Custody

On a Designated Contract Market operating under CFTC oversight, customer funds deposited as collateral for Event Contract positions are subject to strict segregation requirements. The exchange's affiliated Derivatives Clearing Organization holds these funds in accounts legally separate from the platform's operating capital. CFTC rules prescribe which instruments the segregated funds may be invested in — primarily US Treasuries and money market funds — to ensure they remain liquid and low-risk. Revised DCO rules finalized in 2025 further strengthened investment restrictions and mandated additional funding mechanisms for DCO guarantee funds. In the event of platform insolvency, segregated customer funds are prioritized for return to traders before any other creditors are paid. Kalshi publicly discloses that the first layer of user protection is this segregated account structure, distinct from SIPC or FDIC coverage.

On Decentralized Prediction Market venues like the original Polymarket (pre-US relaunch), asset custody sits with the trader and the blockchain protocol. Users connect a Crypto Wallet such as MetaMask, deposit USDC Collateral into smart contracts, and receive on-chain position tokens. The platform operator never holds funds directly, which eliminates traditional Counterparty Risk from exchange insolvency. However, this model introduces distinct hazards: smart contract bugs can drain funds irrecoverably, USDC depeg events (where the stablecoin loses its dollar peg) reduce collateral value, and lost private keys mean permanent loss with no recourse. There is no regulatory body to complaint to, no segregation audit, and no guarantee fund. Traders on decentralized platforms therefore bear full personal responsibility for custody security, including wallet hygiene, seed phrase storage, and approval management to avoid phishing exploits.