CFTC Prepares New Rules for Prediction Markets: Polymarket and Kalshi in the Crosshairs

The U.S. Commodity Futures Trading Commission (CFTC) is working on a regulatory framework specifically designed for prediction markets. This initiative could fundamentally reshape how platforms like Polymarket and Kalshi operate — two players that have become central figures in the ecosystem of real-world event betting.

This regulatory signal comes at a time when these platforms recorded all-time high volumes during the last U.S. elections, drawing the attention of federal regulators. The question is no longer whether regulation will arrive, but how it will be structured.

A deep dive into what could be a major turning point for the prediction market industry in the United States.

The CFTC Finally Takes Aim at Prediction Markets

The CFTC is reportedly preparing to submit a formal rulemaking proposal to regulate prediction markets. This federal regulator already oversees futures and derivatives markets in the United States — prediction markets fall naturally within its jurisdiction, given that they operate on a model of binary contracts tied to future events.

Until now, the CFTC has handled these platforms on a case-by-case basis. Kalshi notably had to fight a multi-year legal battle to secure the right to offer contracts on political elections. Polymarket, for its part, operates primarily from outside the U.S. to sidestep American restrictions, with U.S.-based users technically excluded from the platform. A unified regulatory framework would fundamentally change the game for both players.

The CFTC’s stated objective would be to clarify which types of contracts are permitted, what transparency obligations apply to operators, and how to protect users from the risks of market manipulation — a critical concern when millions of dollars are being traded on the outcome of an election or a geopolitical event.

Polymarket and Kalshi: Two Models That Regulation Could Transform

Polymarket and Kalshi represent two distinct approaches to prediction markets. Kalshi is a regulated platform, registered with the CFTC as a Designated Contract Market (DCM), which grants it institutional legitimacy but also imposes significant operational constraints. Polymarket, built on the Polygon blockchain, operates in a decentralized manner and has historically targeted an international audience to avoid the U.S. regulatory framework.

The introduction of new rules could force Polymarket to make a choice: either comply and officially enter the U.S. market, or remain in an increasingly uncomfortable regulatory grey area. For Kalshi, a clear framework could instead represent a competitive advantage, further legitimizing its model against unregulated competitors.

The numbers speak for themselves: during the U.S. presidential election in November 2024, Polymarket surpassed $3.5 billion in cumulative volume across election markets. Those figures definitively placed prediction markets on the radar of federal regulators.

What This Regulatory Framework Could Mean for the Industry

A clear regulatory framework from the CFTC would have implications well beyond Polymarket and Kalshi. It would set a precedent for the entire event-based betting platform space — whether the contracts cover sporting, economic, or political outcomes. Operators of decentralized prediction markets (DPMs) built on blockchain protocols would also need to seriously assess their compliance posture.

On the institutional investor side, formal regulation could open the door to greater participation. Hedge funds and quantitative trading desks see these markets as a highly effective tool for price discovery and political risk hedging — provided the legal framework is robust enough to justify meaningful exposure.

The CFTC has not yet published an official timeline for this proposal. But the signal is clear: the era of implicit tolerance toward unregulated prediction markets in the United States is drawing to a close. Industry players would be well advised to get ahead of this regulatory shift rather than be caught off guard by it.