Prediction markets are moving from the fringe into the mainstream. They have been satirized on South Park, made founders wealthy through venture funding, and even triggered controversy after a Nobel Prize leak.
The two leaders in the space are Kalshi, a regulated U.S. exchange that settles contracts in dollars, and Polymarket, a decentralized crypto-based platform built on Polygon. Together they saw record trading volume of $1.44 billion in September, with Kalshi pulling ahead at 60% share.
As their visibility grows, the spotlight is turning to a key issue: are prediction markets legal, and where? To understand the legal debate, it’s worth first breaking down how prediction markets work.
What are prediction markets?
Simply put, a prediction market is a marketplace for bets on future events such as election outcomes, sports, weather patterns, or financial trends. People buy and sell contracts based on the outcome of real-world events. The prices shift dynamically with collective belief, and every trade is an incentive-driven bet on the future.
For instance, take a market for “Will Team A win football match?” On the platform, each event works like a tug-of-war between two sides — YES and NO — whose combined value always equals $1. If you believe Team A will win, you buy the YES contract; if you believe the opposite, you pick NO. As traders react to new data, rumors, or intuition, the prices shift in real time. So, if a contract is trading at $0.80, it indicates that the market thinks the event has an 80% chance of occurring. You earn a $1 payout for your stake if your prediction comes true.
Some prediction markets are off-chain, centralized, and regulated like Kalshi. Others are decentralized and run on blockchain, like Polymarket, giving them more flexibility but less regulatory control.
So why do they matter? Because prediction markets aggregate new information, even outpacing traditional polls. With money on the line, guesses become predictions with more accurate insights. In many cases, these markets end up charting the future before anyone else can.
Yet their similarity to gambling or speculative betting has made regulation tricky across jurisdictions.
How different jurisdictions treat prediction markets
United States
The regulatory treatment of prediction markets in the U.S. depends on the platform’s operational model and compliance. Kalshi and Polymarket showcase how differently regulators treat these platforms.
Kalshi, fully regulated under the CFTC as a Designated Contract Market, is allowed to offer legal event contracts across various topics under federal oversight. Meanwhile, its decentralized rival Polymarket has a bitter history with the regulators. It was fined $1.4 million in 2022 for allegedly offering illicit binary options contracts, forcing it to withdraw from U.S. users. In 2025, it reentered the market after acquiring QCEX, a CFTC-licensed derivatives exchange.
The contrast between these rivals underscores the country’s regulatory stance: innovation is welcomed but only if it plays by the rules.
United Kingdom and European Union
Most EU countries treat prediction markets primarily as gambling grounds and have a fragmented regulatory approach. Meanwhile, the United Kingdom permits limited forms of prediction markets (Betfair-style betting exchanges) under the oversight of the UK Gambling Commission alongside stringent consumer protection rules. The legal grey zone, created by the regulatory ambiguity, limits institutional participation and the overall growth of these markets.
Consequently, the UK and other EU countries like Belgium, France, and Poland have restricted the operations of prediction markets such as Polymarket, Kalshi, and others, citing violations of gambling regulations and international sanctions.
APAC Countries
Asia-Pacific countries tend to take a restrictive stance on prediction markets, often classifying them as gambling platforms. Licensed operations are rare or nearly impossible, and jurisdictions such as Singapore, Taiwan, Thailand, and Australia have mulled a ban on betting platforms Polymarket and Kalshi.
Some experts argue that prediction markets should be seen as data infrastructures rather than merely speculative platforms. On the parallel side, regulation either forces platforms into centralized models or drives them completely offshore, limiting wider adoption.
The coming years, and how regulators choose to classify them, will decide whether prediction markets remain niche tools or evolve into mainstream financial infrastructure.
