Author | Asher(@Asher_ 0210)
Prediction markets are facing more clear-cut regulations.
On June 10th, the U.S. Commodity Futures Trading Commission (CFTC) issued a proposed rulemaking, planning to adjust the review method for event contracts. According to the CFTC announcement, the proposal would modify Regulation 40.11 and add a new Appendix F for evaluating whether event contracts in prediction markets involve terrorism, assassination, war, or illegal activities, and whether such contracts are contrary to the public interest. Through this proposed rule, the CFTC attempts to establish a judgment framework—which events can be financialized, and which events should be kept out of the market.
For rapidly expanding prediction markets, perhaps the proposed rules issued by the CFTC this time represent a critical turning point.
In recent years, prediction market leaders Kalshi and Polymarket have continuously turned real-world events into tradable contracts, ranging from presidential elections and macroeconomic data to sports events, entertainment shows, and geopolitical events. Almost anything with a verifiable outcome has the potential to be packaged into a "yes" or "no" trading market.
However, as the scale grows, problems are beginning to concentrate. Who can participate in trading? Which markets are susceptible to manipulation? If someone knows the outcome in advance, or can even influence the outcome, is a prediction market still a fair market?
The CFTC's move this time is precisely aimed at answering these questions.
Not a Blanket Ban, but Contract-by-Contract Review
What the CFTC released this time is not a simple statement, but a lengthy 267-page proposed rulemaking document titled "Prediction Markets; Public Interest Determinations." Judging by its nature, it is a rulemaking proposal currently in the comment stage, not a formal, effective rule. In this document, the CFTC attempts to further clarify which event contracts may be deemed contrary to the public interest and thus cannot be listed for trading or accepted for clearing on entities registered with the CFTC.
From the rule design perspective, the CFTC did not directly provide a comprehensive list of prohibitions but opted for reviewing specific contracts. According to the document content, this proposal aims to establish a structured framework for determining whether an event contract falls into sensitive categories enumerated in the Commodity Exchange Act, including terrorism, assassination, war, and activities that violate federal or state law. If involving these categories, the CFTC would further determine whether the contract is contrary to the public interest.
Therefore, prediction markets are not necessarily directly prohibited simply for touching on sensitive events. Regulatory focus is on what the event actually predicts and whether it would incentivize manipulation, harm, or illegal acts. For example, a market directly predicting whether a terrorist attack will occur in a certain location will likely face intense scrutiny or even be banned. However, a market focusing on crude oil shipment volumes through the Strait of Hormuz over a certain period, even if this data may be affected by military situations, essentially measures commercial shipping activity rather than directly predicting war or terrorist acts.
The CFTC is not simply rejecting prediction markets but attempting to distinguish between "predicting the impact of risk" and "predicting the occurrence of harm." The former may still have informational value, while the latter is more likely to cross the public interest bottom line.
Sports Prediction Events Likely to Be Retained, with Clearer Boundaries
What the outside world is most concerned about is perhaps whether sports prediction markets will be completely banned. Based on the current proposal, the signal released by the CFTC is relatively positive—most prediction events centered on the overall outcomes of sports games may still gain clearer compliance space. The CFTC preliminarily believes that sports prediction events designed based on game scores, point spreads, win/loss outcomes, advancement results, overall team or player statistics, and seasonal performance may possess price discovery functions and also provide meaningful information.
Sporting events like the World Cup, NBA, NFL, and MLB naturally have high attention, high-frequency trading, and clear settlement conditions, serving as the main source of trading volume for prediction markets. If the relevant rules are finalized and confirm that markets for sports outcomes, advancement, scores, etc., have compliance space, sports-related prediction events will remain the main battleground for platforms competing for users and liquidity.
However, this does not mean all sports-related markets will be allowed. The CFTC also emphasizes that certain more granular markets, more easily influenced by a small number of individuals, may not conform to the public interest. For example, whether a player gets injured, whether a conflict occurs during a game, whether a referee makes a particular call, outcomes of minor events, and any market that might encourage cheating or harm to athletes may face stricter scrutiny.
The Real Target: 'Those Who Know the Answer'
Compared to sports markets themselves, insider trading and manipulation risks are the real issues this round of regulation aims to address. Different from traditional financial markets, many event outcomes in prediction markets are not generated externally by the market but may be determined by an individual, an institution, or a small group. Once these individuals participate in trading, the market is no longer just "predicting the future" but may become "cashing in on insider information in advance."
Recently, similar issues have appeared multiple times. There have been several cases in prediction markets involving alleged insider trading, including U.S. military personnel accused of using information related to operations involving Venezuela, a former U.S. congressman predicting "he would not attend Trump's State of the Union address," and Google engineers using internal company tools to view data related to the most searched person in 2025.
These incidents expose the core risk of prediction markets: some traders are not better at judgment but are inherently closer to the answer. This directly undermines market credibility, turning prediction markets from information aggregation tools into insider arbitrage tools.
A Clearer Regulatory Framework Does Not Mean the End of Controversy
However, the CFTC's proposal does not mean the controversy over prediction markets has ended. Currently, multiple state regulatory agencies in the U.S. still oppose the CFTC's stance on sports prediction events, arguing that such prediction events are essentially sports betting, and platforms should not circumvent state gambling regulatory systems. Bill Miller, head of the American Gaming Association, also criticized the CFTC's proposal as redefining sports betting.
Behind this lies a power struggle between federal regulation and state gambling regulation. If sports prediction events are recognized as financial derivatives under CFTC supervision, platforms may be able to offer trading services to a broader user base through the federal framework. But if they are recognized as sports betting, they must face complex state-level licensing, taxation, and consumer protection requirements.
Therefore, even if the relevant rules are finalized, legal disputes surrounding prediction markets will not disappear but will instead become more concentrated on one question: Can prediction markets regulated by the CFTC bypass state-level gambling regulation to provide nationwide sports prediction trading?
Prediction Markets Are Becoming More Like Financial Markets
Returning to the proposal itself, the CFTC's attitude is already quite clear. Prediction markets will not be simply negated, but their gray areas are being redrawn.
Prediction events with objective settlement standards, capable of providing informational value, and with relatively controllable manipulation risks may still gain clearer compliance space; while those markets more easily influenced by a few, inducing harm, or involving non-public information will become the focus of regulation.
This also means the next phase for prediction markets is not more freedom, but more institutionalization.
Before this, the expansion of prediction markets relied more on hot topics, traffic, and the number of markets; hereafter, whether platforms can continue to grow will increasingly depend on their ability to prove market fairness, transparent settlement, and controllable risks. The CFTC's proposal this time may not be a brake for prediction markets; instead, it is more like a dividing line—the industry is beginning to move from gray-area expansion toward more rule-based competition resembling financial markets.
