Prediction Markets Come in From the Cold

By: Sabeeka Khan

Imagine a market where you can trade on whether a popular video game releases before December 2026, whether a CEO mentions “growth” on an earnings call, or whether the Supreme Court makes a particular ruling. Prices move up and down based on the collective beliefs about future events and a “share” priced at ten cents today promises one dollar if the event happens by the deadline. This is a new reality. Prediction markets operate just like stock markets, instead of betting on the financial growth of companies like Apple or Amazon, participants bet on the likelihood of real-world events.[1]

In late November 2025, one of the largest platforms in the prediction market space, Polymarket, secured a long-sought regulatory green light to enter the U.S. after years of operating offshore.[2] The Commodity Futures Trading Commission (CFTC) issued an amended order permitting Polymarket to operate as a regulated intermediated trading venue, meaning that users can trade event contracts through brokers and futures commissions merchants just like traditional financial assets.[3]

How Predictions Markets Work

At their core, prediction markets turn profitability into price. For example, an events contract on whether a television show’s star will leave by a certain date trades between zero and one dollar. If the event happens those who hold yes shares receive one dollar per share, and those who hold no shares receive zero dollars per share. Traders buy and sell based on what they think will happen and price movement reflects the collective thoughts of the crowd.

That crowd forecast can have a major impact. Studies show that when markets are liquid and well-defined, their implied probabilities may outperform traditional expert polls and forecasts because the participants are putting real money behind their beliefs.[4]

The recent legal fight over prediction markets has been about whether these “events contracts” constitute gambling or not. Federal law places them under the CFTC’s authority, but some states have pushed back, trying to classify these event contracts as gambling.[5]

 Polymarket’s Return and What It Means

Polymarket was effectively shut out of the U.S. market in 2022 after a CFTC enforcement action for operating an unregistered platform.[6] After restructuring and securing the amended designation, Polymarket began rolling out a U.S.-focused app and onboarding users through regulated channels.[7]

This development is significant for several reasons. First, it marks a shift in regulatory acceptance of prediction markets as legitimate financial venues, not fringe gambling sites. Second, it opens the door for mainstream participation. Traders will soon be able to access prediction contracts from traditional brokerage platforms, broadening the investor base beyond crypto-native users.[8] Third, it signals that prediction markets might soon influence how people and institutions view uncertainty, just as stock prices reflect expectations about future earnings and growth. Financial pundits are already debating whether prediction markets could reshape aspects of financial forecasting and risk management.[9]

Legal and Regulatory Impacts Beyond Polymarket

Polymarket’s regulated return to the U.S. does more than reopen a single platform. It forces regulators, courts, and market participants to confront how prediction markets fit within existing legal frameworks that were never designed for contracts tied to pop culture, corporate speech, or judicial outcomes. At the federal level, the Commodity Futures Trading Commission’s approval signals a willingness to treat at least some prediction markets as legitimate derivatives markets rather than unlawful gambling. By allowing Polymarket to operate through a registered exchange and clearinghouse, the CFTC implicitly affirmed that certain event contracts can serve an economic function by aggregating information and pricing uncertainty. This matters because federal commodities law can preempt state gambling restrictions, creating a potential shield against state level enforcement actions that have historically targeted prediction platforms.[10]

Still, the scope of that protection remains unsettled. States have continued to argue that some event contracts resemble sports betting or wagering on entertainment outcomes, which traditionally falls within state police powers.[11] As prediction markets expand into topics like television shows, product launches, and sports adjacent events, courts may be asked to decide where the line lies between federally regulated event contracts and state regulated gambling activity. Polymarket’s approval does not eliminate that tension. It simply moves the question into a more formal legal arena.

Prediction markets also raise novel issues under financial regulation and market integrity. Unlike traditional securities markets, many prediction markets involve outcomes shaped by human behavior rather than underlying economic value. This makes concerns about manipulation more relevant. Regulators will need to decide whether existing anti-manipulation rules are sufficient or whether new safeguards are necessary. Insider trading presents another unresolved challenge. Prediction markets now allow trading on events like corporate earnings commentary, regulatory decisions, or executive statements.[12] If a corporate insider trades on material nonpublic information about what will be disclosed on an earnings call, the conduct closely resembles classic insider trading, even though the underlying contract is not a security. The CFTC has authority to police fraud and misuse of nonpublic information, but enforcement precedent in this context is limited.[13] As these markets grow, regulators may be forced to clarify how insider trading doctrines apply outside the traditional securities framework.

