As the United States and Israel prepared for war and later launched strikes against Iran, traders on online prediction markets wagered over $1 billion on every aspect of the conflict, drawing a wave of scrutiny.
One week after the attacks began, traders are still betting millions of dollars onwhowill be the next supreme leader, how long Iran willshut downthe Strait of Hormuz, whether US ground troopsenterIran, whichcountriesIran will strike, whether the son of the late shah willreturn, and dozens of other Iran-related questions.
And before the attacks, so-called "death markets" emerged around whether Iran's supreme leader,Ayatollah Ali Khamenei,would be ousted, potentially through assassination – which ultimately happened on Feb. 28.
Other sizable and well-timed bets, placed mere hours before airstrikes began, correctly predicted that strikes would soon occur, raising questions from critics about whether there was insider trading by government officials or others who knew the war plans ahead of time.
It's now routine for questions like these to arise after major geopolitical events, with the rapid growth of prediction markets like Kalshi and Polymarket, where users bet on everything from elections, sports, business, entertainment, or even the daily high temperature in various US cities.
But the Iran trades sparked broader outrage: Lawmakers expressed alarm about a lack of regulation, traders vented about unclear market rules, government watchdogs worried about possible corruption, and academics wondered aloud about the morality of wagering money on people's lives.
Federalregulationsalready prohibit futures contracts based on assassinations, war or terrorism. But the trades that paid out upon Khamenei's death occurred on the largely unregulated international version of Polymarket, which some Americans still access through virtual private networks. (The Trump administration approved a US version of Polymarket last year, but it isn't fully operational yet.)
One user named"Magamyman"made $553,000 from Iran bets placed on the eve of war. In one of their many bets, they wagered $32,000 early morning on Feb. 28, hours before the strikes began, and correctly predicted there would be strikes that day, when the Polymarket odds said there was only a 17% chance.
Polymarket did not respond to CNN's multiple inquiries about the controversial trades on its platform.
Though the identities of these traders are not public, Democratic lawmakers condemned the war profiteering, speculating — without providing evidence — about possible insider trading by people in President Donald Trump's orbit, calling for a congressional inquiry.
Connecticut Sen. Chris Murphysaid, "It's insane this is legal" andcalledpotential insider trading a "disgusting form of corruption." California Rep. Mike Levinsaid, "Who had that information? … The American people deserve to know if advance knowledge of military action is being used for financial gain."
A pair of Democratic senatorsproposeda bill Thursday to ban the president, vice president, top federal officials, lawmakers and their families from trading on prediction markets.
Some Democrats also pointed out that the president's son, Donald Trump Jr.,joinedPolymarket's advisory board last year and his conservative venture capital fund, 1789 Capital, invested an undisclosed amount in the company. Trump Jr. alsoservesas an adviser to Kalshi.
A spokesperson for Trump Jr. told CNN he does not trade on prediction markets and that he only advises Kalshi and Polymarket about marketing strategies.
Asked by CNN about concerns of potential insider trading by Trump allies, White House spokesman Davis Ingle said, "The only special interest guiding the Trump administration's decision-making is the best interest of the American people."
Kalshi, which is federally regulated in the US, issued full refunds for its market titled "Ali Khamenei out as Supreme Leader?" after confusion over how his death would influence the outcome. A source familiar with the matter said Kalshi lost $2.2 million refunding all fees and net losses from this market, making everyone whole.
"Kalshi doesn't allow markets directly tied to death," Kalshi spokesperson Elisabeth Diana said in a statement, adding that the Khamenei market was offered "because leadership changes in Iran have major impact on the world order, including geopolitical, economic, and national security consequences."
CNN has a partnership with Kalshi and uses its data to cover major events. Editorial employees are prohibited from participating in prediction markets.
Michael Selig, the Trump-appointed head of the Commodity Futures Trading Commission, which regulates prediction markets, has been supportive of companies in this emerging space. HesaidTuesday the Trump administration will soon issue new rules and guidance for these companies.
Betting on Khamenei's death?
People wagered more than $194 million in multiple markets on Polymarket's offshore site over whether Khamenei would be "out as Supreme Leader of Iran" byvariousdates.
The market resolved on Feb. 28 when Khamenei was killed by an Israeli airstrike. Unfettered from US regulations against death markets, Polymarket paid traders who correctly bet that Khamenei would be "out" by March.
The trend of these markets brushing up against death events is growing.
