Blockchain intelligence firm Messari has highlighted Know Your Customer (KYC) measures as a critical, albeit imperfect, defense against insider trading in the rapidly growing prediction market sector. Research analyst Austin Weiler stated that preventing abuse is "nearly impossible" on fully anonymous, on-chain platforms, while KYC-based systems can establish crucial enforcement standards.
Weiler explained that for KYC'd platforms, the most effective mechanism is to restrict access upfront for specific users to sensitive markets, such as blocking state actors from political or geopolitical contracts. "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," he told Cointelegraph.
The analysis comes amid intense scrutiny of the industry following high-profile bets on geopolitical events. One notable case involved an anonymous trader turning $30,000 into over $400,000 just hours before US forces captured former Venezuelan President Nicolás Maduro. Trading volumes across prediction markets approached $6 billion by mid-January 2026.
The current compliance landscape varies widely. Regulated U.S. platform Kalshi enforces strict KYC for all users under the authority of the Commodity Futures Trading Commission (CFTC). In contrast, decentralized platform Polymarket applies KYC selectively, primarily for its U.S.-based users, with non-U.S. versions reportedly accessible without mandatory checks. Decentralized platform Opinion, backed by a firm linked to former Binance CEO Changpeng Zhao, provides no public information on KYC requirements.
Weiler emphasized that without identity verification, linking an on-chain wallet to a specific official or insider is extremely difficult, despite the transparency of blockchain transactions. This "attribution problem" makes enforcement a significant challenge for non-KYC platforms.
The debate is unfolding against a regulatory backdrop, with some U.S. lawmakers, including Representative Ritchie Torres, backing legislation like the Public Integrity in Financial Prediction Markets Act of 2026, aimed at barring government officials with non-public information from trading.
