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Prediction Markets Regulation and Platform Licensing

Learn about prediction markets regulation, CFTC licensing, and legal risks for platforms operating event contracts in the US.

Prediction Markets Regulation and Platform Licensing

The contract, not the prediction, is what regulators are trying to define

The CFTC is moving to place prediction markets inside the federal derivatives system, a shift that matters most to platforms seeking to sell event-based contracts nationwide. Its proposed rule would explicitly define event contracts as swaps under the Commodity Exchange Act. [6]

The risk is that the proposal has not settled the matter. State regulators, sports leagues and other opponents continue to argue that contracts on games and similar outcomes look economically and socially like gambling, regardless of their federal label. [1][2]

The useful concept is therefore not “prediction markets” in the abstract. It is the event contract itself: a standardized agreement that pays a preset amount if a stated event occurs, and otherwise pays nothing.

That structure is simple enough to resemble a wager, but it also resembles other derivatives. A derivative is a contract whose value depends on an underlying reference, such as an interest rate, commodity price, credit event or, in this case, a specified real-world outcome.

The CFTC’s October proposal argues that event contracts tied to sports, politics, culture and weather are swaps commonly known in the trade as such. Its accompanying action draws a boundary in the other direction, excluding casino-style gambling products from the swap definition. [6][8]

That distinction is not semantic. If an instrument is a swap listed on a federally regulated venue, the CFTC’s position is that federal commodities law governs it. If it is a sportsbook bet or casino game, state gambling regimes generally have the stronger claim.

How a $1 event contract works

Consider a contract worded as follows: “Will Candidate A win a named election?” The contract has a settlement value of $1 if the specified condition is met and $0 if it is not met.

A buyer paying 62 cents for that contract can receive $1 if the event occurs. The buyer’s gross gain would be 38 cents per contract before any fees, while the maximum loss is the 62 cents paid.

The seller takes the other side. Selling at 62 cents creates an obligation to pay $1 if the stated outcome occurs, while allowing the seller to keep the 62 cents if it does not.

That is the basic long and short relationship. One side benefits from a “yes” settlement, and the other benefits from a “no” settlement. The exchange or clearing arrangement sits between participants to administer matching, collateral and settlement.

A 62-cent price is often read as a 62% implied probability. That is a useful shorthand, but it is not a scientific forecast and should not be presented as one.

The price reflects what traders will pay and accept at that moment. It can incorporate polling, public information, expert research, hedging needs, order-book depth, platform fees and the possibility that participants are simply wrong.

A liquid market with many buyers and sellers may generate a more informative price than a thin market. Neither condition makes the result certain. A contract priced at 90 cents can still settle at zero.

This is where the distinction between a contract and a prediction matters commercially. A platform does not need to claim it can foresee an election or sporting result. It needs a legally valid market, reliable trading systems, sufficient collateral and clear settlement rules.

Why the word “swap” changes the licensing question

A federally regulated prediction-market operator generally needs to establish the infrastructure of a derivatives venue, rather than merely build a consumer-facing app. The key registrations in Blockchain.com’s application illustrate the division of responsibilities. [4][5]

A Designated Contract Market, or DCM, is the exchange. It lists contracts, establishes trading and settlement rules, monitors trading, and must meet the CFTC’s core principles for market integrity, financial resources and compliance.

A Futures Commission Merchant, or FCM, is the customer-facing intermediary. It accepts orders or funds from customers in connection with futures or swaps activity, handles customer relationships and is subject to segregation, recordkeeping and risk-management requirements.

One company can seek both roles, subject to approval and the applicable rules. The commercial attraction is obvious: owning both the venue and customer relationship can give a platform more control over product design, distribution and fee collection.

It also concentrates the operational burden. A regulated operator must address surveillance for abusive trading, systems resilience, customer protections, anti-money-laundering controls, reporting, dispute processes and the management of financial exposures created by open positions.

KPMG’s overview of routes into prediction markets says DCM registration can require more than $5 million in capital. [7] That is a regulatory starting point, not a complete cost estimate for launching and operating a nationally accessible market.

Legal work, compliance staff, technology controls, exchange connectivity and surveillance systems can materially increase the bill. So can litigation, particularly when a platform’s federal authorization is challenged by states asserting gambling authority.

Where Blockchain.com fits, and what it has not yet won

Blockchain.com, a crypto company best known for wallet and exchange services, has applied to the CFTC for DCM and FCM registrations to support a U.S. derivatives and prediction-market business. [4][5]

The applications are significant because they signal that a crypto-native firm sees regulated event contracts as a potentially durable financial product line. They do not mean the company is licensed to offer those contracts today.

As of October 11, the applications remained under CFTC review, with neither a public decision nor a published deadline. Reporting on the filings notes that review can last months or more than a year, and Blockchain.com has not given an expected timeline. [4][5]

The company confidentially filed for an initial public offering in May, reportedly targeting a valuation between $4 billion and $6 billion. [4] Regulatory progress could be relevant to that plan, but it would be speculation to treat pending licenses as an assured source of future revenue.

Blockchain.com is entering a field in which Kalshi, the regulated event-contract platform, has become central to the legal dispute. KPMG describes prediction-market entry as a competition among existing regulated venues, new applicants and crypto firms seeking compliant routes into derivatives. [7]

Reported market figures should also be treated cautiously. Private-company revenue and valuation estimates are not audited public disclosures, and they can vary by data provider, financing date and methodology.

The more reliable point is structural: operators are spending heavily because a national derivatives license may be more valuable than a patchwork of state-by-state permissions. That proposition depends on the CFTC’s authority surviving legal challenge.

