Originally published on WeeBet on 2026-05-25. Reposted with canonical link.
The CFTC has spent the past eighteen months reshaping the prediction market industry not through formal rulemaking but through selective enforcement, strategic non-enforcement, and amicus interventions. With
roughly 87% of Kalshi's $39.7 billion traded in the past year coming from sports
and
combined volume across major prediction markets reaching $29.8 billion in April
alone, the question of which platforms survive the next regulatory cycle is no longer academic — it's a multi-billion-dollar sorting exercise being conducted in real time across federal courthouses, the CFTC's headquarters, and statehouses from Carson City to Columbus.
The hook: a $112 million acquisition that explains the entire industry
When Polymarket paid
$112 million to acquire QCEX, a CFTC-registered exchange and clearinghouse
in July 2025, it wasn't buying technology. It was buying a federal license. The acquisition — and the
Amended Order of Designation from the CFTC in November 2025
that followed — telegraphed the central premise of the post-Biden prediction market era: federal status under the Commodity Exchange Act is the moat. Every platform that doesn't have it, or can't credibly acquire it, faces an existential question.
That question is being answered in courtrooms right now. The Third Circuit's April 2026 decision holding that
the CFTC has exclusive jurisdiction over sports-related events contracts offered by Kalshi, becoming the first federal court of appeals to address the issue, and that the CEA preempts the application of New Jersey's gambling laws to sports-related event contracts
is the strongest signal yet that federally-licensed Designated Contract Markets (DCMs) can operate nationwide. But the appellate map is fractured, the Supreme Court is likely next, and the platforms positioned to survive look very different from the ones that dominated headlines in 2024.
The 2022 Polymarket settlement set the template
Every current strategy traces back to one enforcement action. In January 2022, the CFTC found that
Polymarket had been operating an illegal unregistered or non-designated facility for event-based binary options online trading contracts
since June 2020. The order required
Polymarket to pay a $1.4 million civil monetary penalty, facilitate the resolution of all markets that do not comply with the CEA, and cease and desist from violating the CEA and CFTC regulations
.
The crucial doctrinal finding — buried in a $1.4 million fine — was that
event market contracts, each composed of a pair of binary options, constitute swaps under the CFTC's jurisdiction, and therefore can only be offered on a registered exchange in accordance with the CEA and CFTC regulations
. That sentence is the foundation of everything Kalshi has won in court since. It's also why the offshore Polymarket of 2022-2025 was, structurally, a bet that the regulatory weather would change.
It did.
In July 2025, the CFTC and Department of Justice ended a probe into Polymarket. The CFTC under the Biden administration had entered into a settlement with Polymarket whereby Polymarket agreed to wind down U.S. operations after being accused of running an illegal exchange.
The closure of that investigation — combined with the QCEX acquisition and amended designation — converted Polymarket from regulatory pariah to fully-credentialed onshore exchange in roughly five months.
Kalshi's sports gambit and the CFTC's strategic silence
The pivot moment for sports event contracts wasn't a rulemaking. It was an absence.
Since January 24, 2025, Kalshi has been offering event contracts based on sports, and the CFTC has taken no action.
That non-decision was endorsed by then-Acting Chair Caroline Pham in a February 2025 statement that
current Commission interpretations regarding event contracts are "a sinkhole of legal uncertainty and an inappropriate constraint on the new Administration."
The agency's posture has since hardened into active defense of its turf.
The CFTC filed an amicus brief in the U.S. Court of Appeals for the Sixth Circuit in support of Kalshi in its lawsuit against Ohio, asserting the commission's "exclusive jurisdiction" over prediction markets.
In its filing, the agency framed state regulation as a categorical threat:
"these event contracts are swaps under the CEA, and so it falls to the Commission—and exclusively the Commission—to regulate them. States cannot invade the CFTC's exclusive jurisdiction by re-characterizing swaps trading on DCMs as illegal gambling."
In January 2026, new CFTC Chairman Michael Selig committed the agency to a formal track.
Selig said the agency will craft new, clear rules to govern prediction markets, telling an audience: "Despite their history, many view them as novel or unsettled, and that uncertainty has not served our markets, nor has it served the public interest."
He also
ordered staff to withdraw a proposed rule from 2024 that would have prohibited trades on sports and politics, and directed them to rescind a 2025 advisory that urged prediction markets to exercise caution over offering sports contracts
.
The signal to the market: the federal regulator wants this industry to exist on its terms.
The state counter-attack and the appellate split
State regulators have not surrendered.
