This article is written by Tiger Research. While the West has opened a door for prediction markets through derivatives laws or gambling licenses, Asian regulators have neither a universal licensing framework nor an open definition of financial products, leading tens of millions of dollars to flow to offshore platforms, with governments collecting no taxes and investors lacking protection. The regulatory vacuum is not a cultural issue; it's a missing institutional design.
Core Points
- Asian markets lack the regulatory architecture to classify prediction markets, leaving regulators to keep them in a gray area.
- Western jurisdictions leverage existing frameworks—derivatives regulation in the US or gambling law in the UK—creating clear entry paths and regulatory mechanisms for operators.
- Asia's lack of a framework has not suppressed market activity, as evidenced by significant liquidity flowing to offshore platforms, but it prevents tax collection and consumer protection.
- Establishing a regulatory foundation requires public discussion: should prediction markets be treated as derivatives, gambling, or a brand-new third category?
The Importance of Definition and Classification
As noted in previous reports, prediction markets have value as information platforms, but the law has never drawn a clear line between them and gambling.
This raises a question: how does the law define gambling, specifically betting.
Section 9 of the UK's Gambling Act 2005 provides a broad definition of the subject of a bet; once monetary value is attached, it falls under gambling regulation:
The outcome of a race, competition, or other event or process
The likelihood of anything occurring or not occurring
Whether anything is true or not
Under this legal definition, prediction markets attach economic value to the outcome of a specific event or the determination of a fact, meaning they are structurally highly similar to betting (a core element of gambling).
The core of the regulatory debate ultimately boils down to a definitional question: whether to bring prediction markets under the traditional gambling regulatory framework, reclassify them under financial architectures like derivatives, or establish them as an independent category through standalone legislation.
The West: How Institutional Pathways Produce Different Outcomes
Compared to Asia, Western jurisdictions are more tolerant of prediction markets, but this doesn't stem from cultural acceptance of gambling. Instead, it reflects existing institutional architectures allowing them to circumvent direct confrontation with gambling laws. The main pathways are as follows:
United States: Prediction markets are classified as derivatives (swaps) under the Commodity Exchange Act, integrated into existing registration frameworks.
United Kingdom: Markets are accommodated within the universal "gambling intermediary" license system.
European Union: If contracts are classified as financial instruments, they are subject to the binary options ban; if they avoid this classification, they face strict national gambling laws as a second barrier.
A consistent pattern is evident: Institutional acceptance is only possible in jurisdictions possessing alternative regulatory frameworks independent of gambling laws, such as derivatives laws or flexible licensing systems.
United States: Extending Derivatives Definitions
The United States accommodates prediction markets not by endorsing a gambling framework, but by purposively applying the existing contract structure of the Commodity Exchange Act (CEA).
The Commodity Futures Modernization Act (CFMA) of 2000: Laid the groundwork through an open-ended definition of "excluded commodities," allowing non-financial variables like election results and weather events to be classified alongside traditional commodities like crude oil.
The Dodd-Frank Act of 2010: Granted the CFTC two key powers: federal exclusive jurisdiction over event contracts; and the power under Rule 40.11 to prohibit specific contracts related to terrorism, assassination, war, and gambling.
Neither law was designed for prediction markets, but together they created the legal basis to view such contracts as financial agreements rather than gambling, and established a centralized regulatory counterpart at the CFTC, replacing the previously fragmented process requiring state-by-state lobbying.
This long-accumulated legal architecture gave rise to markets operating around licensed entities.
In November 2020, Kalshi obtained Designated Contract Market (DCM) status, allowing it to sell a wide range of event contracts to retail investors. After an enforcement action in 2022, Polymarket moved towards compliance by acquiring the licensed exchange QCEX in 2025.
United Kingdom: Incorporation via a Universal Licensing Framework
The UK does not treat prediction markets as an extension of derivatives, but as a form of betting, bringing them under regulation using the existing Gambling Act 2005. Three clauses are particularly important:
Section 9: Its definition of betting is broad enough to provide a flexible legal basis for prediction markets.
Section 13 "Betting Intermediary": Precisely captures the structural features of prediction markets, as they match contracts between users rather than holding positions directly.
Section 65(4): Allows for adjustment of license categories via ministerial order, enabling the framework to accommodate new market models without standalone legislation.
In February 2026, the Gambling Commission clarified that prediction market platforms fall under the "Betting Intermediary" category and must obtain the corresponding license. This is not a blanket prohibition but constitutes a clearly defined entry path: on one side are severe penalties for unlicensed operation, and on the other is an open registration window.
