Kalshi is building the same trust infrastructure that took payments decades to establish. It has months, not years, to get it right.

On March 23, Kalshi announced a suite of preemptive screening tools designed to block politicians and athletes from trading on their own markets. The company partnered with IC360, the integrity compliance firm behind the ProhiBet platform used by state-regulated sportsbooks, gaming regulators, and major sports leagues including the PGA TOUR and the NCAA.

The same day, Senators Adam Schiff (D-Calif.) and John Curtis (R-Utah) introduced the Prediction Markets Are Gambling Act, bipartisan legislation that would ban CFTC-registered platforms from listing contracts resembling sports bets or casino-style games.

One announcement says: we are building the compliance infrastructure voluntarily. The other says: it does not matter, we are shutting you down anyway.

The regulatory assault on prediction markets has compressed years of institutional friction into weeks. Here is what has happened since February.

On February 25, Kalshi disclosed two insider trading cases to the CFTC. A California gubernatorial candidate had traded roughly $200 on his own race. An editor for YouTube creator MrBeast had placed approximately $4,000 in bets on streaming markets using non-public information. Kalshi detected both, froze the accounts, imposed financial penalties, and referred the cases to the regulator. The company said it had opened 200 investigations in the prior year, with over a dozen becoming active cases.

The CFTC responded the same day with an enforcement advisory affirming its full authority over designated contract markets. Commissioner Michael Selig called exchanges "the regulator's first line of defense" against market misconduct.

On March 12, the CFTC published an Advanced Notice of Proposed Rulemaking seeking public comment on the regulation of prediction markets. The agency noted that designated contract markets had listed an average of approximately five event contracts per year from 2006 to 2020. In 2025, that number was approximately 1,600. Applications to register as designated contract markets have more than doubled over the past year.

On March 17, Arizona Attorney General Kris Mayes filed 20 criminal charges against Kalshi, making it the first state to bring criminal prosecution against a prediction market. The charges include four counts of election wagering, covering bets on the 2028 presidential race and Arizona state races.

On March 20, a Nevada district court judge signed a temporary restraining order blocking Kalshi from offering event contracts on sports, elections, and entertainment in the state. Judge Jason Woodbury wrote that the "balance of convincing legal authority weighs against federal preemption in this context." The order runs through April 3.

On March 23, the Senate bill dropped. Officials in at least 11 states have now sent cease-and-desist orders to prediction market companies. Massachusetts and Michigan have filed separate lawsuits.

All of this while Kalshi sits on a $22 billion valuation after raising $1 billion from Coatue Management in March, with $1.5 billion in annualised revenue and weekly industry volumes surpassing $5 billion.

Strip away the legal drama and look at what Kalshi actually announced on March 23. The compliance infrastructure reads like a payments processor's operating manual.

Prohibited person screening. Through its partnership with IC360's ProhiBet platform, Kalshi now screens traders against lists of known athletes, team personnel, referees, and political candidates. These lists were built over a year of data collection across collegiate and professional sports leagues. Matched individuals are blocked at the point of trade, not after the fact.

Real-time surveillance. Kalshi's systems detected both insider trading cases disclosed in February before any profits were withdrawn. The company monitors trading patterns for anomalies, freezes flagged accounts, and escalates to regulators. This is the same transaction monitoring that payments processors run against fraud and money laundering.

Whistleblower mechanisms. Kalshi embedded a whistleblower button directly into its trading interface. Any user can flag suspicious activity in real time. This shifts enforcement from purely algorithmic to community-assisted, a model that mirrors how card networks handle merchant dispute reporting.

KYC and onboarding controls. As a CFTC-registered designated contract market, Kalshi already runs identity verification at onboarding. The new screening layers sit on top of this foundation.

Self-regulatory enforcement. Financial penalties, account suspensions, lifetime bans, and referrals to federal regulators. Kalshi imposed a penalty of more than $20,000 on the MrBeast editor case alone, including disgorgement of profits plus a $15,000 fine.

Anyone who has worked in payments compliance will recognise this stack. It is the same infrastructure that Visa, Mastercard, acquiring banks, and payment processors have operated for decades. The difference is that those institutions built it incrementally over 50 years, driven by waves of regulation from the Bank Secrecy Act in 1970 through the USA PATRIOT Act in 2001 to PSD2 in 2018.

Kalshi is building it in months, under fire from every direction.

Here is where prediction markets and payments share their deepest vulnerability.

Kalshi's screening relies on matching known identities against prohibited lists. IC360's ProhiBet platform cross-references trader profiles against databases of athletes, officials, and political figures. If your name, date of birth, or other identifiers match a prohibited person, you are blocked.

This works for the straightforward cases. A sitting governor trying to trade on his own re-election. A professional athlete betting on her own sport. The identity match catches the obvious conflicts.

But the real challenge is the same one payments has always faced. You can KYC someone at onboarding, but you cannot easily verify that the person trading today is still the person verified six months ago. A college athlete who was cleared at sign-up gets drafted to the NFL. A political consultant who passed screening at registration starts advising a gubernatorial campaign. A trader's spouse gets appointed to a regulatory body.

As we explored in our analysis of identity and payment convergence, the gap between point-in-time verification and continuous identity assurance is one of the fundamental unsolved problems in financial services.

In payments, this manifests as account takeover fraud, synthetic identity schemes, and beneficial ownership opacity. In prediction markets, it manifests as insider trading that screening lists cannot catch because the conflict of interest did not exist when the account was opened.