In June, attorneys general from 34 states, the District of Columbia, and the Northern Mariana Islands filed an amicus brief urging the Third Circuit to reverse the district court's ruling. Co-led by Ohio and Nevada, the brief centers on principles of federalism, statutory interpretation, and consumer protection.
Their core argument:
the CEA's exchange regulations were designed for financial derivatives, not consumer-facing sports wagers, and state regulations provide protections for vulnerable consumers, including licensing, exclusion programs, age restrictions, and dispute resolution mechanisms.
The trial-court record is genuinely split. In Nevada,
Judge Andrew Gordon of the U.S. District Court for the District of Nevada dissolved an injunction that had shielded Kalshi from state enforcement and held that Kalshi's expanded sports products — specifically its prebuilt parlays and player-prop-style markets — are not swaps under the Commodity Exchange Act, and that these particular contracts closely resemble sportsbook bets and therefore fall within Nevada's gaming regime.
An Ohio federal court reached the same conclusion. A Maryland court found
that, while the CEA contains some field-preemptive effects, that does not mean Congress intended for the scope of the CEA's preemption to encompass state gambling and sports wagering laws
.
Then came the Third Circuit. Its April 2026 opinion ruled — as a matter of statutory interpretation — that
Kalshi's sports-related events contracts are "swaps" under the CEA and thus subject to the CFTC's jurisdiction, with "swap" including event contracts
.
The ruling represents a significant development in the ongoing litigation, and given this decision, as well as the CFTC's recent suits against Arizona, Connecticut, and Illinois, it seems increasingly likely that the question of the CFTC's authority over prediction markets will ultimately be settled by the Supreme Court.
That last point is the one operators are pricing into their capital structures.
Who survives: the federally-licensed, the institutionally-backed, the well-capitalized
The platforms positioned to thrive share three traits: a CFTC DCM designation, deep institutional capital, and the operational discipline to absorb appellate volatility without missing a settlement cycle.
Kalshi sits at the top of that list.
Kalshi has held full CFTC Designated Contract Market status since 2020, making it the longest-standing federally regulated prediction market in the United States. It runs a centralized order book, accepts U.S. dollars directly, and is available in all 50 states. Contracts are classified as derivatives under federal law, which is why Kalshi operates legally even in states where traditional sports betting remains banned.
The platform's commercial position has compounded with its legal position:
Kalshi hit a record $4.13B in weekly notional volume during the week ending May 4, up 8.5% week-over-week, and now holds 72.1% of combined volume
against Polymarket.
Polymarket US is the second clear winner — but only the U.S. entity, and only because it bought its way into the regulated tier. The
Amended Order of Designation issued by the CFTC permits Polymarket to operate an intermediated trading platform subject to the full set of requirements applicable to federally regulated U.S. exchanges
. The capital base is exceptional:
In October 2025, Intercontinental Exchange (ICE) invested $2 billion in Polymarket, bringing the company's valuation to $9 billion.
The early volume numbers are modest —
Polymarket US is a distant third at around $5 million in weekly volume with roughly 440 active markets and $650,000 in open interest. The platform is early, and those numbers will grow as the waitlist clears and categories expand.
But the institutional backing and federal status make this a long-cycle play.
Intermediated brokerage entrants — Robinhood, DraftKings Predictions, FanDuel — get to the market by riding existing DCMs.
DraftKings Predictions operates as an Introducing Broker, routing trades through Wedbush Securities for execution on CME Group's exchange.
These operators don't carry the existential regulatory risk; they carry distribution and integration risk. The CFTC has effectively blessed the introducing-broker model, which is why it's becoming the default entry path.
Who faces existential risk: the offshore-only, the unlicensed, the slow
Polymarket's offshore exchange is the most interesting case because it remains, by a wide margin, the larger of the company's two businesses.
Polymarket's global platform is a decentralized exchange built on the Polygon blockchain. It operates outside U.S. jurisdiction, accepts only USDC, and does not allow U.S. residents to participate. This is the version that generates most of the headlines and most of the volume.
The Congressional Research Service notes that
Polymarket's largest prediction market exchange is domiciled offshore and claims to block U.S. users, and as a result is not effectively subject to CFTC rules
. That structure is durable so long as U.S. enforcement priorities remain accommodating — but it's not a forever bet. Any future administration with different priorities could revive the 2022 enforcement theory.
Unregistered would-be entrants face the harshest gradient.
Sleeper Markets recently filed suit against the CFTC and its acting chair, accusing the CFTC of intentionally delaying Sleeper Markets' application to register with the CFTC, which would allow it to offer sports event contracts.
