The death of Iran’s supreme leader, Ali Khamenei, not only shook the global geopolitical board: it also ignited an unprecedented controversy in the United States prediction markets industry. High-volume operations, users reporting losing money on bets they considered winners, and congressmen calling for stricter regulation set a stage that calls into question the legitimacy and ethical limits of these types of platforms.
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What prediction markets are and why they are at the center of the debate
Prediction markets are platforms where users can trade contracts linked to future events, from election results to changes in the leadership of foreign countries. In theory, they function as information aggregation tools: the price of a contract reflects the probability that the market assigns to a certain outcome.
However, when those events involve armed conflicts, classified military operations, or the death of public figures, the line between legitimate financial speculation and the exploitation of sensitive information becomes dangerously blurred.
Iran: Kalshi’s position on Khamenei’s death
On March 2, Tarek Mansour, co-founder and CEO of Kalshi, addressed the controversy through a post on X. Mansour explained that the company does not offer markets directly linked to the mortality of individuals, and that, in the event of the death of a relevant figure, the platform applies specific rules to prevent users from obtaining direct benefits from that outcome.
The market in question did not revolve around Khamenei’s death, but rather whether the supreme leader would remain in power, a distinction that Kalshi considers fundamental. According to Mansour, an autocratic regime can lose its leader through resignation, a coup d’état, or political displacement, not only through death, and he cited recent events in Venezuela as an example of a power transition not linked to the ruler’s death.
No exception for death: the controversy with users
Despite Kalshi’s legal and contractual arguments, the management of the market following Khamenei’s death generated a wave of complaints. The platform settled the contract based on the last traded price recorded before the death. Users who opened positions after the event at a higher price were only reimbursed the difference, and all transaction fees were returned.
For many traders, that was not enough. One user openly posted his frustration: he had invested $470.09 and only received $110.64, representing a loss of $359.45 on a position that, according to his interpretation, should have been a winner.
Polymarket and the millionaire profits that alerted Congress
The controversy is not limited to Kalshi. Polymarket, another large-scale prediction platform, also found itself in the eye of the storm. As reported by NPR, an account identified under the name «Magamyman» allegedly earned more than $553,000 betting that Khamenei would leave power, in trades made shortly before his assassination.
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The total volume traded on Polymarket related to the specific timing of the U.S. military strikes in Iran exceeded $500 million. These figures raised alarms in Congress, where several lawmakers raised the possibility that some traders may have acted with access to classified information about ongoing military operations.
The White House denied any link between members of the administration and those operations. However, the fact that Donald Trump Jr. advises Polymarket and that his venture capital firm, 1789 Capital, has invested millions of dollars in the company keeps alive questions about potential conflicts of interest in the sector.
A pattern that goes beyond Iran
The cases linked to Khamenei’s death are not isolated incidents. In January of this year, an anonymous trader earned hundreds of thousands of dollars through bets placed just before the arrest of Venezuelan leader Nicolás Maduro. In February, Israeli authorities formally charged two people for allegedly using classified information to trade on Polymarket during a conflict with Iran that occurred in June.
This background suggests a recurring pattern: timely operations, carried out on platforms that are not directly regulated by U.S. commodity supervisors, and whose results coincide with national security events that could hardly be anticipated without privileged access to confidential data.
The regulatory debate ahead
Scrutiny of prediction markets comes at a time when the sector is seeking to consolidate itself as a legitimate industry within the U.S. financial system. In 2023, Kalshi achieved a judicial victory that allowed it to operate contracts on election events, opening the door to a significant expansion of the market.
However, recent episodes reveal that the current regulatory framework was not designed to contemplate scenarios where geopolitical bets could become a vehicle for exploiting classified state information.
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