Kalshi to Remove Volume Rewards as $5 Billion in Trading Faces Review

Kalshi has filed to end a rewards program for trading, which was launched on October 13 at the earliest, amid ongoing queries regarding billions of dollars in Ether perpetual futures transactions on the exchange. According to a filing made on September 28 to the Commodity Futures Trading Commission (CFTC), KalshiEX plans to end its Volume Incentive Program, which pays out to qualifying traders based on their participation in trading activity. This document is stated without any explanation as to why this program is being ended or its relation to recent allegations against the exchange's perpetual futures volume.

Kalshi's Perpetual Futures Incentives Operate Separately From Volume Rewards

The termination comes during a record month for Kalshi. According to data quoted by The Block, the trading volume in September hit $52.98 billion (roughly Rs. 5,07,899 crore) through September 29, more than its August tally of $38.67 billion (roughly Rs. 3,70,729 crore). Before August, in July, Kalshi accounted for around $37.7 billion (roughly Rs. 3,61,430 crore) out of $50.6 billion (roughly Rs. 4,85,102 crore) registered by Kalshi, Polymarket, and Polymarket US. Initially, Kalshi registered the Volume Incentive Program with the CFTC back in February 2023 and anticipated it taking effect from March 1 of the same year. Back then, the exchange had noted that the program would be geared towards increasing the liquidity and trading volume on its central limit order book.    

Under the new rules, the amount earned will be proportional to one's percentage of the total qualifying completed volume within a certain market out of a pool of rewards. Trading must usually take place at prices that lie between $0.03 (roughly Rs. 2.5) and $0.97 (roughly Rs. 93). However, it is stated in the filing that this price range is inapplicable to perpetual futures. 
The eligible volume can be restricted to the maker and taker sides when it is revealed on the pertinent market page.

According to Kalshi's registration, each rewards cycle can last up to 31 days only. The rewards for event contracts can reach $0.005 (roughly Rs. 4.7) per contract for each user, and Kalshi has the right to exclude a particular trader from the program if the behavior of the trader is abusive or does not fit the purposes of the program.

As per a report in The Wall Street Journal, the CFTC is said to be investigating trades that are almost similar and are perpetual trades for Ether, in an amount very close to $5,500 (roughly Rs. 5.2 lakh) per trade. Over a period of about one month, the total trading volume stood at more than $5 billion (roughly Rs. 47,935 crore) in trade size, according to a report. The journal described the regulator's activity as a review and did not report that a formal enforcement investigation had been opened. 

Kalshi's reply draws a key point that distinguishes volume rewards from the liquidity provider incentives employed by Kalshi in its perpetual futures markets. The company further explains that its perpetual market-making schemes typically compensate individuals for holding certain amounts of bid and ask orders at particular price spreads for a predetermined amount of time, as opposed to compensating based on the volume of trades that happen against the bids.