Right now, approximately $54 million in prediction market contracts may hinge on what "for each Contract" means. Kalshi, the CFTC-regulated prediction market exchange, explicitly does not run war or death contracts. But what if someone dies?
It’s more than reasonable not to want to potentially incentivize assassinations. We’d go so far as to say that’s a positive thing, in most cases. However, in most markets involving people, death is always a potential outcome. So, should an untimely death occur, how does the market account for that potential outcome?
In the case of the “Ali Khamenei out as supreme leader?” market, Kalshi’s rules attempt to account for the outcome of his death, while at the same time being careful that the market is not about the question of whether or not he'll die.
The language Kalshi used is as follows:
"If <leader> leaves solely because they have died, the associated market will resolve and the Exchange will determine the payouts to the holders of long and short positions based upon the last traded price (prior to the death). If a last traded price is not available or is not logically consistent, or if the Exchange determines at its sole discretion that the last traded prices prior to death do not represent a fair settlement value, the Outcome Review Committee will be responsible for making a binding determination of fair allocation. For the avoidance of doubt, the Exchange will distribute $1.00 for each Contract."
The first two sentences are reasonable. If Khamenei dies, they'll settle the market based on the last traded price. If that price doesn't make sense, a committee figures out a fair split.
The last sentence is where the potential ambiguity arrives:
"For the avoidance of doubt, the Exchange will distribute $1.00 for each Contract."
The ambiguity is: what exactly do they mean by “$1 for each Contract.” Is each position considered a “Contract?” Is each YES-NO pair that sums to $1 considered a “Contract?” Also what do they consider to be the trigger for "the avoidance of doubt?"
In Kalshi’s rulebook, they define “contract” as meaning “any contract, agreement, or transaction approved for trading on Kalshi pursuant to these Rules.”
And in their explanation of how to work with event contracts they say that “YES and NO contracts always come in pairs” while also describing the ability to buy individual YES and NO contracts.
So, which one is it? And who gets the $1. Everyone?
So, the potential issue here is that under one reading of this provision, if Khamenei dies, Kalshi, according to their own rules, may be required to distribute $1 to each contract.
A YES contract gets $1, and a NO contract gets $1. So Kalshi collected $1 (presumably the sum of the Yes and No positions) and now owes $2.
Now, Kalshi almost certainly didn't mean this. The most reasonable interpretation is that "for each Contract" is clarifying that the full dollar gets distributed to traders, split between sides according to the last traded price. That’s the likely intended reading, and the position they'll almost certainly take. But there is, at minimum, a colorable argument that the plain text says what it says. This is because the legal principle of contra proferentem holds that ambiguous contract language is interpreted against the party that drafted it. Kalshi wrote the rules and chose the words, so if a trader bought both YES and NO contracts and then argued in arbitration that they're owed $1 on each, they (theoretically) would have a sentence to point to.
All of this means that one of the most actively traded geopolitical prediction markets in the world, a market tracking the possible end of a 35-year theocratic regime, with implications for nuclear proliferation, regional stability, and oil prices, may contain a drafting error that entitles everyone to free money.