Gambling and derivatives can share a payoff shape

The hard problem is that an event contract and a wager can look identical from a customer’s perspective. Both can involve paying money before an uncertain outcome and receiving more money if the selected outcome occurs.

The CFTC’s argument is that legal classification turns on the instrument and regulatory framework, not just on whether a customer is taking a view on an uncertain event. A standardized, listed and supervised contract can be a derivative, it says. [6]

Its interim rule takes the opposite view of casino-style products, including sportsbook wagers and casino games. Those products are excluded from the swap definition, preserving the line the agency says separates financial contracts from gambling. [6][8]

Critics question whether that line can hold when the listed contract is tied to a football game. The NFL has urged the Supreme Court to address the regulatory question, arguing that sports prediction markets raise integrity concerns and should not evade state oversight. [1][2]

The concern is broader than terminology. Sportsbooks are typically subject to state licensing, responsible-gaming requirements, event-specific restrictions and local tax structures. A federally supervised derivatives venue operates under a different set of priorities and rules.

That does not mean either framework automatically produces better customer outcomes. It means each imposes different obligations, uses different enforcement mechanisms and directs revenue, data and oversight to different institutions.

What determines whether an event contract settles

For a contract to function as a financial instrument, its settlement condition must be defined before trading starts. “Will it rain tomorrow?” is too vague unless the contract specifies location, data source, measurement period and threshold.

A workable weather contract might instead ask whether a named weather station records at least one inch of rainfall during a specified calendar day. The designated source determines the official result, even if another source reports a different reading.

Political contracts require the same discipline. The rules need to identify the election, office, jurisdiction, deadline, official certification standard and what happens if there is a recount, delayed certification, disqualification or extraordinary legal dispute.

Sports contracts raise their own questions. The rulebook must establish whether overtime counts, how forfeits are handled, whether a postponed match is voided or rescheduled, and which official league record governs settlement.

These details are not minor legal boilerplate. They determine who gets paid. A poorly drafted settlement rule can create disputes, reputational damage and potential financial losses for both the platform and its customers.

The CFTC’s rulemaking remains open to public comment for 30 days, and no final event-contract rule had been issued as of October. [6][8] Earlier CFTC outreach generated more than 1,000 comments, including strong opposition to sports contracts from a coalition of 44 states. [3][11]

That record explains why a license application alone cannot resolve the market’s legal uncertainty. Registration addresses the platform’s status, while rulemaking and litigation will influence which underlying events regulators allow the platform to list.

The economics behind the regulatory fight

Prediction markets recorded combined trading volume above $40 billion in 2025, according to KPMG’s market overview. [7] Volume is not revenue, however. It measures contracts traded, not the fees retained after incentives, rebates and operating expenses.

For an exchange, revenue typically comes from transaction fees, spreads, market-maker arrangements or other platform charges. Profitability depends on trading frequency, customer acquisition costs, liquidity provision, regulatory expenditure and the cost of resolving disputes.

Liquidity is especially important in event contracts because every buyer requires a seller. A platform with limited interest may show a price, but that price can move sharply when even a small order enters the book.

Market makers can help by continuously quoting buy and sell prices, but they require compensation and risk controls. They can lose money when information changes suddenly, such as after unexpected election news or a player injury.

That is another reason regulatory classification matters. A CFTC-supervised market may attract institutional liquidity providers that would avoid an unlicensed gambling-style platform. It may also face higher fixed costs that smaller competitors cannot absorb.

The current policy direction is clearer than it was earlier in 2026, when the CFTC sought public input and withdrew a prior proposal that would have restricted political and sports event contracts. [3][7] Clearer is not the same as settled.

For Blockchain.com, Kalshi and other would-be operators, the prize is a federally recognized route to list event contracts. The unresolved cost is whether courts, states and the final CFTC rules accept that a contract can be a swap even when its economic appeal resembles a bet.

Frequently Asked Questions

What is the CFTC's proposed framework for prediction markets?

The CFTC’s proposed framework would classify event contracts—such as those based on elections, sports, or weather—as swaps under the Commodity Exchange Act. This would bring these contracts under federal derivatives regulation rather than state gambling laws. However, the rule is still not final and remains open for public comment.

How are event contracts regulated under federal law?

Event contracts defined as swaps fall under the jurisdiction of the CFTC and federal commodities law. The CFTC excludes casino-style gambling products from this classification, focusing instead on standardized contracts that pay a fixed amount if a specified event occurs. This federal regulation pre-empts state gambling laws for these contracts if accepted by courts and regulators.

What licensing is required to operate a prediction market platform?

Operating a prediction market platform that offers federally regulated event contracts typically requires registration as a Designated Contract Market (DCM) and Futures Commission Merchant (FCM) with the CFTC. These licenses involve a rigorous review process, which can take several months to over a year, and there is no guarantee of approval.

How do prediction markets differ from gambling legally?

Prediction markets are structured as swaps—derivative contracts with a fixed settlement value based on real-world events—regulated federally by the CFTC. In contrast, gambling products like sportsbook bets and casino games are generally regulated by state gambling laws. The distinction hinges on the contract’s classification and regulatory oversight rather than the economic similarity to betting.

What are the capital requirements for prediction market licensing?

Applicants for a Designated Contract Market license may need to demonstrate more than $5 million in capital before accounting for additional legal, surveillance, and compliance costs. Licensing is both expensive and operationally demanding, reflecting the regulatory complexity of operating a federally supervised prediction market.

How we researched this

This article was assembled from 8 published articles, 11 cited references.

Nothing here is based on hands-on testing. Where a figure or finding appears, it belongs to the source cited beside it, and the writing says so rather than implying otherwise. Every source is listed below so you can check it.

Sources

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