For several months, prediction markets have been experiencing a spectacular rally<\/strong> attracting billions of dollars in volume. Platforms like Polymarket<\/a><\/strong> and Kalshi<\/a><\/strong> allow users to speculate on everything: election results, Fed<\/strong> decisions, and the next Bitcoin ATH. This explosive popularity has awakened local US regulators. Several states, including Minnesota<\/strong>, have passed laws to ban these activities, labeling them as “illegal betting platforms”<\/strong>. For these lawmakers, this is not finance but gambling exploiting legal loopholes.<\/p>\n\n\n\n This state level offensive is triggering a bearish sentiment<\/strong> among investors who fear a forced shutdown of the platforms. However, DeFi volumes linked to prediction markets have continued to climb despite these threats. Polymarket<\/strong>, which operates on the Polygon<\/a><\/strong> blockchain, has become one of the most used decentralized applications in the world. Being classified as “illegal betting” would force liquidity providers to withdraw, leading to a violent correction. Yet, the crypto trend toward prediction markets remains structurally bullish despite this tense regulatory environment.<\/p>\n\n\n\n Faced with this pushback, the Commodity Futures Trading Commission<\/strong> (CFTC<\/strong>) has counterattacked in court. The American financial watchdog asserts that these “event contracts”<\/strong> are derivatives falling under its exclusive federal jurisdiction<\/strong>. The CFTC<\/strong> fears that a local ban could destroy an essential market for institutional investors looking to hedge against risks. This power struggle between federal regulators and US states is unprecedented in the history of decentralized finance. The outcome of this conflict will dictate the regulatory framework for the entire prediction market ecosystem for years to come.<\/p>\n\n\n\n