Polymarket is approaching this differently. The company partnered with Palantir and TWG AI to build a sports integrity platform that uses pattern analysis rather than list matching. This signals that the industry already recognises that static screening is necessary but insufficient.

The payments industry learned this lesson the hard way. It took decades to move from onboarding-only KYC to continuous monitoring, and the transition is still incomplete. Prediction markets are learning it in real time.

The most consequential fight is not about compliance. It is about who gets to decide what prediction markets are.

The CFTC says prediction markets are financial instruments under its exclusive jurisdiction. Commissioner Selig has publicly backed prediction market companies against state regulators, calling Arizona's criminal prosecution "entirely inappropriate" and a "jurisdictional dispute."

State attorneys general say prediction markets are gambling. Arizona's charges rest on the straightforward argument that accepting wagers without a state gambling licence is illegal, regardless of what a federal regulator calls it. Nevada's restraining order was even more direct: the judge wrote that Kalshi's commission-based model constitutes a "percentage game" under state gambling law.

Congress is now weighing in with a third position. The Schiff-Curtis bill does not resolve the CFTC-versus-states question. It carves out sports and casino-style contracts specifically, leaving political and economic event contracts untouched. The bill reinforces "Congress' original intent that the Commodity Exchange Act does not permit sports gambling."

This three-way jurisdictional collision has a direct precedent in payments. When money transmission laws were written at the state level, fintech companies that operated nationally faced the same fragmented regulatory landscape. PayPal, Square (now Block), and Stripe each had to obtain money transmitter licences state by state, even as federal regulators debated whether the existing framework was adequate.

But the most revealing precedent is not state-by-state licensing. It is Operation Choke Point.

On February 3, 2026, the FDIC quietly revised its payment processor guidance to remove all references to "reputation risk" from its supervisory approach to banks processing payments for higher-risk merchants. This revision dismantles the last remnants of Operation Choke Point, the Obama-era practice where the FDIC pressured banks into de-banking entire merchant categories, including firearms dealers, payday lenders, and cryptocurrency companies, not through formal regulation but through the threat of supervisory action.

The mechanism was elegant in its coercion. The FDIC never told banks they could not serve these merchants. It told examiners to flag them as "reputational risks." Banks, unwilling to fight their own regulator, terminated the relationships. Legal businesses lost access to the banking system without any law being passed or any court ruling being issued.

Prediction markets were on the list. The same "higher-risk merchant" designation that Choke Point weaponised against crypto companies and payday lenders applied to event contract platforms. Kalshi's ability to access banking partners today exists in part because the FDIC stripped reputation risk from its vocabulary.

The revised guidance now states explicitly that banks are "neither prohibited nor discouraged" from processing payments for higher-risk merchants, provided they manage the relationships with appropriate due diligence and monitoring. That is precisely the compliance infrastructure Kalshi is building with IC360's ProhiBet platform. The irony is sharp: the regulator that once used informal pressure to deny banking access to platforms like Kalshi has now formally cleared the path, while state regulators rush in with criminal charges that the federal framework was supposed to prevent.

As we covered when prediction markets first crossed into payments territory, the question was always whether these platforms would be treated as financial infrastructure or gambling. The answer, it turns out, is both. Simultaneously. By different regulators.

The resolution of this jurisdictional fight will set precedent far beyond prediction markets. Any financial innovation that straddles the line between regulated financial instrument and consumer product, from agentic commerce to tokenised assets, will be watching how this plays out. The FDIC has cleared the banking access question. The CFTC is asserting federal jurisdiction. The states are filing criminal charges. And Congress is drawing new lines. The compliance infrastructure Kalshi is racing to build may be rendered irrelevant by legislation, or it may become the template that every future financial innovation platform has to replicate.

The prediction market compliance story is moving fast. Here is what matters next.

The April 3 Nevada hearing. The temporary restraining order expires and the court will decide whether to issue a preliminary injunction. If Nevada succeeds, other states with strong gaming regulatory frameworks will follow the same playbook.

The CFTC comment period. Public comments on the Advanced Notice of Proposed Rulemaking close April 30. The submissions will signal whether the industry coalesces around self-regulation or pushes for prescriptive federal rules.

The Schiff-Curtis bill's trajectory. The bipartisan sponsorship gives it credibility, but the bill faces opposition from the prediction market lobby and potentially from the CFTC itself. Watch whether it gains co-sponsors or dies in committee.

Kalshi's compliance build-out. The IC360 partnership and whistleblower tools are the beginning, not the end. If Kalshi wants to survive the regulatory gauntlet, it will need to demonstrate that its self-regulatory infrastructure works at scale. Expect more enforcement disclosures and more partnerships with compliance technology providers.

The identity infrastructure question. Whoever solves continuous identity assurance for prediction markets will have a product that payments, lending, and insurance all need. This is where the compliance problem becomes a commercial opportunity.

The payments industry built its trust infrastructure through decades of regulatory action, institutional negotiation, and painful enforcement. Prediction markets are attempting the same journey at venture-capital speed. The compliance architecture is recognisable. The timeline is not.

Whether Kalshi succeeds or fails, the pattern is now set. Every new category of financial services will face this same compression: build the trust infrastructure of a regulated institution, or be shut down before you get the chance.

The payments industry took 50 years to build the compliance infrastructure we take for granted. Prediction markets are trying to compress that into months. Is this the future of how every new financial category will be born, building trust at speed or not at all?