Prediction markets

Prediction markets are exchange platforms where participants trade contracts that pay out based on the outcome of future events, such as elections, economic indicators, weather, or sports results. These markets function as aggregators of collective intelligence, synthesizing diverse opinions into prices that reflect the perceived likelihood of a specific outcome.

Kalshi and Polymarket are currently considered the two largest prediction markets. Both have established ties with the Trump administration in the US. In January, Kalshi hired Donald Trump Jr. as a strategic adviser; he is also an investor in Polymarket and sits on its advisory board.

History

The concept of prediction markets traces back to early betting markets, but the modern incarnation has evolved significantly since the late 20th century, enabled by online platforms and financial derivatives structures. Prediction markets first captured the imagination of the general public during the 2004 presidential election, when the University of Iowa’s Iowa Electronic Markets (IEM) proved more accurate in predicting the election's outcome than professional polling organizations. The IEM, along with Intrade, were pioneers in the prediction markets. Intrade received widespread media attention for its success in predicting the 2008 and 2012 U.S. elections before shutting down in 2013.

In the United States, the Commodity Futures Trading Commission (CFTC) is the primary regulator, assessing whether such markets fall under the legal and policy definitions of derivatives trading or gambling, and periodically reviewing their status concerning public interest and manipulation risks.

Regulatory Environment

The U.S. regulatory landscape for prediction markets is evolving. The CFTC continues to review the legal, economic, and public interest implications of event contracts, recently hosting roundtables and issuing requests for comment on new categories, including sports and political event contracts.

Legal Authorization and the Impact of Dodd-Frank on Prediction Markets

The authorization and regulation of prediction markets in the United States have evolved through substantial legislative reforms, notably with the passage of the Commodity Futures Modernization Act (CFMA) of 2000 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Before these changes, futures and options exchanges were subject to an "economic purpose test"—a regulatory standard that required any new futures contract to demonstrate meaningful utility in hedging or price discovery before listing.

The CFMA eliminated the public interest and economic purpose requirements, permitting exchanges (designated contract markets, or DCMs) to self-certify new contracts as long as they complied with core regulatory principles. This allowed for the expansion of innovative derivatives, including event and prediction contracts, so long as they met broad definitions of "commodity" and "excluded commodity."

Dodd-Frank further reformed derivatives oversight, introducing comprehensive regulations for swaps and event contracts, and codified that prediction markets—structured as event contracts—may be listed if they do not contravene prohibitions (such as being unlawful gaming) and satisfy the CFTC's requirements.

As a result, DCMs proposing new types of prediction markets are no longer required to demonstrate their economic utility in the formal sense. Instead, approval depends on regulatory compliance with core principles—such as market integrity, transparency, and anti-manipulation safeguards—in place of the repealed economic purpose test. This regulatory evolution provided the legal framework for the existence and growth of CFTC-regulated prediction markets and the launch of innovative event-based futures contracts in the U.S.

Legal Battle with the CFTC over Election Contracts

In 2023, KalshiEX LLC (Kalshi) self-certified to the CFTC its intention to list “Congressional Control Contracts,” event contracts enabling participants to trade on which political party would control either chamber of Congress following federal elections. The CFTC denied this proposal, citing concerns that election contracts constituted “gaming” or unlawful activity under federal and certain state laws, and invoking public interest grounds under Regulation 40.11. High-profile opposition from lawmakers echoed these regulatory worries, arguing such contracts threatened election integrity and the public trust in democratic processes.

Kalshi challenged the CFTC’s denial, filing suit in federal district court. In September 2024, the court ruled in Kalshi’s favor, finding that the CFTC had exceeded its statutory authority and that the Congressional Control Contracts did not constitute gaming or illegal activity.

The court’s order effectively vacated the CFTC’s prohibition and cleared the path for Kalshi to list these contracts. The CFTC pursued a stay and an emergency appeal to the D.C. Circuit, both of which were denied when the court determined the Commission had not demonstrated likelihood of irreparable harm, noting that its concerns over manipulation and threats to election integrity were speculative.

In May 2025, the CFTC moved to voluntarily dismiss its ongoing appeal in the D.C. Circuit, officially ending the legal dispute and leaving the pro-Kalshi district court decision intact. This outcome affirmed that Kalshi’s political event contracts were lawful under the Commodity Exchange Act, at least under the current regulatory framework.

Contract Success and Market Impact

Shortly after the legal ruling, Kalshi’s election contracts launched and quickly attracted significant public participation. The platform reported billions of dollars in trading volume on political event contracts in the November 2024 election cycle, making them among the most heavily traded and visible event contracts of the year. This success affirmed strong market demand and demonstrated the products’ ability to aggregate and reflect consensus probabilities on key political outcomes. Kalshi’s CEO, Tarek Mansour, described the legal victory as a turning point cementing the legitimacy and future of regulated prediction markets in the United States, noting, “election markets are here to stay.”

Court Rulings

On August 28, 2026, the U.S. Court of Appeals for the Ninth Circuit in San Francisco rejected Kalshi’s request for relief against Nevada’s gambling laws, after the state sued the company in February for “unlicensed operations.” The court ruled that states had the ability to regulate prediction markets. This was a win for the states in an ongoing battle with federal regulators over who has authority over prediction market platforms.

The decision contradicted the April 6 ruling from the 3rd ​U.S. Circuit Court of Appeals in Philadelphia, which said New Jersey could not regulate Kalshi's platform. Zach Fulton, a spokesman for the Commodity Futures Trading Commission, said the circuit split "calls out for resolution by the Supreme Court” to decide whether states or the U.S. CFTC should regulate the prediction markets industry.

Usage

Prediction markets allow individuals to buy and sell contracts based on “yes” or “no” answers to specific questions, with the final contract price representing the collective probability of an event’s outcome.

They are used for economic forecasting, election predictions, risk management, and to derive consensus probabilities for business, public policy, and financial analysis.

Key Users

Participants include retail traders, institutional investors, researchers, and policymakers. Companies and government agencies may use predictive market data to inform decisions. Prediction market operators often collaborate with universities, think tanks, and financial firms, leveraging their outcomes for improved data-driven decision-making.

CFTC-Registered Prediction Markets and Exchanges Offering Prediction Contracts

The CFTC has historically permitted a small number of prediction markets, often for academic or research purposes, subject to rigorous oversight. However, since Kalshi was approved as a Designated Contract Market and its success in the 2024 election and move to list sports contracts, a record number of new exchanges have sought CFTC registration.

As of September 1, 2026, here is a list of CFTC-designated event prediction market exchanges:

• American Innovation Exchange
• CME Group
• Coinbase Derivatives, LLC
• Crypto.com
• DraftKings Inc.
• ForecastEx, LLC
• Gemini Titan, LLC
• Juice Exchange, LLC
• Novig
• Optex Markets LLC
• Polymarket US
• ProphetX LLC
• Quanta Exchange, Inc.
• Rothera
• Water Street Labs, LLC
• Xchange Alpha, LLC

Several prominent platforms, such as PredictIt, have been forced to halt U.S. operations following regulatory actions withdrawing their no-action relief. Other global or decentralized prediction markets, like Polymarket, operate outside the direct oversight of the CFTC and are not U.S.-registered DCMs.