Kalshi to end liquidity incentive program amid wash trading allegations

Up until September 29, its monthly volume hit $52.98 billion in September, setting a record high even though the month’s metrics are still incomplete.

Kalshi is shutting down its volume incentive scheme, which was created to compensate traders for improving market depth.

In a filing submitted on Monday to the Commodity Futures Trading Commission, Kalshi stated that it plans to discontinue the Volume Incentive Program no sooner than October 13.

The initiative, which debuted in March 2023, doled out payouts to traders from incentive pools relative to their portion of qualifying volume, intending to stimulate liquidity and "consequently improve pricing accuracy," the documentation noted.

The incentives were connected to transactions executed on the central limit order book, generally priced between $0.03 and $0.97 for event contracts, as stated in the filing.

The choice to terminate the reward scheme arrives amid reported regulatory oversight regarding trading activity. An X user by the handle Beni claimed that Kalshi boosted its perpetual futures volume, highlighting about $539 million in 24-hour turnover compared to a mere $3.1 million in open interest for Kalshi's ETH perpetual pair.

The Wall Street Journal reported last week that the CFTC was reviewing transactions on the marketplace following accusations that repetitive orders of roughly $5,500 artificially boosted ether perpetual futures volume. Those transactions represented over $5 billion in ETH perpetual volume over the preceding month.

Nevertheless, Kalshi has maintained that it is not undergoing any inquiry concerning the issue. In an article published last week on its blog, Kalshi asserted that wash trading does not take place on the venue, explaining the recurring executions as market makers maintaining static quotes that faster participants quickly fill.

Meanwhile, based on metrics from The Block's data dashboard, Kalshi's monthly volume reached $52.98 billion as of September 29, eclipsing the $38.67 billion logged in August and establishing a record high, though September information is still partial.

Investor interest

Kalshi has likewise drawn mounting attention from financial backers. Cathie Wood's Ark Invest announced on Tuesday that it currently maintains direct exposure to Kalshi via its exchange-traded funds ARKK, ARKW, and ARKF.

Ark shared in an X publication that it estimates the mid-term prediction market sector’s potential between $1 trillion and $5 trillion in yearly turnover.

"Even though Kalshi remains privately held, we prefer to secure an early position for our investors," noted Nick Grous, Ark's director of research focused on consumer internet and fintech.

"We are thrilled to bring another private enterprise, Kalshi, into our ETF portfolios," Wood shared on X. "Kalshi's leadership group is outstanding, as they are skating to where the prediction markets puck is heading."

This development unfolds as Kalshi is reportedly pursuing fresh funding. Reuters reported on Tuesday that the prediction markets platform is engaged in advanced discussions to secure roughly $1 billion at a valuation near $40 billion.