Kalshi Faces Scrutiny: Data Challenges Explanation for $9.81B in Ether Trades

The world of crypto derivatives and prediction markets is facing fresh questions about market integrity. A detailed investigation into the ether perpetual market on the Kalshi trading platform has uncovered patterns that contradict the company's official explanations. At the heart of the matter are transactions totaling $9.81 billion observed between August 1 and September 30. This sum accounts for a staggering 55.9 percent of the total notional value traded in the ether contract. It is particularly striking that these vast sums were concentrated into just six specific trade sizes.

Kalshi had previously stated that this behavior was driven by a market-maker incentive program. According to this narrative, professional traders placed orders at minimum sizes to collect bonuses. Faster actors then allegedly snapped these up when prices on other exchanges had already moved before the market maker could react. However, the available data analysis tells a different story. Traders handling these fixed sizes beat the spot-implied price of ether in only 33 percent of cases. A random chance benchmark stood at 35 percent. This means these supposed pro traders performed worse than a statistical coin flip.

Numbers and facts

The analysis of 5.35 million trades revealed that the concentration on specific trade sizes at Kalshi is extremely high compared to mature markets like Binance or Hyperliquid. While the most-traded size of the day on Binance accounts for only about 1.68 percent of volume, this figure reached up to 55.8 percent at Kalshi. Even on Kalshi's least concentrated day, at 9.3 percent, it exceeded the peak values of its competitors. The dominant trade sizes, including amounts like $5,500, $5,425, and $4,025, changed five times during the observation period. Interestingly, four of these changes occurred shortly before midnight between 11:07 p.m. and 11:58 p.m. ET.

The role of market makers is viewed particularly critically. Economics professor Rajiv Sethi from Barnard College had originally supported the theory of tolerated sniping. He suggested that market makers might accept small losses from stale quotes because the incentive program's rewards outweighed those losses. However, after reviewing the new data, he expressed significant doubts about this thesis.

"I think only the account identifiers could settle this decisively, but I am starting to have doubts about my tolerated sniping explanation." - Rajiv Sethi, Economics Professor at Barnard College

Background

A perpetual future, or perp, is a bet on an asset's price with no expiry date. At Kalshi, this market came under scrutiny after The Wall Street Journal reported nearly a million almost identical trades. The Commodity Futures Trading Commission (CFTC) is reportedly conducting an investigation. Kalshi itself stated it found no evidence of collusion or wash trading. Nevertheless, the company announced on September 28 that it would end its Volume Incentive Program effective no earlier than October 13. While the data does not directly prove manipulation, the question remains why traders would sink billions into strategies that offer almost no market advantage.

Why it matters for German players

For German players interested in crypto assets or prediction markets, this case highlights the risks on platforms that are not sufficiently regulated. In Germany, online gambling is strictly regulated by the Interstate Treaty on Gambling 2021 (GlüStV 2021). Anyone wishing to play legally and safely should exclusively use providers listed on the whitelist of the Joint Gambling Authority of the States (GGL). These licensed casinos are subject to strict controls to prevent manipulations such as wash trading or unfair gaming conditions.

Unlike the opaque processes on crypto exchanges, the German market offers high protection against financial overextension through the LUGAS system and the 1,000 euro monthly deposit limit. The stake limit of 1 euro per round for virtual slots also ensures that risks remain manageable. Those who play on platforms without a GGL license, such as providers from Curacao or Malta, have little legal recourse if trading data or winning odds do not reflect reality.

What it means for GGL-licensed casinos

GGL-licensed providers in Germany must meet the highest requirements for the transparency of their random number generators and game processes. Cases like Kalshi show how important state supervision is, having access to the identity of actors and complete datasets in case of suspicion. While crypto platforms often operate with incentive programs that can create artificial volume, this is strictly prohibited in the German licensing model. Marketing activities must be approved and must not entice players to act irresponsibly. For the industry in Germany, this means a competitive advantage through trust, even if the regulatory hurdles are higher than abroad.