“they seem designed less for the provision of liquidity than the inflation of volume”
Kalshi's perpetual futures on Bitcoin and Ether topped a billion dollars of volume in their first week, and a recent paper flagged a striking anomaly in the trade-level data: almost sixty percent of the Ether perp's volume came from trades of nearly identical dollar size, which it attributed to wash trading. Sethi offers a cleaner explanation grounded in Kalshi's market-maker rewards. Because a perp tracks its underlying almost instantly, a maker who posts at the minimum size needed for the rebate is exposed to adverse selection, and any quote that survives even briefly gets picked off in a single fill by arbitrageurs watching the spot price. Volume therefore clusters at the reward threshold without any colluding counterparties, but the rewards end up flowing to aggressive low-latency traders rather than buying the resting liquidity they were meant to purchase. Sethi argues the fee refunds Kalshi pays high-volume takers make this worse, and notes a recent CFTC advisory warning that incentive schemes built around volume targets invite exactly this kind of distortion.
Some technical background helpful
Platforms mentioned: Kalshi