Kalshi Announces Termination of Trading Volume Incentives! Controversy Arises Over $5 Billion Repeated ETH Futures Trading, September Transactions Exceed $52.9 Billion

The leading prediction market in the United States, Kalshi, is announcing the termination of a long-standing mechanism that encouraged users to "trade more, earn more rewards" just as it is setting records for trading volume.

On September 28, Kalshi submitted a document to the Commodity Futures Trading Commission (CFTC) stating that it will terminate the "Volume Incentive Program," effective as early as October 13. This program allocated a fixed reward pool based on the proportion of traders' transaction volume in eligible markets, originally aimed at increasing trading volume and liquidity.

The timing is particularly sensitive, as just a week prior, Kalshi's ETH perpetual contracts faced market scrutiny due to a large number of repeated trades at a fixed size of approximately $5,500. According to The Wall Street Journal, since August, nearly 1 million related trades have been recorded, totaling over $5 billion, and the CFTC is reviewing these trading activities. Kalshi has explicitly denied any wash trading on its platform.

Kalshi's latest filing did not explain the reasons for terminating the trading volume incentive program, nor did it directly link the decision to the controversy surrounding ETH perpetual contracts.

Kalshi previously stated that the repeated fixed amount trades in perpetual contracts came from a market maker placing fixed-size orders, which were then repeatedly filled by faster traders. The platform claims that there are "hundreds of different traders" on the other side of these trades and that the system prevents the same account from self-executing trades.

$5,500 Trade After Trade, 57% of ETH Volume in 4 Days

The controversy was ignited by publicly available transaction data. CoinDesk analyzed 3,450 ETH perpetual trades from Kalshi between September 17 and 20 and found that 1,406 of these trades had nominal amounts falling within a $2 range around $5,499. This batch of highly repetitive trades totaled approximately $7.7 million, accounting for 57% of the sample's total volume of $13.5 million.

More importantly, this was not just a four-day occurrence. CoinDesk examined 46 one-hour samples from June 19 to September 20, finding that 43 of them exhibited repeated trades at fixed nominal amounts; in some periods, a single fixed trade size accounted for more than half of the hour's total value. The fixed amounts also changed over time from $9,999 to $4,999 to $3,999 to $4,499 to $5,499, but each stage showed a large number of trades at the same nominal amount. This pattern aligns with the "clip" strategy of automated programs placing orders at fixed dollar amounts.

Even More Abnormal: $539 Million in Trades in One Day, Only $3.1 Million Open Interest

The market began to take notice due to the significant discrepancy between "how much was traded" and "how much open interest remained."

Researcher Beni captured data from the Kalshi ETH perpetual market, showing a 24-hour trading volume of approximately $539 million, with open interest around $3.1 million, meaning the trading volume was about 174 times the open interest.

In another snapshot, CoinDesk found a lower but still very high ratio: the ETH perpetual market had about $93 million in contracts traded in 24 hours against 1.5 million contracts in open interest, resulting in a volume/open interest ratio of about 61 times. In contrast, the median for the 20 perpetual markets on Kalshi with open interest at that time was only about 8 times.

High-frequency market making, arbitrage, and large intraday liquidations can naturally lead to high turnover rates; the controversy arises from the simultaneous occurrence of repeated, precise fixed amount trades, prompting further scrutiny from the market and regulatory bodies.

Over $5 Billion in Repeated ETH Trades, Is the CFTC Investigating?

The Wall Street Journal reported that since August, Kalshi's ETH perpetual market has seen nearly 1 million highly similar trades, with a large number of orders around $5,500, totaling over $5 billion; the CFTC is reviewing these trading activities. Kalshi, however, stated that as of its public response, the CFTC had not contacted the company regarding ETH perpetual trading, and the platform does not believe it is under formal investigation.

Kalshi further stated that its platform rules explicitly prohibit "wash trading," the system mechanically prevents self-execution, monitors for pre-coordinated trades, and has not found evidence of collusion or wash trading. However, the issue lies in the fact that Kalshi's public API does not disclose trader identities, making it impossible for external researchers to independently verify the platform's claim of "hundreds of different traders."

On the Other Hand, a Historic High: September Transactions Reach $52.98 Billion

Amid the controversy, Kalshi's business data is setting records. As of September 29, Kalshi's total trading volume for September reached $52.98 billion, surpassing August's approximately $38.67 billion, marking a new monthly record for the platform; moreover, this statistic does not even fully cover the last day of September. If simply comparing $52.98 billion to the previous month, the month-over-month increase is about 37%.

Looking at the long term, the prediction market size is rapidly expanding this year. According to data from Pew Research, the combined monthly trading volume of Kalshi and Polymarket has doubled from about $26 billion in May to approximately $53 billion in July.

This controversy also exposes one of the most misunderstood aspects of prediction markets and perpetual contracts: Volume is not the same as capital stock. If the same $5,500 position is entered and exited 100 times in a day, it could generate $550,000 in volume, but the actual net position may only be a few thousand dollars. Therefore, a monthly trading volume of $52.9 billion does not equate to $52.9 billion in capital existing on Kalshi; similarly, $5 billion in repeated ETH perpetual trades does not imply there are $5 billion in ETH positions. This is why open interest, the number of active traders, the number of independent counterparties, and market depth are often better indicators of true market liquidity than simple trading volume.

Facing Another Regulatory Front: State Governments Begin to Strike Back

Kalshi is facing regulatory pressures beyond just ETH perpetual trading.

On September 25, the U.S. Sixth Circuit Court of Appeals ruled that Ohio and Tennessee can regulate Kalshi under state-level gambling laws, rejecting Kalshi's argument that it is solely subject to federal regulation by the CFTC.

Different federal circuit courts have issued conflicting rulings, and the U.S. Supreme Court may need to address this in the future. Meanwhile, the SEC and CFTC are also re-examining the regulatory boundary issues arising from the rapid expansion of platforms like Kalshi and Polymarket into stock-related prediction products.

This means that Kalshi's explosive growth is simultaneously undergoing three tests: the authenticity of trading volume, derivatives market regulation, and the legal positioning of prediction markets themselves.

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