Stew, a 35-year-old from Montana, has enjoyed dabbling in sports bets since he downloaded the Kalshi app about 18 months ago.
But just a few weeks ago, after spotting reports of elevated pizza deliveries around the Pentagon during some late-night scrolling, he made a different kind of bet – wagering $10 (£7.50) on the odds that Iran’s Ayatollah Ali Khamenei would be “out” by 1 March.
It was a trade that tested the limits of the kinds of bets Americans are allowed to make.
So-called predictions markets – overseen by firms such as Kalshi – have exploded in popularity over the last year, hosting more than $44bn in trades.
They are rapidly transforming the betting landscape in the US, where sports betting was largely illegal until 2018 and gambling on elections had been off-limits for years until 2024.
While much of the activity on the platforms revolves around sporting matches, users can speculate on any number of questions, including local elections, whether the US central bank will cut interest rates and the year of Jesus Christ’s return.
The apps caught fire during America’s 2024 presidential campaign, after a legal victory cleared the way for them to accept election bets and they showed the odds tilting toward Donald Trump.
But it is more grisly wagers tied to military action involving Iran, Venezuela and Israel that have drawn attention lately.
In theory, such bets run afoul of US financial rules, which bar trading on contracts involving war, terrorism, assassination, gaming or other illegal activities.
But that hasn’t stopped firms from taking in millions of trades.
Critics have seized on the activity, calling for a crackdown on the apps, which they say are facilitating unseemly, and potentially illegal, war profiteering, generating national security risks and enabling opportunities for insider trading and corruption.
“You have now opened up gambling basically on almost anything and it has turned into this very, very gruesome type of thing on the death of a head of state,” said Craig Holman, government affairs lobbyist at the Public Citizen advocacy group, which recently filed a complaint this week over the bets.
Polymarket alone has hosted what Bloomberg estimated as more than $500m in bets related to the Iran war, at one point offering an opportunity to play the odds on the chance of nuclear detonation.
The company, which is headquartered in New York but operates on a limited basis in the US, eventually removed that market after it drew scrutiny on social media but users can still submit bets on questions like when US forces will enter Iran. It did not respond to the BBC’s request for comment.
Kalshi also ended up cancelling the Khamenei market, which had drawn $54m in trades, noting that US-regulated entities are barred from “having a market directly settling on someone’s death”.
The company, which did not respond to a request for comment for this article, has said the war bets are happening on unregulated exchanges outside the US.
Concerns about the war bets have collided with a bigger battle over how prediction market firms should be regulated.
Unlike traditional gaming firms, in which the odds are set by the company, prediction market companies function more like a stock exchange, allowing users to bet against each other on the outcome of future events using “event contracts”.
That design has allowed national financial regulators at the Commodities Futures Trading Commission (CFTC) to claim oversight.
But critics say they are sports betting and gambling operations trying to dress up as financial exchanges in a bid to avoid stricter rules and taxes faced by traditional gaming firms, which are regulated by the states.
Disagreement over who should be policing the apps has sparked dozens of legal battles across the US, as states start to assert their right to regulate the companies like other gaming firms, rather than leave oversight up to the CFTC.
Even some Republicans have voiced concerns, as traditional gaming firms have also stepped up their lobbying, enlisting a savvy former Trump official, Mick Mulvaney, to plead their case in Washington.
“Nobody is saying that gambling shouldn’t be allowed,” says Ben Schiffrin, director of securities policy at Better Markets, which advocates for financial reforms. “What the states are saying and other advocates are saying is things that are gambling should be regulated as gambling.”
Suspiciously timed bets related to military operations involving Israel, Venezuela and Iran have added fodder to those calls.
In recent weeks, Democrats have introduced legislation to bar federal officials from trading event contracts, pointing to incidents such as when a gambler new to Polymarket made nearly half a million dollars on the capture of Venezuela’s president just before it was officially announced.
They have also issued alerts to consumers about the risks of insider trading and written to the administration urging it to more clearly enforce the rules against wagering on war.
But the odds of a crackdown remain long.
Though the Biden administration had taken a hard line on the sector, proposing to ban sports and politics-related event contracts, that regulatory drive stalled after a court defeat and the 2024 election of Donald Trump, who came to power promising a lighter hand.
Last month, the CFTC said it would withdraw the proposed ban on sports and election related contracts.
It has also taken the side of prediction market firms in the legal fights they are facing in the states, which Michael Selig, Trump’s chairman of the Commodity Futures Trading Commission, condemned in a recent opinion piece as “overzealous”.
He argued that event contracts served “legitimate economic functions”, allowing businesses to hedge against risks triggered by events.
“It’s clear that Americans like the product and want to participate,” he said, while also emphasising that platforms must still follow rules.
As the pressure mounts, Polymarket has announced steps to more formally police suspicious activity, while Kalshi, which advertises its status as a “regulated exchange”, has become more vocal about what it is doing to combat insider trading.
It recently announced punishments in two cases of insider trading and disclosed that it had opened up 200 investigations over the last year.
The company also ultimately cancelled the $54m market around Khamenei’s ouster.
In a series of statements explaining the decision, the firm said it did not “list markets directly tied to death”, noting that its terms had included that carve-out.
It promised to make the terms more clear from the get-go, saying it had “learned a lot” from the incident.
