The U.S. Commodity Futures Trading Commission is examining reward and incentive programs used by prediction-market platforms, placing a business model built around rebates, liquidity payments and referral bonuses under fresh regulatory pressure. A Sept. 29 report citing a person familiar with the matter said the agency could pursue targeted reviews or open a formal enforcement investigation, with CFTC Chair Michael Selig expected to act before the end of the week.
The inquiry focuses on whether trading promotions can mislead users or encourage transactions undertaken primarily to collect rewards rather than express a genuine market view. That question reaches beyond promotional marketing: prediction markets depend on active order books, and many platforms use financial incentives to persuade market makers and traders to provide that activity.
Kalshi has already shortened the life of a trading-volume incentive program. In a Sept. 28 filing with the CFTC, the company changed the program’s scheduled end date to Oct. 13, 2026, from Oct. 1, 2027. The filing did not give a reason for the revision.
CFTC warning put rebates in focus
The agency laid out its concerns in an Aug. 12 advisory covering filings related to market-making, liquidity, trading and reward programs in prediction markets. The CFTC warned that initiatives designed to increase transaction volume, or encourage firms to operate as market makers, can create compliance concerns.
The advisory specifically flagged trade rebates and promises of “guaranteed profit” as structures that can create regulatory exposure. It also said rewards aimed at high-volume participants may increase the risk of wash trading, where a participant effectively trades with itself or coordinates transactions that create a misleading appearance of demand.
Market-maker reward programs can pose a related problem when payments are tied too closely to displayed volume rather than durable liquidity. A platform may attract tighter quoted spreads and deeper books through those payments, but it can also give participants a reason to place orders that serve the reward formula rather than the market.
The CFTC’s framing puts prediction-market operators in a difficult position. Liquidity is especially important in smaller or fast-moving event contracts, where thin order books can make prices unstable and expensive to trade. Yet incentive systems become harder to defend when the same accounts repeatedly generate volume with limited economic exposure.
Polymarket rewards exceed half of fee intake
Polymarket appears particularly exposed because rewards form a large part of its trading-liquidity model. Data from polyscalping.org show that, since Polymarket began charging trading fees in January 2026, the platform has generated $229 million in fees and paid $128 million in rewards. That equals 54.3% of fee revenue.
The gap between fees collected and revenue retained also appears in more recent activity. DeFiLlama data showed Polymarket generating $3.21 million in fees over 24 hours, placing it fifth among the blockchain applications tracked by the platform. Hyperliquid, ranked sixth in the same measure, recorded roughly $1 million less.
Polymarket’s reported revenue over that period was about $400,000, placing it 16th in DeFiLlama’s rankings. The difference implies that approximately $2.8 million of the day’s fee intake was returned through trader and market-maker rewards, although fee and revenue calculations can vary depending on how data providers classify payouts.
That level of spending gives Polymarket a powerful way to subsidize activity, particularly during launches of new products or markets where organic liquidity has not yet formed. It also means a regulatory restriction on the design or scale of rewards could directly affect quoted depth and trading costs.
Five reward channels support liquidity
Polymarket’s incentives are distributed across five channels: LP Rewards, maker rebates, taker rebates, Holding Rewards and referrals. LP Rewards began in November 2023. Holding Rewards, introduced in July 2025, are linked to annualized yield for users holding pUSD.
Maker rebates, taker rebates and referral payments were added in 2026. Maker rebates generally compensate traders who add resting orders to the book, while taker rebates reward those who execute against available orders. Offering both can increase turnover quickly, but creates more room for activity designed around payment collection.
The company expanded its incentive budget when it launched perpetual contracts in May. Its perps liquidity rewards program carries a fixed $75,000 daily budget spread across active perpetual markets. Sustained for a full year, that pace would represent roughly $27 million in annual payouts for perpetual-market liquidity alone.
Polymarket also added $1 million in liquidity rewards during an August transition involving crypto time-weighted average price, or TWAP, markets, according to the figures cited. In U.S. sports markets connected to March Madness, the per-game liquidity reward reached $100,000.
Dune data indicate that user acquisition accelerated alongside the arrival of new reward types. Monthly new users reached 233,000 in January 2026, Polymarket’s first month above 200,000 new users since January 2025. The platform then set a new monthly high of 259,000 new users in March 2026.
Those figures do not establish that rewards alone caused the increase, but they show how closely the platform’s expansion has coincided with increasingly varied incentive programs.
Kalshi trading patterns illustrate regulator concerns
Activity in Kalshi’s ETH perpetual contract during mid-to-late September showed why the CFTC has focused on volume-based incentives. Observers identified repeated fills of $5,500 over several days, with those transactions accounting for roughly 50% of notional volume in the ETH perpetual market.
Repeated, identical-size executions are consistent with the wash-trading pattern described in the CFTC’s Aug. 12 advisory, particularly when trading appears calibrated to qualify for a rebate or incentive threshold. Such patterns alone do not determine intent or establish a violation, but they can give regulators a clear starting point for reviewing account behavior, order timing and economic exposure.
The CFTC’s next action will shape whether platforms can continue treating reward payments as a standard liquidity expense or must redesign them around stricter safeguards. Rules that limit payments tied to raw volume could reduce artificial activity, while forcing operators to rely more heavily on incentives linked to sustained quotes, narrower spreads and genuine risk-bearing.
For prediction markets, the likely challenge is less about eliminating rewards altogether than proving that the rewards support legitimate trading conditions rather than manufactured turnover.
Concerned about evolving CFTC oversight of rewards? Learn how future rules may reshape platforms in this prediction-market regulation outlook.
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