The United States is betting on artificial intelligence to catch insider trading in prediction markets

For much of the past year, it seemed as if prediction markets had ushered in a new golden age of fraud. At Polymarket, traders made fortunes from suspiciously timed bets on geopolitical events such as the raid on Venezuela and the Iran war. It was unclear whether the US government would be interested in going after some of the more obvious bad actors, given that Polymarket’s cryptocurrency-based platform was technically offshore and not regulated or licensed within the country.

However, now, the Commodity Futures Trading Commission, which oversees prediction markets, wants you to know that it is watching closely. The agency is looking for suspicious behavior from traders within the US who have infiltrated foreign markets, including Polymarket’s cryptocurrency platform – banned in the US – using virtual private networks. “We will find them, and we will take action,” agency head Michael Selig told WIRED this week, speaking from CFTC headquarters in Washington, D.C.

The agency, which is particularly weak right now, is working to increase staffing, Selig says. Like many other AI-powered workplaces, the CFTC is also leaning toward automation to handle its increased workload, including tools that analyze trading patterns and identify potential manipulation. “You have a lot of data,” Selig says. “When we feed it into AI, we get really cool information. It can help us understand things, like where we might want to investigate, or when we might need to send a subpoena to a trader.”

In addition to proprietary monitoring systems developed internally, the agency’s arsenal includes third-party blockchain trackers such as Chainalysis for cryptocurrency platforms, and market abuse detection software including Nasdaq Smarts for centralized markets. (Except for Nasdaq Smarts, the agency did not specify which AI tools it uses and declined to share more specific examples.)