$700M in wagers on Iran conflict and $1.2M in questionable earnings prompt Washington to consider regulation of prediction markets.

Polymarket and Kalshi are seeking to secure funding at valuations that position them among the leading names in consumer fintech, even as regulatory developments in Washington approach regarding the products they offer. Reports indicate that both firms are engaged in preliminary fundraising discussions that could value each at approximately $20 billion.

This fundraising dialogue is occurring amid a significant political upheaval.

Contracts related to Iran have transformed prediction markets from an unconventional forecasting niche into a matter concerning insider information and the motivations surrounding warfare. A review by Reuters of Polymarket markets associated with the timing of attacks and the removal of Khamenei revealed approximately $529 million wagered on timing-of-attack contracts and around $150 million on Khamenei-related contracts, alongside allegations of unusually well-timed trading that yielded about $1.2 million in profit across six accounts.

Currently, lawmakers are formulating legislation, and the CFTC has indicated it is also progressing toward new rulemaking.

Wall Street anticipates that probabilities will become integrated into the information ecosystem. However, Washington is obstructing this progression, believing that the system may reward inappropriate individuals at critical moments.

Wall Street embraces the probability layer narrative

Prediction markets transform attention into transactions and transactions into fees, while simultaneously generating a real-time probability feed that can be packaged as data.

This secondary product is what elevates prediction markets from the gambling category to the same classification as market data, polling, and financial terminals, as the output is intended to resemble and function like a quote.

Media partnerships have begun facilitating their distribution. CNBC has entered into a multi-year agreement with Kalshi to incorporate its probabilities into television and digital programming starting in 2026, thereby integrating event-contract pricing into the regular flow of business news.

Dow Jones has secured an exclusive agreement with Polymarket to incorporate prediction market data into The Wall Street Journal, Barron’s, and MarketWatch products, effectively treating a contract price as a component of reporting infrastructure that can accompany earnings, rates, and election coverage.

These agreements also heighten the implications of a scandal, as the markets are no longer a novelty that can be overlooked. Once probabilities are integrated into mainstream outlets, they begin to influence what readers perceive as plausible, urgent, or imminent. This is why regulators believe that the platforms must adhere to a higher standard concerning integrity, oversight, and settlement.

This also clarifies why the companies’ valuations continued to rise despite the political scrutiny surrounding the Iran markets.

Iran transformed prediction markets into a Washington concern

The market’s most significant advantage is early access to information, and the Iran contracts clearly indicated that these platforms engage with the type of information that governments seek to control.

On March 2, approximately $529 million was wagered on timing-of-attack markets and around $150 million on contracts related to Khamenei’s death and removal from office. Just six accounts generated $1.2 million in profit from these contracts, all funded only hours before the raids that resulted in the Iranian leader’s death.

Numerous additional reports of newly created accounts making unusually well-timed bets related to Iran also began to surface as the conflict intensified. This kind of mainstream coverage elevated Polymarket from the realm of crypto novelty to the center of government surveillance and enforcement.

The primary challenges these platforms now encounter are trust and fairness.

A prediction market functions effectively only when participants believe that the rules are consistent, the outcomes are adjudicated fairly, and the playing field is not skewed in favor of insiders. When the underlying event involves military action, this trust issue becomes political, as the motivation to trade early can translate into an incentive to leak sensitive or classified information.

This is why the policy response escalated so rapidly.

Representative Mike Levin and Senator Chris Murphy are already drafting legislation aimed at regulating prediction markets following the Iran bets. This places Congress directly in a position to define which event contracts should be permissible.

In a separate development, CFTC Chair Michael Selig stated that the agency has submitted an advance notice of proposed rulemaking to the White House budget office and will soon proceed with a prediction-markets rule proposal. This indicates that a regulatory framework is being developed that could influence everything from contract design and oversight to enforcement priorities.

The decision facing Washington is quite clear, even if the execution is complex.

Regulators can recognize prediction markets as legitimate event contracts and establish stronger oversight and clearer limitations, which could facilitate the category’s growth with a more defined regulatory framework.

Alternatively, they can restrict categories associated with war, assassination, and leadership removal, as these contracts heighten the risk of insider information and create undesirable incentives.

A snapshot illustrates why this conflict is challenging to resolve:

Flashpoint	What was reported	Why it garnered attention
Valuation discussions	~$20 billion each for Polymarket and Kalshi (early discussions)	Venture pricing intersects with legal risk
Iran timing markets	~$529 million wagered	Event contracts linked to military action
Khamenei-related markets	~$150 million wagered	Death and leadership outcomes as tradable contracts
Suspicious profit claims	~$1.2 million across six accounts	Concerns over insider information related to timing
Kalshi payout dispute	~$54 million in claimed winnings	Trust issues within the regulated entity

Kalshi’s own dispute illustrates why regulation alone does not resolve the trust issue.

On March 5, Kalshi faced a lawsuit for allegedly failing to pay $54 million to users who bet that the Iranian Supreme Leader would depart from office before March 1. The class action lawsuit, filed in California, claims that the company did not invoke a “death carveout” provision until after the Iranian leader was killed to avoid compensating customers.

Kalshi, however, asserts that its rules regarding trading on death outcomes were clear and that it reimbursed fees and losses to ensure users did not incur financial losses.

This represents the kind of tension that investors and policymakers are currently navigating.

Investors seek growth, distribution, and a compelling case for a probability feed that fits within the mainstream.

Users desire rules that appear stable when outcomes become contentious and emotionally charged.

Regulators aim to prevent a market from converting sensitive state actions into a tradable asset where the optimal trade is the most advantageous leak, as this risk becomes a governance issue the moment these prices begin to influence the information landscape.

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