In Tenuous Defense of War Markets - by Ben
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In Tenuous Defense of War Markets<br>Contra the CFTC<br>Jul 09, 2026
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1. War Markets Delenda Est
Of all the offerings of prediction market platforms, the most reviled by the media and general public are war markets.
Objections to these run in a number of directions. War markets might encourage insider trading and the leaking of confidential information. They might lead to people going out and influencing events in a conflict for profit. They might be morally corrosive because war is bad, betting is bad, and encouraging some unholy combination of the two is therefore uniquely bad. They represent an extreme example of a taboo tradeoff between “sacred values” (the life and death of people in a conflict zone) with the “profane” (money traded on prediction markets). That is to say, they might be icky.<br>As a result of all of this, there are very few people willing to defend markets on war. Even the current CFTC (Commodity Futures Trading Commission)1, which has been almost maximally open to the expansion of prediction markets, has lately shown signs that they may reign in markets on war, assassination, terrorism, etc. It has already been the case that more-regulated exchanges (read: Kalshi) cannot put out explicit markets on conflict, and will continue to be the case that less-regulated exchanges (read: Polymarket) will probably continue to do so for their non-US platforms. But the CFTC could have opened the doors to a broader set of regulated markets on war, which they appear to deliberately not be doing. This also might have had the effect of incentivizing the existing crypto markets on war to “come in from the cold” and conform to some regulatory standard. Alas.<br>A couple weeks ago, the CFTC issued a notice of proposed rulemaking with considerable detail on what might constitute markets on war that “go against the public interest.” Here is the section (3b) from this long and winding document that lays out their arguments as to why war markets are very likely to be against the public interest, and thus verboten. I’ve cut out a couple redundant sentences but reproduced it nearly in full because I think it’s a great summary for the most compelling arguments against war markets. If you get bored, just skip to the bottom of the quote.<br>The Commission preliminarily believes that event contracts involving terrorism, assassination, or war can present significant national security risks and therefore raise public interest concerns. The Commission is concerned, first, that the prices of such event contracts would not necessarily align with the actual likelihood of the underlying terrorism, assassination, or war events because the trading public is shielded as a matter of public policy from relevant information about the event. For this reason, trading in such event contracts could, at the least, present a distraction to law enforcement and military authorities and, at worst, be manipulated by wrongdoers to divert attention from planned harmful events. For example, event contracts based on whether an attack on a particular location will occur would provide an opportunity to individuals planning such an attack to buy the ‘‘no’’ contract and thereby create misleading market signals, potentially diverting attention and resources at a critical time.<br>As discussed above, these event contracts also present especially significant information leakage and misappropriation concerns because individuals with access to sensitive national security information could potentially be incentivized to exploit that information through trading that would be in violation of their duty of confidentiality.<br>More generally, the Commission preliminarily believes that event contracts involving terrorism, assassination or war are particularly vulnerable to settlement ambiguity. The inherent uncertainty and limited access to reliable information during such events—often described as the ‘‘fog of war’’—can undermine clarity regarding whether relevant events have taken place.<br>The Commission preliminarily believes that event contracts involving terrorism, assassination, or war could potentially result in or incentivize violence or harm to human life or other illicit behavior and therefore raise public interest concerns. First, as noted above, these types of event contracts have very little informational value, but individuals who do have any special knowledge regarding these types of activities or events have a public duty to report this information to the proper authorities to prevent any violence, harm, or illicit behavior. For example, if a private terrorist expert were to uncover communications regarding a plot to assassinate a public figure, the Commission believes that expert should alert authorities rather than trade event contracts regarding that assassination.<br>Moreover, the Commission preliminarily believes that event contracts involving terrorism, assassination,...