February 24, 2026
The practice of buying and selling contracts based on the outcome of future events has undergone a recent, remarkable transformation in the United States. What was once an activity conducted almost exclusively through offshore platforms (or “exchanges”) under the Commodity Futures Trading Commission’s (“CFTC”) regulatory regime for “event contracts” or were limited academic experiments, has exploded into a multi-billion-dollar industry reshaping how Americans engage with speculation on everything from elections to sports. This growth has coincided with the dramatic expansion of legal sports betting across America, creating a landscape where the boundaries between commodity derivatives and gambling have become increasingly blurred. As this market continues its rapid expansion, it raises profound questions about fairness, investor protection, regulatory oversight, and whether our government will establish a protective framework before, rather than after, significant consumer harm occurs.
The Explosive Growth of Prediction Markets
Super Bowl LX: A Case Study in Convergence
The transformation of American betting was on full display during Super Bowl LX when the Seattle Seahawks defeated the New England Patriots. The game served as a flashpoint for the collision between traditional sports betting and the new world of prediction markets—and illustrated both the scale of the phenomenon and the regulatory questions it raises.
Total Super Bowl LX betting wagers (the “handle”) approached approximately $1.7 billion. But the real story is the emergence of prediction markets as a genuine alternative to traditional sports betting. Traders on Kalshi and Polymarket (two major prediction market trading platforms) swapped more than $800 million in contracts tied to the Super Bowl.
The timing of the increase in predictive market betting was not coincidental. Just days before the Super Bowl, which is historically one of the most heavily wagered sporting events in the country, new CFTC Chairman Michael Selig withdrew a 2024 proposed rule that would have banned sports and politics-related wagers on prediction markets, signaling the federal government’s embrace of the industry.
The growth since platforms like Kalshi and Polymarket launched in 2020 has been extraordinary. In 2025, total prediction market trading volume reached approximately $44 billion across major platforms, split between $21.5 billion on Polymarket and $17.1 billion on Kalshi. This represents a nearly 130% increase for Polymarket alone, who had a total trading volume of $9 billion in 2024. This explosive growth has even led to major trading firms like Susquehanna International Group and Jump Trading becoming big players in prediction markets, along with familiar names in the retail space, such as Robinhood.
From Foreign Shores to American Mainstream
For decades, prediction markets operated primarily outside U.S. marketplaces, or in narrow, academic contexts. Intrade, founded in Ireland in 2001, became the most prominent early example of a commercial prediction market. The platform offered peer-to-peer binary contracts on event outcomes and gained widespread media attention for its accuracy in predicting the 2008 and 2012 U.S. presidential elections.
The limited academic alternative, the Iowa Electronic Markets launched in 1988 and operated under a CFTC “no-action” letter.
The landscape changed dramatically in 2020, with the founding of Kalshi and Polymarket, which would become the dominant platforms.
What Can People Bet On?
The range of contracts available on prediction markets has expanded dramatically. While political events remain significant, the universe of tradeable outcomes now encompasses virtually every category of measurable future events, such as elections, sports outcomes, and award shows. More specifically, people can bet on more nuanced events such as specific legislative or political decisions, individual sports match outcomes, top streaming musical artists, the length of the Super Bowl halftime show and even the likelihood of specific celebrities attending it
The Parallel Rise of Legal Sports Betting
The growth of prediction markets has coincided with (and been accelerated by) the dramatic expansion of legal sports betting in the United States. On May 14, 2018, the Supreme Court struck down the Professional and Amateur Sports Protection Act in Murphy v. NCAA, freeing individual states to regulate sports wagering. The transformation has been remarkable since. In 2018, legal sports betting generated only $4.6 billion in handle nationwide (almost entirely in Nevada). By 2024, Americans legally wagered approximately $149 billion; a more than 3000% increase in just six years.
