CFTC Probes Kalshi Over Alleged Ethereum Futures Wash Trading

By Nynu Jamal

The Commodities Futures Trading Commission (CFTC) has reportedly launched a fresh investigation into prediction market platform Kalshi. Building on the recent allegations of wash trading, the probe focuses on nearly 1 million Ethereum futures transactions involving almost identical amounts since August.

However, Kalshi has denied the wash trading allegations. The prediction market platform argued that the repeated trades are linked to fixed prices posted by market makers. The team added that faster traders simply capture these quotes when they become available, resulting in similar transactions.

Kalshi faces CFTC probe over Ethereum futures trades

According to a report from The Wall Street Journal, the CFTC is probing the trading activity on Kalshi’s Ethereum perpetual futures market. As of now, the agency is reviewing the activity and will decide later whether to launch an official enforcement investigation.

Notably, the move comes on the heels of wash trading allegations put forward by a trader. As CoinCodex reported, Beni shed light on the vast difference between the trading volume and open interest on Kalshi’s Ethereum perpetual futures contract.

Reportedly, a large number of trades appeared to follow a similar pattern. As the WSJ analyzed the public trading data, it was found that about 1 million trades involved almost identical amounts. As per the report, a significant portion of the trades recorded in recent weeks were around the $5,500 level, together accounting for more than $5 million in trading volume.

Kalshi denies wash trading claims

Despite the allegations and the CFTC’s probe, the prediction market has reportedly defended its trading practices. Dismissing allegations of wash trading, Kalshi argued that the repeated trades were caused by the functioning of the market-making system. On Tuesday, the platform published a blog post, asserting that a single market maker was placing fixed-size buy and sell orders on the order book.

Kalshi added that hundreds of different traders were involved in taking these positions rather than the same traders trading back and forth. The platform also pointed out that around $98,000 was earned in profits by these traders. Thus, Kalshi claims that the traders had a real economic purpose, which stands against the allegations of wash trading. The statement read,

“All the trades that were shared on X this weekend are trades that both sides wanted to take at the time, because they disagreed on the fair price. It turns out that one side was pretty consistently right (the takers – which were hundreds of distinct traders) and one side was pretty consistently wrong (the maker). This is a sign of genuine economic activity rather than wash (where you’d expect volume to increase without either side taking a profit/loss).”

It is important to note that Kalshi has already taken necessary steps to prevent fake trading practices. Self-trading is automatically blocked on the platform. At the same time, trading between partners is under strict monitoring.

Kalshi clarifies its perpetual futures fee structure

While Kalshi faced wash trading allegations, traders criticized its perpetual futures fee structure. Traders like Beni stated that the platform’s fee rebate program made it easy to execute wash trading. The current program allows eligible taker fees on crypto perpetuals to fall to 0.3 basis points, or 0.003%. Eligible market makers can receive rebates at the same rate. Thus, traders believe that such a low rate could make frequent buying and selling more attractive to traders.

Nonetheless, Kalshi clarified the fee structure. According to the firm, self-clearing members are temporarily receiving rebates that cover the same amount they pay in perpetual futures trading fees. The zero-net-fee structure is also not currently active.

Source:: CFTC Probes Kalshi Over Alleged Ethereum Futures Wash Trading