A trading incentive can create liquidity, but it can also create activity whose main purpose is earning the incentive. Kalshi is ending a program that paid eligible participants according to their share of trading volume, nearly a year before its scheduled expiration, as the Commodity Futures Trading Commission examines whether such programs can distort regulated markets.
Legal Sports Report’s Corey Sharp reports that Kalshi notified the CFTC on September 28 and will terminate the Volume Incentive Program no earlier than October 13. It had been scheduled to run until October 2027. Kalshi cited its authority to end the program at its discretion and gave no reason for doing so.
The mechanism matters more than the unexplained timing. Kalshi assigned a fixed reward to an eligible market for a term of up to 31 days. Participants then received a portion based on how much of that market’s eligible volume they generated. Kalshi described the program as a way to deepen liquidity and improve prices; rewards for event contracts were capped at half a cent per contract per participant to limit distortion.
But paying for volume changes what the reported volume represents. Some trades may reflect information or conviction about an event. Others may be worthwhile because repeated activity earns a larger share of the reward. A market can therefore look busier and more liquid without every transaction carrying the informational meaning that prediction exchanges claim for their prices.
That is the regulatory concern. In August, the CFTC warned designated contract markets that some incentive arrangements can increase wash-trading risk—transactions that create the appearance of activity without a genuine change in market exposure. The advisory did not establish that Kalshi engaged in wash trading.
Separate scrutiny has focused on nearly one million almost identically sized trades, totaling more than $5 billion, in Kalshi’s ether perpetual-futures market. Kalshi says those patterns came from a market maker posting fixed-size orders that faster traders repeatedly filled. The company says it blocks self-trades, prohibits wash trading and monitors for coordinated transactions. Sharp is careful to note that the termination filing does not connect the incentive program to that activity.
The distinction should remain intact: an early program termination is not proof of misconduct, and repetitive trades are not by themselves proof of wash trading. What the episode does show is a structural tension in prediction markets’ financial-market framing. If volume is used to establish legitimacy, liquidity and price quality, then exchanges and regulators need to distinguish trading driven by information from trading subsidized to make the market appear active.