Prediction markets like Kalshi and Polymarket are betting on growth across new financial products.
The industry’s product menu already stretches from political elections and World Cup matches to weather events. It now includes reality television, with Kalshi’s first markets tied to “Love Island USA” helping to more than double its weekly active female user base during part of June, illustrating how easily an exchange can turn an existing online fandom into a new trading constituency.
Prediction markets aren’t done there. Kalshi is reportedly in advanced discussions with regulators about expanding its perpetual futures business beyond cryptocurrencies into gold, other metals, foreign exchange and energy. Polymarket, meanwhile, has reportedly filed applications that would help it offer margin trading to customers in the United States.
Prediction markets, it would seem, are outgrowing the category that made them famous. They are evolving from event-based content into a new distribution layer for a potential next-generation of retail derivatives.
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Prediction Markets Are Becoming a Product Portfolio, Not a Betting Category
The event contract services business is evolving from predicting discrete events to trading continuous exposure to economically important assets. That transition is occurring just as the industry’s regulatory position is becoming more complicated.
A federal judge this week rejected Kalshi’s attempt to prevent New York from applying state gambling laws to its sports contracts. Last month, the Chicago Mercantile Exchange (CME) sued the Commodity Futures Trading Commission and its chairman, Michael Selig, challenging a decision to let Kalshi and crypto exchange Coinbase list perpetual futures.
The result is a market in which product demand may be the easy part. The harder question is whether prediction platforms can develop a compliance system broad enough to support everything from television finales to leveraged commodity trades.
The Love Island contracts, for example, expose the prediction market category’s fundamental surveillance problem. Television episodes are produced before they are broadcast, meaning cast members, production staff, editors and others can possess information unavailable to the public. Similar informational asymmetries arise around economic announcements, court decisions, corporate events and government actions. The more subjects a platform makes tradable, the more types of potential insiders it must identify.
Goldman Sachs prohibited employees from participating in financial and political event contracts that could create actual or perceived conflicts involving the bank, its clients or the financial industry, particularly when workers could possess confidential corporate or macroeconomic information.
The Senate unanimously adopted a rule in April prohibiting senators, staff and officers from participating in prediction markets. Arizona Gov. Katie Hobbs followed this month with an executive order prohibiting state executive branch employees from using nonpublic government information for prediction market profits.
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A Short History of Prediction Market Products and U.S. Regulation
Despite all the action, prediction markets began as relatively constrained experiments in information aggregation. The CFTC said market operators have sought agency guidance since the early 1990s, and the first prediction market was designated as a federally regulated contract market in 2004. The central idea was that putting money behind a forecast could aggregate dispersed information more effectively than polls, surveys or expert opinion.
The model remained small partly because regulators treated event contracts as exceptional products. Contracts tied to economic indicators, elections or entertainment did not fit comfortably within either traditional futures regulation or state gambling frameworks.
Polymarket demonstrated the potential and limitations of operating outside that system. In 2022, the CFTC ordered the company to pay a $1.4 million penalty and wind down markets that violated federal derivatives laws. Polymarket later returned to the U.S. by acquiring federally licensed exchange and clearing infrastructure, creating a regulated domestic operation that is separate from its crypto-based international platform.
PYMNTS reported in September that when the CFTC issued a no-action letter regarding event contracts in response to a request from two businesses owned by Polymarket, it in essence gave Polymarket a regulatory green light to re-enter the U.S. market.
The industry’s short history, in other words, is not primarily a progression from one betting topic to another. It is a progression from restricted forecasting experiment to full-scale exchange infrastructure. That direction of travel appears to be continuing.
