Prediction Markets Leveraged CFTC Oversight to Go Mainstream in 2025

Who could’ve predicted the run that prediction markets have had in 2025?

These novel platforms, which let participants trade contracts tied to the outcomes of real-world events, entered a decisive phase of commercial and regulatory expansion over the past year. Formerly forced offshore, 2025 saw an influx of U.S.-accessible platforms take advantage of the fact that prediction markets, unlike sports betting and other gambling products, are now regulated at the federal level by the Commodity Futures Trading Commission (CFTC), not at the state level by gambling commissions.

Firms like Polymarket, which acquired QCX, a designated contract market, and QC Clearing, a derivatives clearing organization; Robinhood, which acquired MIAX’s derivatives exchange; and DraftKings, which acquired Railbird Technologies and its wholly owned subsidiary, Railbird Exchange; have been stepping up their acquisitions of CFTC-licensed firms over the past year in order to enter the space in a regulated fashion.

The sports betting firm FanDuel on Monday (Dec. 22) launched its FanDuel Predicts app, developed in partnership with derivatives market CME Group, in five U.S. states; with a phased national rollout planed through early 2026.

The crypto exchange Kraken also acquired Small Exchange, a CFTC-licensed designated contract market, from IG Group for $100 million, showing that crypto platforms are interested in this emerging asset class too. Coinbase on Monday announced it was expanding its new prediction markets business by acquiring The Clearing Company.

At their core, prediction markets operate like stock markets for questions. Users buy and sell contracts tied to yes/no outcomes (“Will CPI exceed 3% next quarter?”) or multi-option outcomes (“Which team wins the Super Bowl?”). The price of a contract reflects the crowd’s probability estimate of that outcome, offering a real-time, market-driven forecast of future events.

Proponents argue that this mechanism aggregates dispersed information more efficiently than polls or expert forecasts, turning decentralized expectations into tradable signals and potentially sharper risk-management tools for corporations and investors alike.

But the space’s rapid evolution has also sparked fierce competition, legal scrutiny, and strategic repositioning by some of the biggest players in finance and betting, each vying for position in what could become a new asset class bridging finance, entertainment and wagering.

Read more: Prediction Market Boom Blurs Line Between Trading and Gambling

The Regulation Hurdle

Early prediction markets struggled with thin liquidity, unclear legal status, and reputational baggage associated with gambling. That has changed quickly, but one of the thorniest issues for prediction markets remains regulation.

By structuring event contracts under federal commodities regulation, prediction market platforms claim they can operate in states where traditional sports betting remains restricted, effectively bypassing one of the industry’s most persistent growth constraints.

In November, the CFTC gave permission to the off-shore market Polymarket to operate in all 50 U.S. states. Still, states like New York, New Jersey, Nevada, Maryland, Arizona and Illinois have recently sought to shut down prediction markets.

And while a federal judge in April granted Kalshi a preliminary injunction in New Jersey, finding that the CFTC’s jurisdiction likely preempted the state’s gambling laws. However, Kalshi failed in its bid for a preliminary injunction in Nevada, where it had also argued for federal preemption.

In related news, Coinbase last week sued Connecticut, Michigan and Illinois, challenging each state’s efforts to control or prohibit prediction markets. The company argues that the markets fall under the jurisdiction of the CFTC and not individual state gaming regulators.

While federal oversight of prediction markets can offer consistency and scalability, it also is provoking resistance from state regulators who view many prediction markets, especially sports-related ones, as functionally indistinguishable from gambling. The resulting tug-of-war has created uncertainty for operators.

Read more: Prediction Markets Eye US Growth While Watching Out for Crypto Whales

Where Liquidity and Adoption Are Headed

Liquidity is the lifeblood of any market, and prediction markets are no exception. Liquidity providers and trading firms are exploring prediction markets as a new frontier for market-making and arbitrage. Their participation matters because liquidity is what transforms prediction markets from novelty into utility.

Historically, crypto-native platforms like Polymarket and Kalshi have been pioneers in attracting activity, although Polymarket faced regulatory headwinds and restructured to operate within the U.S. law.

Yet many of prediction markets’ risks are real and unresolved. Prediction markets are only as good as their participation and incentives. Thin liquidity can distort prices, while speculative fervor can overwhelm informational value. There are also ethical and social concerns about commodifying sensitive events, from elections to public health outcomes. Consumer protection remains a pressing issue, particularly as platforms attract users who may not fully understand the risks or distinctions between trading and gambling.

The history of financial innovation suggests that growth often outpaces governance, and prediction markets may be no exception.