Can the CFTC, traditionally focused on institutional traders and commercial hedgers, effectively oversee retail-heavy prediction markets? Should these platforms face the same strict integrity requirements as sportsbooks, barring insiders from trading on events they can influence? Should betting on political outcomes be allowed, or will it inevitably create perverse incentives that could undermine democracy? What types of events should be eligible for trading? Weather events and inflation rates might seem relatively uncontroversial, but what about contracts that could incentivize harmful real-world actions? And how should regulators balance consumer protection against personal responsibility when it comes to retail traders who may be, essentially, gambling beyond their means?

With prediction markets already handling billions of dollars in trades and more platforms launching every month, regulators need to grapple with these questions before the industry grows too big to effectively control. The cryptocurrency industry has shown how difficult it becomes to implement meaningful oversight once a poorly regulated industry accumulates enough money and political influence to push back — and the devastating cost to everyday people who get caught in the fallout.
Can the CFTC, traditionally focused on institutional traders and commercial hedgers, effectively oversee retail-heavy prediction markets? Should these platforms face the same strict integrity requirements as sportsbooks, barring insiders from trading on events they can influence? Should betting on political outcomes be allowed, or will it inevitably create perverse incentives that could undermine democracy? What types of events should be eligible for trading? Weather events and inflation rates might seem relatively uncontroversial, but what about contracts that could incentivize harmful real-world actions? And how should regulators balance consumer protection against personal responsibility when it comes to retail traders who may be, essentially, gambling beyond their means? With prediction markets already handling billions of dollars in trades and more platforms launching every month, regulators need to grapple with these questions before the industry grows too big to effectively control. The cryptocurrency industry has shown how difficult it becomes to implement meaningful oversight once a poorly regulated industry accumulates enough money and political influence to push back — and the devastating cost to everyday people who get caught in the fallout.
Unanswered questions
When Bill Ackman casually suggested Eric Adams could “fund his future” by betting on his own withdrawal from the mayoral race, he inadvertently highlighted some of the thorny questions around prediction markets. The industry’s growth under Trump’s deregulatory agenda is likely just beginning, and more companies are entering the space — from crypto exchanges to gambling platforms. Some will probably follow Kalshi’s playbook of aggressive litigation to expand the range of permissible contracts. Others may copy Polymarket’s approach of trying to skirt regulatory authority with crypto-denominated trades. Some gambling platforms may attempt a version of regulatory arbitrage, particularly if the outcomes of ongoing court cases suggest that such companies can dodge heavy taxes and onerous compliance burdens by reinventing themselves as trading platforms.

Without much oversight, these markets are ripe for manipulation. The gambling-like nature of many markets, combined with limited addiction prevention programs, likely puts vulnerable users at risk. And election markets create concerning new financial incentives that could further corrupt democratic processes.
Unanswered questions When Bill Ackman casually suggested Eric Adams could “fund his future” by betting on his own withdrawal from the mayoral race, he inadvertently highlighted some of the thorny questions around prediction markets. The industry’s growth under Trump’s deregulatory agenda is likely just beginning, and more companies are entering the space — from crypto exchanges to gambling platforms. Some will probably follow Kalshi’s playbook of aggressive litigation to expand the range of permissible contracts. Others may copy Polymarket’s approach of trying to skirt regulatory authority with crypto-denominated trades. Some gambling platforms may attempt a version of regulatory arbitrage, particularly if the outcomes of ongoing court cases suggest that such companies can dodge heavy taxes and onerous compliance burdens by reinventing themselves as trading platforms. Without much oversight, these markets are ripe for manipulation. The gambling-like nature of many markets, combined with limited addiction prevention programs, likely puts vulnerable users at risk. And election markets create concerning new financial incentives that could further corrupt democratic processes.
I posed the same question to Cristea. “What’s the difference between gambling and trading? The difference is likely whether certain activity is done on a federally-regulated market, like a CFTC or SEC registered exchange.” He acknowledged that, particularly for unsophisticated investors, the line between gambling and trading can be blurry regardless of where they’re placing their bets or trades. “If you have a gambling addiction, could you satisfy it by going and trading an oil future or a gas contract or a Microsoft stock? Maybe. ... I mean, there are people who are day trading, right? And if you talk to anybody about day trading, especially people who work in finance, they will likely say, ‘oh no, I invest in ETFs, money market or mutual funds. Day trading is like gambling all the way.’”
I posed the same question to Cristea. “What’s the difference between gambling and trading? The difference is likely whether certain activity is done on a federally-regulated market, like a CFTC or SEC registered exchange.” He acknowledged that, particularly for unsophisticated investors, the line between gambling and trading can be blurry regardless of where they’re placing their bets or trades. “If you have a gambling addiction, could you satisfy it by going and trading an oil future or a gas contract or a Microsoft stock? Maybe. ... I mean, there are people who are day trading, right? And if you talk to anybody about day trading, especially people who work in finance, they will likely say, ‘oh no, I invest in ETFs, money market or mutual funds. Day trading is like gambling all the way.’”
These platforms maintain that they offer financial services that shouldn’t be considered wagers. But are they really so different? “Pragmatically, I think for the retail individual, they don’t see a difference,” says Kim. “I think retail individuals trading on these platforms are not thinking of it as not gambling. They’re just thinking of it as one more outlet for them to participate in the opportunity to put money on an event.” Recent research supports this, with a study from the American Gaming Association finding that most Americans view sports-related prediction markets as a form of gambling.10 But at the same time, Kim sees some legitimate arguments from these platforms that they are offering swaps and not wagers, at least when it comes to a strict reading of the law.

