The Regulatory Uncertainty of Prediction Markets
Written by Demi Lavapies | March 26, 2026
One recent tension for prediction market apps such as Kalshi has been whether the regulation should be subject to federal or state law. By selling derivatives called event contracts, these kinds of prediction apps are regulated under the Commodity Futures Trading Commission. While the CFTC has regulated the prediction market for decades, the recent development of prediction apps has significantly broadened the scope of the kinds of predictions one can make. The central legal question remains whether prediction market event contracts fall under the CFTC’s federal jurisdiction as derivatives, or whether they should be classified as gambling and thus subject to individual state laws.
Prediction market platforms like Kalshi justify their operations on federal law. The CFTC’s website defines an event contract as “a derivative contract whose payoff is based on a specified event, occurrence, or value such as the value of a macroeconomic indicator, corporate earnings, level of snowfall, or dollar value of damages caused by a hurricane” (Commodity Futures Trading Commission). The Commodity Exchange Act allows the CFTC to prohibit contracts that involve gaming or are against the public interest, but it does not clearly define what constitutes gaming (Commodity Futures Trading Commission). Ninety percent of Kalshi’s transactions are on sports (Sweet, 2026), which strengthens the argument that these platforms resemble sportsbooks. Meanwhile, there are ethical arguments to be made against the extent to which these apps serve the public interest, as users can bet on active conflicts. For example, an anonymous user on Polymarket made over $400,000 on the capture of Venezuelan former president Nicolas Maduro (Kaye, 2026), which also leads to suspicion of insider betting.
Utah, Nevada, and Massachusetts have been some of the states that have most recently been involved in litigation against Kalshi (Raymond, 2026), arguing that their app’s operations constitute gambling, which has different restrictions according to each state. The issue has gone beyond the courtroom; former White House Chief of Staff Mick Mulvaney currently leads a coalition against prediction apps and has spoken on his concerns for potential national security risks that these apps pose, as well as the lack of consumer protection available if regulation is not up to states lawmakers (Mangan, 2026). In mid-February, a group of Democrat senators sent a letter to the chairman of the CFTC, Michael Selig, against his involvement in such litigation, arguing that “these products evade state and tribal consumer protections, generate no public revenue, and undermine sovereign regulatory regimes” (US Senate, 2026).
Kalshi has won injunctions in three states and lost in another three, so it will be crucial to see whether the Supreme Court intervenes in the legal proceedings. Such an intervention would settle the classification of event contracts; if their regulation stays under the CFTC, prediction markets could possibly expand and benefit from such loose regulation. Keeping prediction market regulation rather lax as it is under the CFTC would be preferred for such stakeholders as Donald Trump Jr., who was named the strategic advisor for Kalshi in January of 2025 (Mansour, 2025) and who is an investor in Polymarket. If courts determine that they fall under state gambling laws, then they could face stricter limitations or even bans in certain states.
References
Commodity Futures Trading Commission, “Contracts & Products.” https://www.cftc.gov/IndustryOversight/ContractsProducts/index.htm.
Commodity Futures Trading Commission, “Law Regulation.” https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
Kaye, Danielle, “Anonymous crypto gambler made $436,000 on Maduro capture,” BBC (2026): https://www.bbc.com/news/articles/cx2gn93292do.
Mangan, Dan, “Prediction market ‘gambling’ needs state regulation, not feds, Mick Mulvaney says after Iran war bets,” CNBC (2026): https://www.cnbc.com/2026/03/03/prediction-market-gambling-mick-mulvaney-polymarket-kalshi.html
Mansour, Tarek, “Kalshi names Donald Trump Jr. as strategic advisor,” Kalshi News (2025): https://news.kalshi.com/p/donald-trump-jr-strategic-advisor.
Raymond, Nate, “Kalshi cannot operate sports-prediction market in Massachusetts, judge rules,” Reuters (2026): https://www.reuters.com/world/kalshi-cannot-operate-sports-prediction-market-massachusetts-judge-rules-2026-01-20/.
Sweet, Ken, “Trump administration backs Kalshi and Polymarket as states move to ban prediction markets,” PBS News (2026): https://www.pbs.org/newshour/politics/trump-administration-backs-kalshi-and-polymarket-as-states-move-to-ban-prediction-markets#:~:text=The%20CFTC%20currently%20regulates%20prediction%20markets%2C%20and,states%2C%20even%20those%20where%20gambling%20is%20illegal.
United States Senate (2026): https://www.slotkin.senate.gov/wp-content/uploads/2026/02/Sen-Slotkin-Letter-to-CFTC-Selig-on-Prediction-Markets-Rulemaking-and-Litigation.pdf.
