Kalshi Ends Volume Incentive Program Amid Wash Trading Scrutiny
Kalshi, the CFTC-regulated prediction market and event contracts platform, has notified its regulator that it will terminate its "Volume Incentive Program" no earlier than October 13, 2026. The move follows public allegations that repeated, fixed-size trades on its ether perpetual futures pair artificially inflated reported volume, raising questions about market integrity that accounting teams and compliance officers at digital asset firms cannot ignore.
What the Volume Incentive Program Was
Kalshi introduced its Volume Incentive Program in March 2023. The mechanics were straightforward: traders received payouts from reward pools in proportion to their share of eligible volume on the central limit order book. The stated goal was to deepen liquidity and, in the platform's own words, "enhance pricing efficiency." Eligible trades were those executed at prices between $0.03 and $0.97 on event contracts, keeping the scheme away from the extreme ends of the probability spectrum where spreads naturally widen.
How the Reward Structure Worked
Participants earned a slice of the reward pool based on the volume they contributed relative to the pool's total. That design is common across derivatives venues and decentralised exchanges alike: the more you trade, the larger your share. The problem is that this structure creates a financial incentive to generate volume for its own sake, independent of any directional view on the underlying outcome. When trades are executed at a near-constant size and with near-constant frequency, the line between genuine market-making and wash trading becomes difficult to draw, both for regulators and for the accountants reconstructing a client's trading record.
The Wash Trading Allegations
An anonymous X account publicly flagged what it described as suspicious activity on Kalshi's ETH perpetual futures market. The allegation centred on a stark disparity: roughly $539 million in 24-hour trading volume set against only $3.1 million in open interest. That ratio is unusual. In a healthy derivatives market, open interest and volume tend to move in broadly similar directions. A volume figure roughly 170 times larger than open interest suggests that a significant share of the activity involved positions being opened and closed very rapidly, possibly by the same or related parties.
The Repeated Trade Pattern
The specific conduct alleged was a pattern of trades clustered around $5,500 in notional value, repeated at high frequency. Over the prior month, those prints reportedly accounted for more than $5 billion in ETH perps volume on the platform. Kalshi pushed back publicly, stating that wash trading does not occur on its platform and attributing the repeated prints to market makers posting fixed quotes that faster traders, arbitrageurs or high-frequency strategies, continuously hit. That explanation is plausible in isolation, but it is precisely the kind of fact pattern that regulators examine closely when a volume incentive scheme is in place alongside it.
Kalshi's Position and CFTC Scrutiny
Reporting indicated that the CFTC was examining the trading activity following the allegations. Kalshi stated it was not under formal investigation over the matter. That distinction matters legally, but it does not mean the regulatory interest is immaterial. The CFTC has jurisdiction over Kalshi as a designated contract market, and any examination of trading patterns on its order book sits squarely within the agency's market surveillance remit. For context on how reduced commissioner capacity at both the CFTC and SEC affects the pace and priority of such reviews, see our earlier analysis of how reduced CFTC and SEC commissioner capacity affects crypto oversight.
Platform Volume and Investor Interest
The timing of the program termination is notable because Kalshi's headline volume numbers are strong. Monthly volume reached $52.98 billion in September 2026 as of September 29, surpassing the $38.67 billion recorded in August and representing an all-time high, though September data was not yet complete at the time of reporting. Those figures matter for context: they show a platform growing rapidly, which makes the wash trading allegations more consequential, not less. Inflated volume on a small platform is a nuisance; inflated volume on a platform handling tens of billions per month attracts a different order of regulatory attention.
Separately, Ark Invest announced that it has taken direct exposure to Kalshi through its ARKK, ARKW, and ARKF exchange-traded funds. Ark has sized the medium-term prediction market opportunity at $1 trillion to $5 trillion in annual volume. Kalshi is also reported to be in advanced talks to raise approximately $1 billion at a valuation of around $40 billion. The combination of institutional investor backing, a pending fundraise at a significant valuation, and an active regulatory examination makes the Volume Incentive Program termination a decision with material consequences beyond a routine product sunset.
Accounting and Bookkeeping Implications for Firms
For accounting firms, auditors, and CFOs whose clients trade on regulated derivatives venues, this situation highlights several practical issues that good crypto accounting software and workflow discipline can help address.
Distinguishing Incentive Receipts from Trading Gains
Any client who participated in Kalshi's Volume Incentive Program would have received reward pool payouts. Those receipts are not the same as trading gains. They are effectively performance-based rebates or revenue-sharing arrangements and need to be classified correctly in the books. Depending on the client's structure, they may fall as other income, fee income, or, for a market-making entity, as part of operating revenue. Lumping them together with mark-to-market gains on the underlying positions will misstate both the gross trading performance and the tax position.
