards.
Suppose a platform offers a trader a reward after the trader reaches a certain amount of activity. The trader then has an economic reason to reach that target. In a normal market, a trade should have an independent commercial reason. A volume target can create a different incentive.
This is where wash trading becomes a concern.
Wash trading generally refers to transactions that create the appearance of genuine market activity without a genuine change in economic exposure. The CFTC did not say that all incentive programs cause wash trading. Rather, it warned that certain reward structures can heighten the risk of such conduct.
The distinction is legally important.
A regulator should not treat high volume alone as proof of abuse. A large trader can trade often for many legitimate reasons. Likewise, a reward program is not automatically improper because it creates an incentive to trade. The question is whether the design of the program creates incentives that can reasonably support artificial or manipulative activity.
That is why careful program design matters.
Pre-Arranged Trades and Manipulation
The CFTC also referred to pre-arranged trading, fraudulent conduct, manipulative conduct, and disruptive practices. These concerns arise because incentive programs can change the economics of a trade.
For example, two parties could theoretically arrange transactions for the purpose of helping one participant reach a reward threshold. The trades may create reported volume without the same economic purpose that exists in an ordinary market transaction.
Again, this does not mean that such conduct is occurring in every program. The point is that the reward structure can create a risk that regulators expect platforms to consider.
A platform therefore has a strong compliance reason to assess whether its program could reward artificial volume. It should also have controls that can identify unusual activity and a clear process for review when activity appears inconsistent with ordinary market behavior.
Market-Maker Programs
The CFTC raised a separate concern about market-maker incentive programs.
Market makers can have an important role in a market. They may provide orders on both sides of a contract and help other participants obtain better prices. A platform may therefore have a legitimate reason to offer a market maker a payment, rebate, or other commercial benefit.
The problem can arise when the program removes too much of the market maker’s economic risk.
The CFTC said some market-maker programs have guaranteed net proceeds or covered losses through stipends and rebates. The agency warned that such structures could also encourage fraudulent conduct and market manipulation.
The legal issue is not simply whether a market maker receives a payment. Incentive payments exist in many financial markets. The more relevant question is whether the payment structure creates an artificial economic result that can encourage conduct inconsistent with fair and orderly markets.
A program that rewards genuine liquidity may serve a useful purpose. A program that effectively pays a participant to create activity without meaningful market risk may create a different regulatory profile.
The Broader CFTC Position
The latest guidance should also be read in the context of the CFTC’s broader position on prediction markets.
The agency has taken a major role in the U.S. prediction-market debate. It has faced legal disputes with states that have challenged prediction-market firms under state sports-gambling rules. The CFTC also proposed its first prediction-market-specific rule in June 2026.
At the same time, the agency has issued guidance on compliance with existing rules for designated contract markets, or DCMs. The article notes that the CFTC issued an advisory in the prior month that warned platforms against shortcuts in templated contract certifications.
This shows a consistent regulatory theme.
The CFTC appears to accept that prediction markets can operate within the federal derivatives framework, but it expects firms to take their compliance duties seriously. The message is not that innovation must stop. The message is that innovation does not remove the need for proper regulatory process.
Why the Issue Matters for Kalshi and Polymarket
Platforms such as Kalshi and Polymarket operate in a sector that has expanded quickly. Their business models depend on user participation, market liquidity, and a wide range of event contracts.
For such firms, incentives can be an important commercial tool. But a reward program can also become part of the platform’s regulatory risk.
The CFTC’s latest guidance therefore creates a practical warning for firms that use rewards to attract traders or market makers. A platform should not assume that a program is safe because its basic purpose is to increase liquidity.
The details matter.
The platform must be able to explain the purpose of the program, the conditions for eligibility, the method used to calculate rewards, the expected effect on market activity, and the controls used to prevent abusive conduct.
This type of analysis can also help a platform show that it considered compliance before launch rather than only after a regulator raises questions.
What the Guidance Does Not Establish
It is important not to read more into the CFTC’s statement than the available facts support.
