Olivia Capozzalo & Camila Russo
March 12, 2026

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Today’s big story:

Prediction markets have spent years operating in regulatory limbo in the United States. Now the country’s top derivatives regulator wants to change that.

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Today’s Big Story

The CFTC Wants to Make Prediction Markets Mainstream Finance

Prediction markets have spent years operating in regulatory limbo in the United States. Now the country’s top derivatives regulator wants to change that.

The Commodity Futures Trading Commission (CFTC) threw its weight behind federal oversight of prediction markets today, launching a sweeping review of how these markets should be regulated and issuing guidance for exchanges listing event-based contracts.

That is good news for both the industry and its users. But the rules are not finished yet, and the legal fight over who regulates these markets is far from settled.

Why the CFTC’s Move Is Positive

For prediction market platforms, the CFTC’s intervention offers something the industry has long wanted: a legitimate path to operate in the U.S.

Companies like Kalshi and Polymarket have spent years fighting regulators and state gaming authorities over whether their contracts are financial derivatives or simply unlicensed gambling. By asserting federal jurisdiction and opening the door to clearer rules, the CFTC is effectively saying prediction markets belong inside the regulated derivatives ecosystem.

That matters because it provides regulatory certainty. Exchanges can structure contracts to comply with federal market rules instead of navigating a patchwork of state gambling laws.

For users, federal oversight also brings safeguards that many crypto-native prediction markets have historically lacked.

The CFTC’s framework emphasizes market surveillance, anti-manipulation controls, and enforcement against insider trading. Exchanges listing event contracts would need systems to detect unusual trading activity and mechanisms to investigate potential misconduct. They would also have to rely on reliable settlement data and transparent methodologies for determining outcomes.

In other words, prediction markets would start to resemble traditional financial exchanges more than online betting platforms.

That could reduce risks like insider trading, manipulation of event outcomes, or opaque settlement procedures.

What the CFTC Actually Announced

The CFTC made two moves simultaneously.

First, its Division of Market Oversight issued an advisory explaining how regulated exchanges should list and oversee “event contracts,” derivatives tied to real-world outcomes like elections, economic indicators, or sports results.

Second, the Commission opened a formal public consultation on whether new rules are needed to govern these markets.

The advisory lays out the regulator’s expectations: Exchanges must show that contracts are not easily manipulated, implement real-time market surveillance, and ensure settlement data comes from reliable sources.

Contracts tied to large aggregate outcomes, like election results or season-long sports performance, are generally seen as less susceptible to manipulation than contracts tied to narrow events like a single player injury.

The guidance also encourages exchanges to work with sports leagues and governing bodies to maintain integrity and investigate suspicious activity.

At the same time, the CFTC made clear it retains authority to halt trading in contracts that violate the law or threaten market integrity.

What Needs to Happen Next

Despite the announcement, prediction market regulation is not finalized. The current document is only staff guidance. It does not create binding rules.

To become formal regulation, the CFTC would need to complete the standard rulemaking process. The agency has started with an advance notice asking the public for feedback on how prediction markets should be governed.

The next step would likely be a proposed rule, followed by another comment period, and eventually a final rule voted on by the Commission.

This process could take months or longer.

In parallel, courts are still deciding who has authority over these markets.

Several U.S. states argue that sports and other event contracts offered by prediction platforms are simply gambling products that require state gaming licenses. Platforms like Kalshi counter that the contracts are financial derivatives governed by federal commodities law.

Those legal battles are ongoing across multiple states.

Are Prediction Markets Really Derivatives?

At the heart of the debate is a basic question: should prediction markets be treated as financial derivatives at all?

The argument hinges on how the Commodity Exchange Act defines derivatives.

Under the law, derivatives include swaps or futures whose value depends on a future event or measurable outcome. Many prediction market contracts fit that description. They typically have binary payoffs, for example, paying $1 if an event occurs and $0 if it does not. Because the payout depends on the occurrence of a future event, regulators argue that the contracts function like financial derivatives rather than traditional wagers.

Supporters of this view say prediction markets provide valuable information aggregation and price discovery. Critics argue that many contracts, especially those tied to sports or political outcomes, look indistinguishable from betting.

That distinction will likely remain contested.

What Comes Next

Prediction markets are entering a pivotal phase.

Federal regulators are signaling that these markets belong inside the financial regulatory perimeter, not outside it. That is a major step toward legitimacy for an industry that has often operated in gray areas.

But the path forward is still uncertain. For now, probably the best way to tell whether CFTC will get its way, is on Kalshi and Polymarket themselves.

With love,

Cami, founder of The Defiant

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