Polymarketremoveda market last week where people could bet on the likelihood of a nuclear bomb being detonated. And after public scrutiny, Polymarketadjustedthe phrasing of a bet about whether Artemis II, the planned space launch to bring American and Canadian astronauts to the moon's orbit, would "explode" during its mission.
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"This is where the people running the markets have a responsibility," said Richard Warr, a finance professor at North Carolina State University's Poole School of Management. "Not everything should be a market. And right now, there are no legal requirements preventing this kind of stuff, as far as I'm aware."
Warr added, "there are huge ethical considerations."
After the Iran strikes began last weekend, Polymarket added a note to the top of some pages containing Iran-related bets, stating that the company hoped its markets would provide "accurate, unbiased forecasts" about the Middle East conflict, as a public service to people "directly affected by the attacks."
"That ability is particularly invaluable in gut-wrenching times like today," the statement on the website said, adding, "we realized that prediction markets could give them the answers they needed in ways TV news and X could not," referring to the social media site.
Kalshi issues big refunds
Kalshi, which operates in the US with regulatory oversight, stipulated in the rules for itsKhamenei marketthat his death wouldn't count as a win for anyone who predicted his ouster. Instead, if the ayatollah died, the market would resolve based on the last traded price prior to his confirmed death.
So, Kalshi followed its rules, complying with federal rules, and possibly allaying ethical concerns. But this angered bettors who put money on Khamenei's ouster and were surprised by the lack of payouts –- and theyrushedto social media to air theirfrustrations.
"A lot of people clearly didn't read the fine print," said Dustin Gouker, an independent journalist who writes anewsletterabout prediction markets. "There was a mismatch between title of the market and what the rules said."
Kalshi co-founder and CEO Tarek Mansour explained the situation in anX poston Feb. 28, several hours after Khamenei's death, arguing that the company doesn't offer "markets directly tied to death" and that it tailored the Khamenei market to comply with federal regulations.
There are other ways for "a ruler to step down or transition power without death, even in autocracies," he noted, pointing to the recent US military operation thatcapturedVenezuelan leader Nicolás Maduro.
Still, Mansour said Kalshi would reimburse all fees from this market and give refunds to anyone who bet and lost after Khamenei had already died. And as backlash grew, he went further Sunday andsaidKalshi would reimburse all net losses for everyone who bet on the Khamenei market.
Another top Kalshi executive latersaidthe company would learn from this situation and "do a better job explaining our rules." The company notified the CFTC in afilingMonday about updates it was adding to its rulebook to clarify how it settles markets when they're affected by deaths.
Experts agreed that the debacle was largely one of Kalshi's own making.
"Kalshi promoted this as a featured market all day. The strike already happened. There were unconfirmed reports of Khamenei's death," Gouker said. "Kalshi knew the whole time that the rules said this bet would not resolve based on his death. This is why Kalshi got in a mess."
Two traders who bet on Khamenei's ouster filed a proposed class-actionlawsuitThursday against Kalshi, claiming it ran "a predatory scheme" and used "deceptive conduct" to deprive them of winnings. Responding to the new litigation, MansoursaidKalshi "didn't deviate from its market rules."
Risks of insider trading
At least a half-dozen traders on Polymarket made $1.2 million betting that the US would strike Iran, according toBubblemaps, which investigates blockchain transactions like those on prediction websites.
They said most of these anonymous traders uploaded their funds on the same day as their bets, which camehoursbefore the US and Israeli strikes began.
There's now a well-established pattern of controversial trades on these websites whenever major geopolitical events occur. Someoneearneda quick $400,000 when the US captured Maduro in January – prompting a wave of criticism from Democraticlawmakersand good-governmentgroups.
One House bill,proposedafter the Maduro raid, would ban federal employees and congressional staffers from using non-public information to place bets in online prediction markets. The bill now has 40 Democratic co-sponsors.
The legal definition of insider trading is narrow, forcing companies to do some self-regulation. It is prohibited on Kalshi, which last weekissuedits first major bans against two bettors over insider trading concerns. But other firms have boasted about being the preferred site for in-the-loop insiders.
Asked about insider trading risks, Polymarket's CEOtold Axiosin November it was "super cool" that his platform "creates this financial incentive for people to go and divulge the information to the market," including insiders.
There is a debate within the prediction market community over the role of insiders. Some experts see these markets as a vehicle for information to flow more freely from insiders to the general public.
"If there's going to be graft and corruption in the government, at least it happens this way, where it produces a public good," said Alex Nowrasteh, the senior vice president for policy at the libertarian-leaning Cato Institute. "The bigger these markets are, and the more insider information they have, the more accurate information we get. And that's what good for the public."
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