Slide from a report by the American Gaming Association, titled “Nearly All Americans Recognize Sports Events Contracts as Gambling, Not a Financial Instrument”. Contents: “What are prediction markets most like? Thinking specifically about sports related prediction contracts now. Imagine a scenario where you pay 50 cents to buy a contract that the New York Yankees will win tonight’s game. If the Yankees win, you’ll be paid $1, if they lose you would lose your 50 cents and have nothing. Would you consider this specific type of sports prediction market to be:” Pie chart, showing 85% say “A form of 10% gambling, like sports betting”, 6% say “A financial instrument, like options or commodity futures”, 10% s
These platforms maintain that they offer financial services that shouldn’t be considered wagers. But are they really so different? “Pragmatically, I think for the retail individual, they don’t see a difference,” says Kim. “I think retail individuals trading on these platforms are not thinking of it as not gambling. They’re just thinking of it as one more outlet for them to participate in the opportunity to put money on an event.” Recent research supports this, with a study from the American Gaming Association finding that most Americans view sports-related prediction markets as a form of gambling.10 But at the same time, Kim sees some legitimate arguments from these platforms that they are offering swaps and not wagers, at least when it comes to a strict reading of the law. Slide from a report by the American Gaming Association, titled “Nearly All Americans Recognize Sports Events Contracts as Gambling, Not a Financial Instrument”. Contents: “What are prediction markets most like? Thinking specifically about sports related prediction contracts now. Imagine a scenario where you pay 50 cents to buy a contract that the New York Yankees will win tonight’s game. If the Yankees win, you’ll be paid $1, if they lose you would lose your 50 cents and have nothing. Would you consider this specific type of sports prediction market to be:” Pie chart, showing 85% say “A form of 10% gambling, like sports betting”, 6% say “A financial instrument, like options or commodity futures”, 10% s
The regulatory landscape shifted further after Trump took office. The CFTC’s interim leadership began championing prediction markets as “an important new frontier”,4 and dropped both their appeal in the Kalshi case and an ongoing investigation into Polymarket’s continued accessibility to US users [I89]. Polymarket acquired a CFTC-regulated derivatives exchange, and a no-action letter from the agency greenlighted their re-entry into the US [I92]. With the administration’s deregulatory stance and a nominee for CFTC Chair who sits on Kalshi’s board [I90], this permissive approach is likely to accelerate in the coming years. More companies are eager to join the fray, with Crypto.com, Robinhood, and even the sports betting company FanDuel adding event contracts to their offerings. Eyeing this lucrative market, they’re likely to follow their predecessors’ lead in pushing regulatory boundaries even if it means expensive litigation. Following the crypto industry playbook, they may also lobby Congress for special exemptions.
The regulatory landscape shifted further after Trump took office. The CFTC’s interim leadership began championing prediction markets as “an important new frontier”,4 and dropped both their appeal in the Kalshi case and an ongoing investigation into Polymarket’s continued accessibility to US users [I89]. Polymarket acquired a CFTC-regulated derivatives exchange, and a no-action letter from the agency greenlighted their re-entry into the US [I92]. With the administration’s deregulatory stance and a nominee for CFTC Chair who sits on Kalshi’s board [I90], this permissive approach is likely to accelerate in the coming years. More companies are eager to join the fray, with Crypto.com, Robinhood, and even the sports betting company FanDuel adding event contracts to their offerings. Eyeing this lucrative market, they’re likely to follow their predecessors’ lead in pushing regulatory boundaries even if it means expensive litigation. Following the crypto industry playbook, they may also lobby Congress for special exemptions.
In 2020, the US-based Polymarket began allowing customers to use cryptocurrency to trade events contracts, though they made no effort to certify their contracts with the CFTC. In 2021, Kalshi emerged as the first fully regulated prediction market in the US, following a hard-won CFTC approval. That platform allowed traders to stake up to $25,000 on outcomes ranging from COVID-19 vaccination rates to record-breaking temperatures.