The agency's gatekeeping power — the ability to slow-walk designations — is, in practice, the largest competitive moat in the industry. Firms that cannot navigate the registration process or absorb the multi-year capital cost simply cannot enter.
Tribal and state-licensed gaming operators face a different version of the same risk. If the Supreme Court eventually affirms the Third Circuit, the carefully-negotiated state and tribal compacts that built the $50+ billion legal sports betting industry get partially bypassed by a federally-regulated competitor with national scale and lower friction. Note, though, that
a California district court has ruled that courts do not even have jurisdiction to rule on the matter; in Blue Lake Rancheria v. KalshiEx Inc., three Native American tribes sued Kalshi alleging that Kalshi's sports event contracts constituted illegal gambling contracts
— and lost the threshold question.
The Counter-Argument
The strongest case against the "federal preemption wins" thesis is not that the CFTC will lose authority. It's that the CFTC's authority, properly construed, doesn't reach the products in question.
Judge Gordon's Nevada opinion is the cleanest expression.
His orders highlighted that contracts paying out on sporting event outcomes are "not swaps" under the Commodity Exchange Act (CEA) and therefore do not fall exclusively under Commodity Futures Trading Commission (CFTC) supervision.
The reasoning has textual appeal: the CEA's swap definition requires linkage to a
"financial, economic, or commercial consequence"
, and whether a basketball score qualifies is a contestable question that the Third Circuit answered one way and several district courts answered the other.
There's also the federalism problem the state AGs raised.
Under Kalshi's theory, state-level safeguards would evaporate if companies simply structure wagers as CFTC-regulated contracts. If the Third Circuit upholds the district court's ruling, it could set a precedent for allowing actors not licensed by the states to bypass state gambling laws by operating under a federal commodities framework.
A Supreme Court that has trended toward narrow readings of federal preemption — and skeptical readings of agency authority post-Loper Bright — is not an obvious vote for the CFTC's expansionist position.
Finally, the no-action letter regime that protects current Polymarket operations is constitutionally fragile.
No-action letters are informal staff positions without binding force to override judicial orders, and a staff decision to grant, modify, or withdraw no-action relief was not eligible for judicial review under the Administrative Procedure Act.
That cuts both ways: it shields the agency from challenge, but it also means platforms relying on no-action relief have no enforceable right to it.
The bear case, in short: the Supreme Court rules narrowly that sports outcomes aren't swaps, the federalism map reverts to state-by-state licensing, and the regulated DCMs end up confined to politics, economics, and macro markets — a much smaller addressable industry than the $14.8 billion monthly that Kalshi printed in April.
What I'm Watching
The Supreme Court's certiorari calendar. With the Third Circuit splitting from multiple district courts and the Sixth Circuit pending,
the question of the CFTC's authority over prediction markets will ultimately be settled by the Supreme Court
. A grant of certiorari in the 2026-2027 term would freeze acquisition activity and capital flows industry-wide.
The CFTC's promised rulemaking. Selig committed to
a prediction markets rulemaking in January 2026, and in February 2026 the CFTC withdrew the June 2024 notice of proposed rulemaking and September 2025 staff advisory
. The shape of any proposed rule — particularly its treatment of sports event contracts and consumer protection mandates — will determine the regulatory baseline for the next decade.
The 2026 FIFA World Cup volume split. The tournament is the single biggest test of the Kalshi-vs-Polymarket distribution thesis.
World Cup markets are already showing $327.2 million in 30-day trading volume, with 99.3% coming from Polymarket. How each platform captures World Cup volume will be a defining test in the sports category this summer.
Insider trading enforcement. Polymarket's exposure to information-asymmetry scandals is real and growing:
An air force officer gave information on the 2025 strikes to a colleague and the two allegedly earned $244,000, continued betting on strikes in Yemen and the questions "Will Israel strike Iran by the end of January?" and "Will Israel strike Iran by the end of March 2026?" and were eventually indicted for "delivering secret information."
Any high-profile insider trading prosecution involving a U.S. trader could reset the political conditions for the next CFTC chair.
Polymarket US ramp data. Watching whether Polymarket US can move from $5 million to $500 million in weekly volume over the next two quarters tells you whether the intermediated DCM model can be a credible second pole, or whether Kalshi's first-mover advantage is structural.
Prediction markets are financial instruments with real downside; positions can and do go to zero. Nothing here is a recommendation to trade any particular venue or contract.
