Recently, there has been more trouble with prediction markets. A contract on the Kalshi platform went viral, with trading volume exceeding $50 million, but later caused a heated controversy over settlement disputes.

Here's what happened. After the U.S. and Israel launched a joint airstrike, news of Iran's Supreme Leader Khamenei's death spread. The prediction contract on Kalshi asking "Will Khamenei step down as Iran's Supreme Leader" was flooded with funds instantly. The platform CEO Mansour later explained that their original intention was to prevent investors from profiting off the death event, but the settlement clause had a syntax loophole, and ultimately they decided to refund users' net losses. According to insiders, this refund cost Kalshi about $2.2 million.

What really ignited the community was that Kalshi was still promoting this contract at the time of the incident. On the morning the news broke, they posted on X saying "Breaking: The probability of Khamenei no longer serving as Iran's Supreme Leader has surged to 68%," and the CEO even retweeted it. Former SEC chief of staff Amanda Fischer directly criticized that this was essentially providing an assassination proxy market.

Users also pointed out inconsistent settlement standards from Kalshi. Previously, when Jimmy Carter passed away, the platform settled contracts about his attending the inauguration as "No," but this time they issued a special clause. Some criticized that it seems they only use special rules when they stand to lose money.

This incident drew the attention of U.S. lawmakers. California Democratic Senator Adam Schiff wrote to the CFTC chairman, demanding a strict investigation into prediction contracts related to war and assassination. Connecticut's Chris Murphy bluntly stated that such trading contracts shouldn't exist at all because they are too easily manipulated by insiders.

Interestingly, Polymarket still has 187 Iran-related markets trading. One contract predicted whether the U.S. would forcibly remove Khamenei before March 31, which was settled as "No" because the U.S. was only "contributing or assisting." This kind of wording-based settlement also sparked controversy.

Even more bizarre, on-chain data shows that hours before the bombing, six mysterious wallets collectively bet on "The U.S. will attack Iran before February 28," ultimately making about $1.2 million in profit. These accounts were all created in February, with funds transferred within 24 hours before the action. This abnormal trading pattern raises suspicions of insider arbitrage involving military secrets leaks.

Honestly, this incident fully exposes the issues with prediction markets. While it seems like "anything can be traded," when it comes to life-and-death major events, the ethical boundaries and regulatory loopholes of these contracts are completely revealed. Future regulation of prediction markets will only become stricter.