Finally, there are broader constitutional and policy implications. Supporters of prediction markets argue that they facilitate speech and information aggregation by allowing participants to express beliefs through prices.[14] Critics counter that monetizing predictions about elections, court decisions, or public officials risks distorting democratic and judicial processes.[15] If prediction markets become widely used as forecasting tools for legal and political outcomes, courts may eventually confront whether restrictions on certain categories of markets implicate First Amendment concerns. Polymarket’s return therefore represents more than a business milestone. It is a regulatory test case. How lawmakers and regulators respond will shape whether prediction markets become a permanent feature of the financial system or remain confined to carefully policed niches.

 A Market for Everything

Prediction markets are no longer niche curiosities. Alongside Polymarket’s regulated restart, multiple players are launching prediction platforms tied to sports, finance, politics, and weather. Major firms like FanDuel and DraftKings have announced prediction contracts in several states under CFTC oversight.[16] This surge raises fundamental questions about how we forecast the future. Is a market more accurate than a poll? Will traders driving prices on whether the Supreme Court issues a particular ruling actually help us understand legal outcomes? And what happens when speculation and investing blur with games and betting? Polymarket’s regulatory comeback may be the catalyst that drives them into the mainstream.

 

 

Link to Image Source: https://zerocap.com/insights/snippets/what-are-prediction-markets/

 

[1] What Is a Prediction Market?, MetroTrade (Sept. 18, 2025), https://www.metrotrade.com/what-is-a-prediction-market/.

[2] Oliver Knight, Polymarket Secures CFTC Approval for Regulated U.S. Return, CoinDesk (Nov. 25, 2025), https://www.coindesk.com/business/2025/11/25/polymarket-secures-cftc-approval-for-regulated-u-s-return.

[3] Id.

[4] Jason Wingard, The Polymarket Effect: How Prediction Markets Are Beating the Experts, Forbes (Nov. 19, 2025), https://www.forbes.com/sites/jasonwingard/2025/11/19/the-polymarket-effect-how-prediction-markets-are-beating-the-experts/.

[5] Darren Heitner, Prediction Market Regulation: A Legal Compliance Guide for Polymarket, Kalshi, and Event-Contract Startups, Heitner Legal (Oct. 22, 2025), https://heitnerlegal.com/2025/10/22/prediction-market-regulation-legal-compliance-guide-for-polymarket-kalshi-and-event-contract-startups/.

[6] Nick Claassen, The CFTC’s Polymarket Decision – Bringing a New Crypto Events-Based Market into the Commodities Regulatory Fold, JD Supra (Dec. 10, 2025), https://www.jdsupra.com/legalnews/the-cftc-s-polymarket-decision-bringing-1443992/.

[7] See Heitner, supra note 5.

[8] Andjela Radmilac, TradFi Brokers to Offer Crypto Prediction Markets, But With Sports Betting Blocked Locally, CryptoSlate (Dec. 1, 2025), https://cryptoslate.com/prediction-markets-are-coming-to-your-brokerage/.

[9] See Wingard, supra note 4.

[10] See Heitner, supra note 5.

[11] Id.

[12] Steve Silver, Prediction Markets Permit Employees to Wager on Anything at Any Time: What Employers Need to Know, Littler (Dec. 11, 2025), https://www.littler.com/news-analysis/asap/prediction-markets-permit-employees-wager-anything-any-time-what-employers-need.

[13] Ian McGinley, Prediction Markets Must Go All In On Training, Compliance, Bloomberg Law (Oct. 16, 2025), https://news.bloomberglaw.com/white-collar-and-criminal-law/prediction-markets-must-go-all-in-on-training-compliance?utm_

[14] See Heitner, supra note 5.

[15] Declan Harty, Wall Street regulator moves to ban election betting, escalating fight over new market, politico, (May 10, 2024), https://www.politico.com/news/2024/05/10/cftc-election-betting-ban-00157304

[16] FanDuel, CME Group Launch Prediction Markets in Five U.S. States, Reuters (Dec. 22, 2025), https://www.reuters.com/business/fanduel-cme-group-launch-prediction-markets-five-us-states-2025-12-22/.