The political fight in the US over the future of prediction markets like Polymarket and Kalshi has escalated into a full-blown war, and battle lines aren’t being neatly drawn along party lines. Instead, conservative Mormons have aligned themselves with Las Vegas bigwigs, and MAGA royalty is siding with liberal Democrat lobbyists. One side argues that the platforms are breaking the law by operating as shadow casinos. The other insists they are just giving people access to legitimate financial markets already subject to adequate government oversight. Neither camp is backing down.
Right now, prediction powerhouse Kalshi operates in all 50 states. Its primary rival, Polymarket, was banned from the US in 2022 for operating as an unregistered derivatives market, but it returned in a limited capacity last year. These companies offer “event contracts” to customers, allowing them to trade shares tied to the outcomes of almost anything, from who will win this year’s Oscar for Best Actor to what the price of Bitcoin will be at the end of the day. The most popular category by far is sports. Kalshi reported a daily record of over $800 million in trades on Super Bowl Sunday related to the game alone, and over $1.3 billion traded on contracts related to the event altogether.
Once a niche financial experiment, prediction markets have rapidly become entrenched in mainstream culture, a transformation that has brought vast sums of money into play. The industry’s leading players are already billion-dollar companies in their own rights. Each day, casual speculators and die-hard sharps log on to predict where the world will go next, choosing between a dizzying array of opportunities to win and lose.
Advocates argue that these platforms democratize access to commodities trading and are useful tools for forecasting the future. And at the end of the day, they say, adults should be able to do what they want with their money. The fundamental difference between a prediction market and a casino is that “on Kalshi, there is no house, users trade against each other. Users benefit from this: They get fair pricing, the ability to cash out at any time for fair market value, and winners are never banned or limited,” says Kalshi spokesperson Jack Such.
But critics say that prediction markets, at least in their current form, are exploitative. “This is illegal gambling,” says former New Jersey attorney general Matt Platkin, who recently launched a boutique law firm focused on consumer protection cases. The industry is “unregulated, untaxed, unsupervised,” he adds.
Prediction markets are overseen at the federal level by the Commodity Futures Trading Commission (CFTC), the agency in charge of financial instruments known as derivatives. It has been grappling with the industry since the late 1980s, when the University of Iowa launched the Iowa Electronic Market, an academic project allowing participants to buy contracts based on the election results and public market outcomes.
Attorneys general and gambling regulators in many states say sports contracts on prediction markets should follow state gambling laws. One reason for the pushback is that prediction markets represent a compelling alternative to the regulated gambling industries in places like Nevada, which represent a significant part of the local economy. “The states have such a vested interest,” says Alex Grishman, head of the digital assets practice at the law firm Haynes Boone. “They want to have as much of the tax revenue as they can.”
Kalshi is facing 19 separate lawsuits across the country, and it narrowly evaded a recent temporary shutdown in Massachusetts. Federal lawmakers have also started weighing in; earlier this month, 23 Democratic senators voiced support for efforts to push prediction markets to abide by state gambling laws. Platkin believes the wave of challenges is nowhere near over: “We’re just at the beginning of those types of lawsuits.”