The guidance does not establish that prediction-market incentive programs are generally illegal. It does not establish that every volume-based reward causes wash trading. It does not establish that every market-maker subsidy creates manipulation. It also does not state that every platform has violated federal law.
The CFTC’s language is more limited. The agency says it has seen deficient filings and certain program features that raise compliance concerns.
That distinction is important for legally safe analysis.
A statement that a reward program “may increase risk” is not the same as a finding that a platform committed fraud or manipulation. Any conclusion about a particular firm’s conduct would require facts about that firm’s program, users, controls, filings, and actual trading activity.
The safest conclusion is therefore that the CFTC has identified areas that deserve closer compliance review.
A More Careful Compliance Model
The regulatory message suggests that prediction-market firms should treat incentive programs as products that require legal and compliance review, rather than as simple marketing tools.
Before a program starts, the firm should be able to explain why the program exists and what type of market behavior it seeks to encourage. It should also examine whether the program could reward artificial volume or create an unusual incentive for users to trade without a genuine market purpose.
The firm should then document its analysis.
Clear documentation can matter if the CFTC later asks why the program was designed in a particular way. A well-supported record can show that the firm considered manipulation risk, user incentives, market integrity, and applicable filing duties before launch.
The program should also have clear terms. Ambiguous rules can create both user disputes and regulatory questions. If a platform can clearly state who qualifies, how rewards work, and what conduct is prohibited, it reduces uncertainty.
The Balance Between Liquidity and Market Integrity
There is a genuine policy balance here.
Prediction markets need liquidity. The CFTC itself has recognized the importance of deep and competitive liquidity in event markets. In a separate 2026 comment, the agency’s materials noted that event contracts can experience sharp price changes when new information arrives and that weak liquidity can increase costs and affect market integrity.
That means incentives can have a legitimate role.
At the same time, a program that creates artificial activity may weaken the value of the market rather than improve it. A market can show a large amount of reported volume while still have poor quality if some of that activity exists mainly because users seek a reward.
The policy goal should therefore not be maximum volume at any cost. A stronger goal is useful liquidity that comes from genuine market participation.
The Likely Legal Direction
The latest CFTC warning suggests that the regulator may pay closer attention to the structure of prediction-market incentives.
That could lead to more careful filings, clearer reward terms, stronger internal controls, and greater scrutiny of unusual trading activity. It may also cause platforms to revise programs that depend too heavily on volume thresholds or loss guarantees.
Such changes would not necessarily weaken prediction markets. In the long term, a market with clearer rules and better controls may have greater credibility with users, regulators, and institutional participants.
The key legal point is that the commercial value of a reward program does not remove the regulatory duties attached to it.
Conclusion
The CFTC’s latest guidance sends a focused message to the prediction-market sector. Platforms can seek greater participation and liquidity, but they must design incentive programs with care and comply with the filing rules that apply to regulated markets.
The agency has identified two main areas of concern. The first is the quality of regulatory filings. The second is the possibility that certain reward structures may create incentives for artificial volume, pre-arranged trades, fraud, manipulation, or disruptive conduct. The CFTC also raised concerns about market-maker programs that guarantee net proceeds or cover losses through stipends and rebates.
The available information does not support a broad claim that prediction-market incentives are unlawful. Nor does it support a conclusion that any particular platform has committed misconduct merely because it uses rewards.
A more defensible legal view is narrower.
Prediction-market firms remain free to pursue lawful commercial models, subject to applicable federal rules. But when a reward program can affect trading behavior, the program becomes a matter of market integrity as well as business strategy. The filing must be accurate and complete. The terms should be clear. The incentive should have a legitimate market purpose. The platform should assess whether the program could reward artificial activity. And appropriate controls should exist before the program begins.
The CFTC’s message is therefore best read as a compliance warning, not as a rejection of prediction markets. The regulator appears to be saying that firms should not use weak filings or poorly designed rewards as a shortcut to rapid growth.
For the sector, that may be an important line to respect. Prediction markets can seek more liquidity and more users, but the methods used to reach those goals must remain consistent with the rules that govern regulated markets.
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