Prediction markets tied to natural disasters are drawing fresh criticism after California lawmakers pushed back against Polymarket markets connected to the deadly Los Angeles wildfires. More than $1 million in trading activity was tied to questions involving the Palisades and Eaton fires, including how many acres would burn and when fires would be contained. Now lawmakers want the Commodity Futures Trading Commission to consider new restrictions around wildfire prediction markets.
The debate is particularly sensitive because these aren't abstract political or economic events. The Palisades and Eaton fires collectively killed more than 30 people, destroyed thousands of homes and left communities dealing with the aftermath long after the flames were extinguished.
Lawmakers Want New Guardrails Around Wildfires
California Sens. Alex Padilla and Adam Schiff are among nine U.S. senators who sent a letter to the CFTC asking the regulator to address prediction markets involving wildfires and other deadly disasters. The senators want what they describe as "common sense guardrails" around contracts that could allow traders to financially benefit from destructive events.
Their concerns aren't limited to whether these markets are appropriate. Lawmakers also argue that certain contracts could theoretically create an incentive for someone to influence an outcome, particularly when something such as the total acreage burned could be affected by malicious activity.
The markets cited by lawmakers included questions such as:
- How many acres would the Palisades Fire burn?
- Would active wildfires be fully contained by a certain date?
- How large would specific fires become?
- When would particular wildfire events end?
No reports cited by lawmakers suggest a trader actually attempted to influence one of these outcomes. The concern is centered on the possibility created by the incentive structure.
Polymarket Defends the Information Value
Polymarket sees the issue differently. The company said its platform provides information through market-generated probabilities, arguing that people turn to prediction markets during major events for another way to understand what could happen next. Polymarket also stressed that it operates a peer-to-peer marketplace and doesn't take the opposite side of customer trades or profit based on which outcome occurs.
The company acknowledged the potential risks associated with sensitive markets but argued that removing them doesn't prevent disasters and could make useful information less accessible. There's also an important distinction between Polymarket's international operation and its U.S. exchange. According to the company, wildfire contracts haven't been offered on its domestic platform since January 2025.
Disaster Markets Create a Different Kind of Debate
Prediction markets have expanded into seemingly every corner of the news cycle, from elections and sports to weather and economic data. Natural disasters introduce a much harder question about where platforms should draw the line.
You can make an argument that market prices provide useful real-time information about uncertain events. At the same time, it's easy to understand why someone who lost a home in a wildfire might feel very differently about strangers trading on how much destruction that fire will ultimately cause.
That tension is unlikely to disappear. Wildfires, hurricanes, and other disasters occur regularly, meaning platforms and regulators will likely need to establish clearer standards rather than handle each controversy individually.
The Trade Handle Prediction Markets Take
We think this is exactly the type of issue the prediction market industry needs to address before regulators address it for them. There's a meaningful difference between trading on an election result or a football game and creating markets around disasters in which lives, homes, and entire communities are directly at risk.
Prediction markets can provide valuable information, but that doesn't mean every measurable event needs a tradable contract. Clear boundaries around sensitive markets could ultimately help the industry rather than limit it. As prediction markets become more mainstream, deciding what shouldn't become a market may prove just as important as deciding what should.