$700 Million Iran Betting Incident Pushes US to Tighten Prediction Market Rules

Written by: Andjela Radmilac

Translated by: Saoirse, Foresight News

Polymarket and Kalshi are seeking funding by aiming for valuations as top consumer fintech companies, while U.S. regulators are stepping up efforts to create new rules for such products. Reports indicate both companies are in early-stage funding negotiations, with valuations potentially reaching around $20 billion.

This funding boom coincides with a political storm.

Iran-related contracts have turned prediction markets from niche forecasting tools into controversial focal points involving insider information and war speculation. Reuters investigated trading markets on Polymarket related to the timing of Iran attacks and Khamenei’s potential removal, finding approximately $529 million invested in attack timing contracts and about $150 million in contracts related to Khamenei; meanwhile, reports say six accounts made precise trades, earning a total profit of about $1.2 million.

Now, U.S. lawmakers are drafting relevant legislation, and the Commodity Futures Trading Commission (CFTC) has announced plans to advance new regulatory rules.

Wall Street believes that event probability predictions will become part of the information ecosystem; however, Washington is blocking this, fearing that such systems could allow undeserving parties to profit at the worst moments.

Why Wall Street is optimistic about prediction markets

Prediction markets can convert attention into trades, earning transaction fees, while generating real-time probability data packaged as information products.

It is this data product that has moved prediction markets out of the “gambling” category and into the realm of information tools similar to market data, polls, and financial terminals—because their output and quote formats are highly similar.

Mainstream media has begun partnering with these platforms:

CNBC has signed a multi-year agreement with Kalshi to incorporate its probability data into TV and digital programs starting in 2026.

Dow Jones has an exclusive partnership with Polymarket, integrating prediction data into platforms like The Wall Street Journal and Barron’s, treating contract prices as foundational news infrastructure alongside earnings reports, interest rates, and election coverage.

These collaborations have amplified the impact of scandals: once probability data is embedded in mainstream media, it influences public perceptions of event likelihood and urgency. This is also why regulators believe platforms must adhere to higher standards of fairness, monitoring, and settlement.

This explains why, despite political controversy over Iran-related trades, the valuations of these companies continue to rise.

Iran Incident Turns Prediction Markets into a Washington Dilemma

The biggest advantage of prediction markets is their ability to access information in advance. Iran-related contracts clearly indicate that these platforms touch on sensitive information that governments seek to control.

On March 2, bets on attack timing reached $529 million, and contracts related to Khamenei’s death and removal totaled about $150 million. Just hours before the attack on Iranian officials, six accounts suddenly injected funds and profited $1.2 million from these contracts.

As conflicts escalate, numerous reports highlight large numbers of newly registered accounts making precise bets on Iran-related events. Such reports have brought platforms like Polymarket directly into government regulatory and enforcement scrutiny.

The core issues these platforms now face are trust and fairness.

For prediction markets to operate effectively, users must believe that rules are stable, outcomes are consistently judged, and there is no insider bias. When the traded events involve military actions, trust issues escalate into political concerns—because the motivation for early trading could be to leak sensitive or even classified information.

This is also why policy responses are rapidly intensifying.

Congressional representatives Mike Levin and Chris Murphy are drafting legislation to regulate prediction markets. The bill will explicitly define which event contracts can be legally traded.

Additionally, CFTC Chair Michael Selig announced that the agency has submitted a pre-rulemaking notice to the White House Office of Management and Budget, signaling upcoming regulatory frameworks for prediction markets that could impact contract design, monitoring, and enforcement.

Washington faces a clear choice:

• Recognize prediction markets as legitimate event contracts, strengthen regulation, set clear restrictions, and allow the industry to grow within rules;

• Or outright ban categories related to war, assassination, or leadership removal, as these are highly prone to insider trading and malicious motives.

The following data reveal why such conflicts are difficult to resolve:

Kalshi’s own disputes also illustrate that regulation alone cannot fully solve trust issues.

On March 5, Kalshi faced a class-action lawsuit, with users accusing the platform of refusing to pay approximately $54 million in winnings—bets that Iran’s top leader would step down before March 1. Plaintiffs claimed that after the attack on Iran’s leadership, the platform temporarily invoked “death-related exception clauses” to deny payouts.

Kalshi responded that its rules regarding leadership death bets had been clear from the start, and that it had refunded fees and compensated users, with no losses incurred.

This exemplifies the current dilemma faced by investors and policymakers.

Investors want the industry to grow and become mainstream, with probability prediction data integrated into the broader information ecosystem based on sound reasoning.

Users, on the other hand, want platform rules to be stable and trustworthy, especially when event outcomes are controversial and emotionally charged.

Regulators aim to prevent sensitive national actions from becoming tradable products, avoiding situations where “access to confidential intelligence yields the best trading profits.” Because once these prices influence public opinion and information environments, the associated risks can evolve into governance challenges.