The Prediction Markets Space Gets Even Messier Is the X-Polymarket Deal Really an Act of Revenge Against Trump?

An Unfortunate Turn of Events

On May 20, industry media were abuzz with news of a deal between Kalshi and xAI, the AI company majority-owned by Elon Musk. This was major news, signaling that Kalshi was diving deeper into the mainstream and suggesting that the platform, which draws 80% of its volume from sports contracts, was gearing up for a full-on summer lull in sports.

The news broke, and an excited Tarek Mansour, Kalshi’s CEO, showered praise on Elon Musk. “No one has fought for truth harder than Elon Musk. He has inspired me at every step. I could not be more excited to announce Kalshi’s upcoming partnership with xAI to further take prediction markets mainstream. Together, we’ll shape the future of news and information,” Mansour declared.

The problem? Just hours later, all traces of the original partnership announcement vanished. The Bloomberg article disappeared, as did Mansour’s post. Soon after, a Kalshi spokesperson clarified that the announcement was premature, with details still being ironed out by both sides. A major communication team blunder. Stuff happens, right? Well, not quite.

The topic of the existing-or-not partnership was quietly fading when Friday dropped a confusing bombshell. X had struck a deal with Polymarket, the world’s largest offshore prediction platform, which, despite its legal status in the U.S., remains a significant rival to Kalshi. This is problematic, mainly because Polymarket, unlike Kalshi, doesn’t operate legally in the United States, where most of X’s users reside.

How Polymarket Vanished from the U.S.

Let’s recap Polymarket’s U.S. saga briefly. In January 2022, long before prediction markets and platforms like Kalshi truly took off, the Commodity Futures Trading Commission (CFTC) slapped Polymarket with charges for offering unregistered event-based binary options contracts outside a regulated exchange.

At the time, the CFTC deemed these contracts “swaps” under its jurisdiction per the Commodity Exchange Act (CEA). Per the CEA, such swaps can only be offered on a registered designated contract market (DCM) or swap execution facility (SEF). Polymarket was neither.

Polymarket didn’t draw a sword to fight. Instead, it signed a settlement that included:

• Paying a $1.4 million fine (reduced due to Polymarket’s “significant cooperation” in the investigation)
• Ceasing and refraining from further violations of the CEA and CFTC regulations
• Withdrawing all markets non-compliant with the CEA and CFTC rules

As a result, Polymarket officially exited the U.S. market and blocked U.S. users. Meanwhile, not without regulatory hurdles, it sought to grow in Europe. Until Friday, Polymarket’s U.S. story seemed largely closed. Now, it’s cracking open again.

What This Partnership Offers the Parties

Details of the X partnership remain vague for now. Beyond broad statements about official partner status, integration, increased engagement, and building credibility, it’s hard to pin down how this will work. Likely, X users will get access to widgets integrated on the platform showing market conditions for specific events. Will users eventually be able to place trades directly on X? We don’t know.

Musk is a fan of prediction markets. Or at least he was when platforms like Polymarket accurately predicted Donald Trump’s presidential election win. Musk shared the view that they reflect collective intelligence, liking the idea of assessing event likelihood based on money flows in the market. But as we know, since the second half of last year, some of Musk’s likes and dislikes have gone stale.

Broadly, a partnership between X and a prediction platform makes sense, especially since Musk, Kalshi, and Polymarket, rightly or wrongly, share a free-speech advocate label. In recent years, X has often gone against the grain, making a Polymarket deal fit neatly into the picture. But there’s a slew of issues, particularly glaring for the gambling industry.

Is the Polymarket Deal an Act of Revenge?

On the surface, the theory that the Polymarket deal is an act of revenge against Donald Trump seems to hold water. Last week, Musk and Trump’s paths sharply diverged, with their friendly advisory relationship turning into mutual accusations and threats. The biggest clue for this theory is that Donald Trump Jr. serves as a strategic advisor to xAI’s would-be partner, Kalshi.

The story would go like this: Musk and Trump’s relationship had been souring for a while, even as talks unfolded between xAI (majority-owned by Musk) and Kalshi (advised by Trump Jr.). When the deal was finalized and announced, Musk allegedly decided to ostentatiously block it, which tracks with the informational chaos that ensued.

Would Musk be capable of this? Yeah, absolutely. He totally would. But this is just a theory that makes sense in parts but doesn’t have to be true overall. It assumes that in under two weeks since killing the Kalshi deal, all details of a Polymarket agreement were hammered out.

“It’s hard to believe the Polymarket-X deal came together in the past two weeks, although not impossible. Is it feasible that Kalshi announced the xAI deal, but ‘big’ X had been working on the Polymarket deal in the background and said, ‘Whoa, hold on there, Kalshi,’” assesses Dustin Gouker from Event Horizon.

Perhaps X’s talks with Polymarket were ongoing for a while, and xAI’s with Kalshi were separate. When the announcement dropped, the inconsistency hit hard, and xAI had to defer to the main X’s interests.

Will Polymarket Return to the U.S.?

Stepping away from conspiracy theories, the Polymarket partnership can still be interpreted in several ways. First, does this move signal Polymarket’s intent to return to the United States? Well, a lot has changed since 2022. Prediction markets have become a de facto alternative to sports betting, even seen as a direct threat to it.

Today’s CFTC is a far cry from the one that charged Polymarket. Honestly, it’s hard to say much about the current CFTC, as it essentially consists of just one unconfirmed chairman, Kalshi board member Brian Quintenz. Once confirmed, Quintenz’s Kalshi ties will be severed, but does that change much when, after a mass exodus, the commission might lose any capacity to oversee prediction markets?

Either way, after Kalshi’s expansion, Crypto.com’s moves, and Robinhood’s bolder steps, with little pushback beyond a few states Kalshi is battling in court, a Polymarket U.S. comeback would make sense and further shake up the landscape. Will it happen?

How does X’s partnership with BetMGM, for whom prediction platforms are direct competition and a threat, fit into this? It’s undeniably a juicy situation where some pieces don’t quite add up, as we lack full info. But it’s hard to rule out that something big is coming for U.S. prediction markets, poised to rattle the current scene. Notably, this looks like Kalshi’s first major setback since prediction markets took off last fall.