The growth in prediction markets has been similar to the growth of sports wagering, and prediction market trading in sports now accounts for 85% of trading volume on Kalshi. The convergence between sports betting and prediction markets is stark: prediction markets have evolved to closely mirror traditional sports wagers, offering spreads, totals, player props, and even same-game parlays
Regulatory Issues, Fairness, and Market Integrity
Federal vs. State: A Jurisdictional Battle
The central regulatory question facing prediction markets is whether they are federally regulated and thus exempt from state gambling laws, or whether they fall under the arm of state enforcement. This battle is playing out in courts across the country, where prediction market platforms, traditional sports platforms, and state attorneys general are engaged in a series of lawsuits to resolve this question.
In a recent op-ed, Chairman Selig stated that the CFTC has overseen prediction markets for decades because event contracts qualify as derivative instruments but that recently states have increasingly launched legal challenges arguing these contracts constitute gambling under state law, with nearly 50 active cases pending against CFTC-registered exchanges, including Kalshi, Polymarket, Coinbase, and Crypto.com. He also noted that the number of prediction market users has quadrupled to 15 million over the last two years and that these markets are subject to the CFTC’s rules requiring market surveillance, anti-money-laundering compliance, and customer information collection to prevent fraud and insider trading. Chairman Selig concluded his thoughts with a warning: “Any erosion of the CFTC’s ability to regulate transactions in commodity derivatives is a direct threat to the markets and investors Congress intended the agency to oversee.”
The Missing Regulatory Infrastructure
Traditional equities and bond markets operate under extensive regulation designed to protect participants against some of the same concerns raised by prediction markets, such as insider trading, market manipulation, dissipation of customer funds, and lack of disclosures, among other traditional concerns.
For example, concern over insider trading on prediction markets was highlighted when a Polymarket user made approximately $400,000 in profit by betting that Venezuelan President Nicolás Maduro would be removed from office—a bet placed just hours before U.S. military forces captured him in a secretive operation. The prescient timing raised immediate allegations that the trader possessed inside information about the military operation that was unknown to other market participants, a typical insider trading scenario.
In addition, concerns have been raised in a class action lawsuit that Kalshi’s affiliate participates as a bettor on its own platform and may be betting against ordinary participants, which the suit alleges misleads consumers who are unaware of this practice. And unlike in stock markets where securities are held in regulated accounts, the funds used for bets on prediction markets may be held in less secure environments, including on blockchains.
What the Future May Hold
Scenario 1: Federal Regulation Akin to Other Markets
The most orderly path forward would involve the CFTC establishing comprehensive regulations specifically designed for event contracts. Chairman Selig has directed staff to begin this rulemaking process. The federal government has also signaled interest in enforcement. Manhattan U.S. Attorney Jay Clayton stated that his office is “thinking about how the current laws apply to prediction markets” and expects fraud cases to be brought. “Because it’s a prediction market doesn’t insulate you from fraud,” Clayton emphasized, using the example of conspiring to fix a golf game through prediction markets.
As prediction markets grow to resemble traditional financial markets, pressure may build to impose securities or commodity-style regulation. This could include registration requirements for large traders, position limits to prevent market manipulation, and mandatory disclosure of level of risk.
Scenario 2: State-by-State Patchwork
If federal courts ultimately reject broad federal preemption arguments, prediction markets could face the same state-by-state licensing regime that governs sportsbooks. This would mean different rules and availability in each state with state gaming commission oversight and consumer protections varying by jurisdiction.
Scenario 3: The Wild West Until Crisis Hits
History suggests comprehensive financial regulation often follows a crisis rather than preceding or preventing one. The pattern is well-established:
- The stock market crash and Great Depression led to the creation of the SEC in 1934
- The Enron scandal produced the Sarbanes-Oxley Act in 2002
- The 2008 financial crisis resulted in Dodd-Frank in 2010
Will prediction markets follow this pattern? The documented concerns—manipulation, insider trading, conflicts of interest—suggest the potential for significant consumer harm.
As a concerned observer might ask: Will we have to burn our hand to find out that the stove is hot?
This promotional piece is intended for informational purposes only and does not constitute legal advice. The regulatory landscape for prediction markets is evolving rapidly, and readers should consult appropriate counsel regarding specific questions.