Despite the established framework, major global platforms remain cautious about entering the UK market, a stance rooted in their US litigation strategies.
Both Kalshi and Polymarket heavily emphasize in their legal arguments that prediction contracts are financial derivatives, not gambling. Obtaining a UK "Betting Intermediary" license would formally categorize them as gambling operators, potentially undermining their legal position in US lawsuits.
This creates a market environment in the UK that diverges from global standards, effectively creating ideal conditions for UK-based operators to establish businesses. The existing betting exchange Matchbook leveraged its Betting Intermediary license to launch "Matchbook Predictions" in January 2026. The new entrant Versus secured a UKGC general betting license and launched its own prediction market.
Europe: Dual Closure via Financial and Gambling Regulation
Europe's regulatory landscape combines financial regulation under MiFID II with national gambling laws, forming a double barrier:
Any contract classified as a financial instrument immediately encounters the binary options ban.
Any contract escaping that classification subsequently faces strict national gambling definitions.
In July 2026, the European Securities and Markets Authority (ESMA) clarified the financial regulation dimension in an official statement, noting that the binary payoff structure of event contracts falls entirely within the scope of the binary options ban. This effectively closes the path to the European market as a financial product.
Prediction markets face equally difficult conditions under gambling laws. France serves as the clearest example: the National Gambling Authority (ANJ) implemented a phased escalation of enforcement, ultimately classifying prediction market operation as illegal gambling.
The sole exception is Gibraltar. In July 2026, Gibraltar designed a specialized legislative framework—the Prediction Markets Regulations—defining prediction markets as a distinct "third category." This is a strategy of creating a new path rather than operating within an existing framework, but as Gibraltar is not an EU member state, its limitation lies in not being subject to European internal mutual recognition.
However, Europe's closed structure may not be permanent. The European Commission has formally included the legal treatment of prediction markets in the review process for the Markets in Crypto-Assets Regulation (MiCA). Depending on the conclusions of the report due in June 2027, the door remains open for a shift towards a new institutional framework accommodating prediction markets.
Asia: The Status Quo of Institutional Absence
Asian jurisdictions face two structural obstacles that do not exist in the same form in Western markets:
State-Controlled Gambling Licenses: There is no universal licensing framework capable of accommodating private sector innovation in the way the UK's "Betting Intermediary" category does. Licensing rights are allocated through state-controlled monopoly structures.
Financial Product Classification Constraints: Financial laws in countries like South Korea and Japan use closed positive lists to define underlying assets, making broad reclassification achieved in the US through concepts like "non-financial contingent events" legally infeasible.
As the Western cases demonstrate, the survival of prediction markets depends on which path defines them: existing financial product architecture or gambling regulation. However, the fundamental constraint faced by Asian markets is that neither classification system provides the institutional foundation capable of accommodating this new business model.
Legal gambling markets already exist across Asia—Japan, South Korea, Singapore, Hong Kong—so any argument rejecting the market based on emotional aversion or cultural particularity diverges significantly from reality.
Thus, the core issue is not whether the market is socially accepted, but how to design a regulatory foundation to accommodate this new market model.
South Korea: Missing Architecture and Criminal Enforcement as the Default
Domestic discussion on prediction markets has not yet reached the stage of debating their legal status or social value. The existing regulatory framework defaults to treating them as speculative products, cutting them off before substantive discussion even begins.
Relevant legal provisions already conflict with how prediction markets operate. The Speculative Acts Regulation and Punishment Special Act covers "prize businesses," defined as businesses distributing money or property by correctly predicting the outcome of a specific event. This is structurally similar to the operation of prediction markets.
However, the legal issue is not fully resolved. The prize business law presupposes a casino-like structure where the operator directly controls the fund pool. Modern platforms like Polymarket use a matching architecture, where the operator facilitates contracts between users rather than holding funds directly. There is no judicial interpretation yet on how this structural difference would be handled under the current regulations.
The financial regulatory pathway is also closed. The Capital Markets Act uses a positive list approach to define underlying assets. While financial indicators are covered, there's no clear basis for classifying non-financial variables like election results as derivatives.
Since the right to operate gambling businesses is reserved for state monopoly entities anyway, private platforms cannot enter the market through this channel either.
Japan: Complex Workarounds and the Limits of Informal Practice
Japan's prediction markets have followed a pattern of regulatory workarounds rather than institutional integration.
Local platforms employ a method akin to the three-shop system, a mechanism originating in the pachinko industry, by physically severing direct cash flow within the operational process.
