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Points of Focus
- The CFTC used emergency authority to order Kalshi to continue operating under federal market rules despite New York’s attempt to restrict the exchange.
- New York City opened an investigation into the marketing practices of Kalshi, Polymarket, Coinbase and Gemini Titan.
- Trepa and Fireplace shut down as Kalshi and Polymarket captured more than 93% of tracked prediction-market volume.
Prediction markets gained powerful federal support this week, but also encountered growing scrutiny over how they attract users and maintain fair markets.
On Aug. 11, the Commodity Futures Trading Commission (CFTC) exercised emergency authority after Kalshi notified the regulator of a market emergency stemming from New York Attorney General Letitia James’ lawsuit against the exchange.
The CFTC ordered Kalshi to continue operating in accordance with the Commodity Exchange Act’s core principles, positioning the agency directly against New York’s attempt to regulate event contracts as gambling.
A day later, the New York City Council launched an investigation into potentially deceptive or predatory marketing by Kalshi, Polymarket, Coinbase and Gemini Titan. The inquiry focuses particularly on advertising that may reach minors or people vulnerable to compulsive betting.
Meanwhile, the closure of Trepa and Fireplace demonstrated how quickly the industry is consolidating. Kalshi and Polymarket accounted for 93.3% of the prediction-market volume tracked by DefiLlama over the preceding 30 days.
CFTC intervenes in Kalshi’s New York battle
The CFTC’s Aug. 11 intervention marked one of its strongest actions yet in support of federal jurisdiction over prediction markets.
New York’s July 31 lawsuit seeks a temporary restraining order that, according to the CFTC, could prevent Kalshi from offering event contracts nationwide. The state is also pursuing more than $36 billion in alleged damages.
In response, the CFTC ordered Kalshi to continue operating in compliance with the Commodity Exchange Act’s core principles. The regulator argued that it has a statutory responsibility to preserve a uniform national derivatives market and prevent major disruptions to federally regulated exchanges.
CFTC Chairman Michael Selig said Congress did not intend derivatives exchanges to operate under a “patchwork of state gaming laws.” The agency also disclosed that it had initiated litigation against nine States, including New York, Arizona and Illinois, to protect its asserted jurisdiction.
New York City investigates prediction-market advertising
The New York City Council announced an investigation into Kalshi, Polymarket, Coinbase and Gemini Titan on Aug. 12.
Council Speaker Julie Menin sent letters requesting information about the platforms’ users, marketing practices and compliance with consumer-protection standards. The Council also plans to hold a hearing and consider whether new legislation, enforcement initiatives or public-education campaigns are needed.
NEW: The New York City Council is probing whether four prediction markets' advertising practices violate city consumer protection laws.
Focus is on Polymarket, whose social media ads were subject of a @WSJ investigation.
w/ the great @KevinTDugan https://t.co/HWosdXoPmI— Katherine Long (@ByKLong) August 12, 2026
The investigation focuses on allegations involving undisclosed influencer campaigns, simulated trades presented as genuine transactions and promotional content that may have encouraged insider trading.
Particular attention is being paid to marketing that could reach minors. Unlike regulated sportsbooks, prediction-market platforms operating under the federal derivatives framework are not necessarily subject to the same state-level advertising and responsible-gambling requirements.
CFTC warns platforms about trading incentives
Federal support for prediction markets did not translate into unrestricted freedom from oversight.
On Aug. 12, the CFTC issued guidance warning regulated exchanges about deficiencies in filings for trading-incentive and market-maker programs.
According to the regulator, some programs may encourage participants to trade purely to reach volume targets, increasing the risk of wash trading, prearranged transactions and other manipulative practices.
The CFTC also raised concerns about arrangements that guarantee market makers a net profit or cover their losses through stipends and rebates.
Two smaller prediction market platforms close
Trepa and Fireplace announced their closures within approximately 90 minutes of one another, giving customers until September 30 to withdraw funds.
— Trepa (@trepa_io) August 10, 2026
Trepa operated a Solana-based forecasting game that rewarded users according to how close their numerical predictions came to an outcome. Its founders said the platform struggled with user retention, distribution and the need to concentrate participants within limited trading windows.
They also argued that the genuinely active crypto audience for products of this kind may number in the hundreds of thousands rather than the millions frequently suggested by industry metrics.
We're shutting down Fireplace.
To everyone who traded with us and supported us along the way – thank you. It was a hell of a run.
The site stays open until the end of September so you can close positions, withdraw funds, and export your account. Please do it before September…
— fireplace (@fireplacegg) August 10, 2026
Fireplace occupied a different segment, providing a professional trading interface that routed orders to established prediction markets. Its business model included a 1% taker fee on top of platform-level costs.
Both companies struggled in a market increasingly dominated by two large exchanges.
Kalshi and Polymarket generated $13.87 billion of the $14.87 billion in 30-day volume across 40 venues tracked by DefiLlama, representing a combined share of 93.3%. Kalshi alone accounted for 75.7%.
FlightAware’s lawsuit raises a data question
Flight-tracking company FlightAware sued Kalshi on August 10, accusing the platform of using its proprietary data and trademark without authorization to settle flight-cancellation contracts.
The company sought damages and an injunction, alleging that Kalshi continued referencing FlightAware after receiving demands to stop, the Wall Street Journal reported.
FlightAware withdrew the case without prejudice the following day and did not publicly explain its decision. Because the dismissal was without prejudice, the company retains the option of bringing the claims again.
What to watch next week
The CFTC’s response to senators concerned about wildfire-related prediction markets will be the most immediate development to watch. The lawmakers requested an answer by Aug. 14 after warning that contracts tied to fire containment or acreage burned could create incentives for destructive conduct.
New York will also remain central. Attention will turn to whether a court grants the state’s requested restrictions against Kalshi and how the exchange uses the CFTC’s emergency order in its defence.
Finally, the market-concentration trend bears watching. The collapse of Trepa and Fireplace may prove to be isolated, but further closures would indicate that rapidly growing industry volume is consolidating around Kalshi and Polymarket rather than supporting a broad ecosystem of competitors.
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