The CFTC cracked down on prediction markets in 2022. First, they hit the unregistered Polymarket with a $1.4 million fine and ordered it to stop offering unregistered event contracts to US customers, effectively shutting the platform out of the American market.2 Then they revoked PredictIt’s no-action letter,3 apparently concluding the platform had expanded beyond its academic purpose into a commercial enterprise. PredictIt challenged this decision in court, winning a preliminary victory in 2023 and a final one in 2025. In 2023, the CFTC ordered Kalshi to stop offering markets on which party would control Congress after the upcoming elections, citing the Commodity Exchange Act’s prohibition on “gaming”. Kalshi also mounted an aggressive legal challenge, and when a district court ruled in Kalshi’s favor in 2024, the company swiftly reinstated the contested markets [I66].
In 2020, the US-based Polymarket began allowing customers to use cryptocurrency to trade events contracts, though they made no effort to certify their contracts with the CFTC. In 2021, Kalshi emerged as the first fully regulated prediction market in the US, following a hard-won CFTC approval. That platform allowed traders to stake up to $25,000 on outcomes ranging from COVID-19 vaccination rates to record-breaking temperatures. The CFTC cracked down on prediction markets in 2022. First, they hit the unregistered Polymarket with a $1.4 million fine and ordered it to stop offering unregistered event contracts to US customers, effectively shutting the platform out of the American market.2 Then they revoked PredictIt’s no-action letter,3 apparently concluding the platform had expanded beyond its academic purpose into a commercial enterprise. PredictIt challenged this decision in court, winning a preliminary victory in 2023 and a final one in 2025. In 2023, the CFTC ordered Kalshi to stop offering markets on which party would control Congress after the upcoming elections, citing the Commodity Exchange Act’s prohibition on “gaming”. Kalshi also mounted an aggressive legal challenge, and when a district court ruled in Kalshi’s favor in 2024, the company swiftly reinstated the contested markets [I66].
The history of prediction markets
Prediction markets — platforms where people trade contracts that pay out based on whether specific events happen — have enjoyed a surge in popularity over the last few years as they’ve dramatically expanded their operations in the United States. While they have existed for decades, they were long confined to strictly academic exercises — operating as small-scale non-profits that carefully constrained their operations to avoid running afoul of the CFTC. The pioneers were university-affiliated non-profits like Iowa Electronic Markets, which capped trades at modest dollar amounts, and later PredictIt, which followed a similar model. The CFTC allowed their elections- and economy-related markets by issuing no-action letters, recognizing there was value in studying whether crowdsourcing predictions through financial markets could outperform traditional polling and forecasting methods.
The history of prediction markets Prediction markets — platforms where people trade contracts that pay out based on whether specific events happen — have enjoyed a surge in popularity over the last few years as they’ve dramatically expanded their operations in the United States. While they have existed for decades, they were long confined to strictly academic exercises — operating as small-scale non-profits that carefully constrained their operations to avoid running afoul of the CFTC. The pioneers were university-affiliated non-profits like Iowa Electronic Markets, which capped trades at modest dollar amounts, and later PredictIt, which followed a similar model. The CFTC allowed their elections- and economy-related markets by issuing no-action letters, recognizing there was value in studying whether crowdsourcing predictions through financial markets could outperform traditional polling and forecasting methods.
Election integrity presents another major concern, as prediction markets create new financial incentives that some fear could (further) distort democratic processes. When defending its ban on Kalshi’s Congressional contracts in court, the CFTC found support from consumer rights advocacy groups like Public Citizen, whose Lisa Gilbert warned that “layering in gambling on our elections will take our democracy in precisely the wrong direction.”11 In an amicus brief, the financial reform group Better Markets argued these markets threaten both investors and democratic institutions.12 “Evidence is fast emerging that these types of election wagering contracts may already be serving as instrumentalities of either election manipulation for political gain, market manipulation for financial gain, or both,” they wrote, citing a Wall Street Journal article suggesting that Polymarket traders might have been artificially pumping up contract prices on a Trump election victory.13

Going back to Ackman’s idea: directly paying a candidate to drop out of a race is likely illegal, but it’s not clear if laws aimed at maintaining election integrity could be applied to prediction markets. Public Citizen’s government ethics expert Craig Holman is skeptical. “I do not see how that type of unethical election gambling would be illegal, even if you could prove deceptive intent,” he explains.
Election integrity presents another major concern, as prediction markets create new financial incentives that some fear could (further) distort democratic processes. When defending its ban on Kalshi’s Congressional contracts in court, the CFTC found support from consumer rights advocacy groups like Public Citizen, whose Lisa Gilbert warned that “layering in gambling on our elections will take our democracy in precisely the wrong direction.”11 In an amicus brief, the financial reform group Better Markets argued these markets threaten both investors and democratic institutions.12 “Evidence is fast emerging that these types of election wagering contracts may already be serving as instrumentalities of either election manipulation for political gain, market manipulation for financial gain, or both,” they wrote, citing a Wall Street Journal article suggesting that Polymarket traders might have been artificially pumping up contract prices on a Trump election victory.13 Going back to Ackman’s idea: directly paying a candidate to drop out of a race is likely illegal, but it’s not clear if laws aimed at maintaining election integrity could be applied to prediction markets. Public Citizen’s government ethics expert Craig Holman is skeptical. “I do not see how that type of unethical election gambling would be illegal, even if you could prove deceptive intent,” he explains.