Platform Operator: The platform blocks direct cash deposits, instead operating a free reward model based on activities like watching ads. It also removes any internal cash redemption function, thereby removing the defining element of gambling: "gain or loss of property."
Reward Issuer: A third party independent of the platform issues rewards, such as gift vouchers, for successful predictions. Separating the platform operator from the issuing entity eliminates the legal risk of the operator being a direct participant in converting rewards to cash.
External Cashing Market: Peer-to-peer transfer markets and affiliated merchants outside the platform form an ecosystem where rewards are actually consumed or converted to cash. Since the operating platform does not participate in this distribution process, the structure remains independent and avoids meeting the legal elements of a gambling offense.
This ultimately constitutes an informal business practice that emerged in a regulatory gray area, not a structure built on solid legal footing. Global platforms are either blocked from entering the Japanese market or operate under strict restrictions through cryptocurrency exchanges. The substance of policy discussion in Japan is not materially different from that in South Korea.
What Asian Markets Are Giving Up
The absence of an institutional framework in Asia does not mean the market doesn't exist. Over 52 million dollars (approximately 72.8 billion won) in liquidity flowed into prediction markets related to South Korea's local elections in June 2026, indicating that user participation on offshore platforms has crossed a meaningful threshold even without a domestic regulatory framework. These transactions are outside the tax system, lack consumer protection mechanisms, and market integrity oversight is impossible.
Regulators face three available responses:
Extend existing criminal statutes to impose sanctions (the current approach in South Korea).
Use technological means to completely block platform access (the Singapore model).
Bring prediction markets under regulation, thereby gaining tax revenue and regulatory authority in the process.
Only the third option can precisely achieve practical regulatory goals such as tax collection, consumer protection, and market transparency.
Global annual trading volume for prediction markets in 2026 is projected to exceed 200 billion dollars. Conservatively assuming domestic Korean users account for 1% of that volume, the attributable volume for any given Asian market would reach 2 billion dollars. Depending on the tax model adopted, this would generate estimated new tax revenues ranging from 400,000 to 43.2 million dollars annually.
The more important point is not the scale of these figures themselves. Without regulatory adaptation, these transactions will not disappear; they will continue in an unregulated environment. Regulators will forfeit tax revenue and regulatory authority while continuing to bear administrative and criminal enforcement costs.
Reframing the Regulatory Approach to Prediction Markets
As described above, the institutional adaptation of prediction markets depends on which existing regulatory architecture (gambling or financial products) is used to define them.
Gambling Regulatory Framework: This path adapts existing Asian models for state-sanctioned speculative activities, such as sports betting pools or integrated resort casinos. It aligns with state monopoly structures and can be justified with public funding rationales but has inherent limitations in adapting to the business models of private platforms.
Derivatives Regulatory Framework: This represents the path of least friction and greatest operational feasibility. It involves fine-tuning the definition of financial products, drawing on precedents like Japan's Financial Instruments and Exchange Act accepting non-financial variables or the "economic risk" language in South Korea's Capital Markets Act. This approach avoids direct conflict with existing state gambling monopolies while preempting concerns about speculation and market manipulation by restricting eligible underlying assets to publicly verifiable statistical variables.
Creating an Independent Third Category: This involves designing a specialized legislative framework, as Gibraltar has done. It allows for the most precise regulatory calibration but carries the highest legislative and political costs given the lack of precedent.
It is worth noting that this is a long-term institutional endeavor, not an immediate outcome. In many Asian jurisdictions, basic public discussion on the legal identity of prediction markets has yet to take shape. Generating the legislative momentum required for any of these paths first necessitates establishing a public deliberation process and building broad social consensus on the value of prediction markets.
Notably, prediction markets remain an unfamiliar concept across Asia, with no entity taking the lead in shaping discourse around them. Consequently, even the most basic agenda items are yet to be discussed.
Precisely analyzing how prediction markets function overall requires a formal public forum, such as a public-private roundtable established around the core questions mentioned above. Creating such a forum is now imperative.
Even setting this level of discussion requires an entity capable of bringing it to the actual policy table. Professional research institutions like Limitless Research, which demonstrate data-driven prediction models in practice, can play a central role in establishing market value systems and shaping public discourse in the process.
Starting with Limitless Research, the process through which organizations with professional analytical capabilities demonstrate their data reliability and public value will be the decisive catalyst for elevating fragmented discourse on prediction markets into a core agenda item within the institutional system.
Prediction markets have clear benefits and risks, but arriving at an institutional conclusion before the debate occurs would be a hasty approach that overlooks the core issue. What's needed now is the constructive discourse that hasn't yet happened.