Volume Data Integrity and Audit Trails
If the underlying volume figures on the platform were artificially elevated, any client reporting that relied on those figures, for example, for volume-weighted average price calculations, benchmarking, or performance attribution, may need to be revisited. Digital asset accounting software that pulls raw trade data from exchange APIs will capture the executed trades; it will not automatically flag whether those trades were economically motivated or incentive-driven. That is a human judgment call that the preparer needs to make, and it should be documented.
Wash Trading and Tax Treatment
In the US, wash trading has specific tax consequences. The wash sale rules under IRC Section 1091 do not currently apply to crypto assets directly, but the IRS has broader authority to disallow losses arising from transactions lacking economic substance. If a pattern of trades is later characterised by the IRS or a court as wash trading, the losses from those transactions could be disallowed, and the gains could still be taxable. For clients who traded heavily on Kalshi's ETH perps market under the volume incentive structure, a conservative approach is to flag those positions for review and retain detailed records of the business rationale for each trade.
AML and Transaction Monitoring Considerations
From an AML perspective, a pattern of repeated fixed-size trades designed to generate volume is a recognised red flag indicator in FATF guidance and in the CFTC's own surveillance frameworks. Accounting firms that also provide compliance advisory services should note that any client whose trading history on Kalshi includes the alleged $5,500 repeat pattern may attract scrutiny if transaction monitoring systems flag that data. Ensuring that the client's own compliance records reflect the incentive program context, and that the economic rationale for trades is documented, is the prudent course. For a broader look at how AML screening considerations feed into system architecture decisions, see our piece on how reduced CFTC and SEC commissioner capacity affects crypto oversight.
What Firms Should Do Now
The October 13 termination date is close. Firms with clients active on Kalshi's markets have a narrow window to take a few concrete steps.
Immediate Actions
First, identify any clients who participated in the Volume Incentive Program and pull a complete record of reward receipts. Classify those receipts correctly in the ledger before year-end. Second, review ETH perps trade history for the past month and assess whether any positions were entered primarily to generate incentive payments rather than for directional or hedging purposes. If the answer is yes, take legal advice on how to characterise those trades for tax purposes before filing. Third, flag the CFTC examination in any relevant client disclosures or risk assessments. Even if Kalshi is not under formal investigation, the regulatory attention is a material fact for clients with significant exposure to the platform. Finally, update internal AML transaction monitoring parameters to account for the pattern described in the allegations, particularly if your firm processes data from Kalshi's order book as part of a broader digital asset monitoring workflow. Robust crypto bookkeeping software and clear classification policies are the starting point, but the judgment calls on economic substance remain firmly in the hands of the practitioner.
Prediction markets occupy an unusual regulatory space in the US. Kalshi's long legal history with the CFTC, including its litigation over election contracts, shows that the platform has repeatedly pushed at the boundaries of what a designated contract market can offer. For background on where that regulatory boundary currently sits, our earlier analysis of Kalshi's Sixth Circuit appeal and what it means for prediction market regulation provides useful context.
Frequently Asked Questions
What exactly is the Volume Incentive Program that Kalshi is ending?
It was a reward scheme launched in March 2023 that paid traders a share of a pool based on the proportion of eligible volume they contributed to Kalshi's central limit order book. Eligible trades were those executed at prices between $0.03 and $0.97 on event contracts. The program aimed to attract liquidity providers and tighten spreads.
Does the CFTC examination mean Kalshi is under formal investigation?
Kalshi stated publicly that it was not under formal investigation over the wash trading allegations. The CFTC examination of trading patterns is a market surveillance activity, which is a standard regulatory function for a designated contract market. The distinction between an examination and a formal investigation matters legally, but it does not mean the regulatory interest is inactive or inconsequential.
How should accounting firms classify Volume Incentive Program payments in client books?
Reward pool payouts under the program are not trading gains. They are performance-linked rebates or revenue-sharing receipts and should be classified separately, typically as other income or, for market-making entities, as operating revenue. Mixing them with mark-to-market gains will misstate the trading P&L and potentially distort the tax position.
Could trades made under the incentive program be disallowed for US tax purposes?
The IRS wash sale rules under IRC Section 1091 do not currently apply directly to crypto assets, but the IRS retains authority to challenge transactions lacking genuine economic substance. If trades were entered solely to earn incentive payments with no independent business rationale, losses from those trades could be at risk of disallowance. Clients should retain detailed records of the business purpose for any high-frequency, fixed-size trades made during the incentive period.
What AML red flags should compliance teams be aware of?
Repeated fixed-size trades executed at high frequency, particularly where volume is disproportionate to open interest, are recognised indicators in FATF guidance and CFTC surveillance frameworks. Firms that monitor client activity on Kalshi should ensure their transaction monitoring parameters can identify this pattern and that any client with a matching trade history has documented the business rationale for those trades in their compliance files.
Source: The Block