Original | Odaily Planet Daily (@OdailyChina)
Author | Asher (@Asher_0210)
Prediction markets are about to get clearer regulation.
On June 10th, the U.S. Commodity Futures Trading Commission (CFTC) issued a proposed rule aiming to adjust the review process for event contracts. According to the CFTC announcement, this proposal would amend Regulation 40.11 and add a new Appendix F to assess whether event contracts in prediction markets involve terrorism, assassination, war, or illegal activity, and whether such contracts are contrary to the public interest. Through this proposed rule, the CFTC is attempting to establish a framework for determining which events can be financialized and which should be kept out of the market.
For the rapidly expanding prediction market industry, this proposed rule from the CFTC might be a key turning point.
In recent years, the leading prediction platforms Kalshi and Polymarket have continuously turned real-world events into tradable contracts. From presidential elections and macroeconomic data to sports events, entertainment shows, and geopolitical incidents—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 have started to emerge. Who can participate in trading? Which markets are prone to manipulation? If someone knows the outcome in advance, or can even influence it, can the prediction market still be considered fair?
The CFTC's current move is precisely trying to answer these questions.
Not a One-Size-Fits-All Ban, but Contract-by-Contract Review
What the CFTC released is not a simple statement, but a 267-page proposed rulemaking document titled "Prediction Markets; Public Interest Determinations." In terms of its nature, it's a rulemaking proposal currently in the comment stage, not a final, effective rule. In this document, the CFTC seeks to further clarify which event contracts might be deemed contrary to the public interest and thus not allowed to be listed for trading or accepted for clearing on CFTC-registered entities.
From a design perspective, the CFTC did not directly provide a comprehensive prohibited list but opted for a contract-by-contract review approach. According to the document, this proposal aims to establish a structured framework for determining whether a specific event contract falls into the sensitive categories listed in the Commodity Exchange Act, including terrorism, assassination, war, and activities that violate federal or state law. If it involves these categories, the CFTC would then further judge whether the contract is contrary to the public interest.
Therefore, prediction markets won't necessarily be directly prohibited simply for touching on sensitive events. The regulator's focus is on what the event actually predicts and whether it might incentivize manipulation, harm, or illegal acts. For example, a market directly predicting whether a terrorist attack will occur in a certain location would most likely enter the scope of heightened scrutiny or prohibition. However, a market focusing on crude oil shipping volume through the Strait of Hormuz during a specific period, even if this data might be influenced by military situations, essentially measures commercial shipping activity, not directly predicts war or terrorist acts.
The CFTC is not simply rejecting prediction markets but attempting to distinguish between "predicting the impact of risks" and "predicting the occurrence of harm." The former may still have informational value, while the latter is more likely to cross the public interest line.
Sports Prediction Events Likely to Remain, with Clearer Boundaries
What the outside world is most concerned about might be whether sports prediction markets will be completely banned. Based on the current proposal, the signal from the CFTC is relatively positive—most prediction events centered on the overall outcomes of sports competitions may still have a clearer path to compliance. The CFTC preliminarily believes that sports prediction events based on game scores, point spreads, win/loss outcomes, qualification results, overall team or player statistics, and season performance may have price discovery functions and can provide meaningful information.
Major sporting events like the World Cup, NBA, NFL, and MLB naturally have high attention, high trading frequency, and clear settlement conditions, making them a primary source of trading volume for prediction markets. If the final rule is adopted and confirms that markets for sports outcomes, qualifications, scores, etc., have a compliant space, sports 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, which are more susceptible to influence by a small number of people, may not serve the public interest. Examples include whether a player gets injured, whether a conflict occurs during a game, whether a referee makes a specific call, outcomes of minor league events, and any market that might encourage cheating or harm to athletes—all of which could face stricter scrutiny.
Those Who "Know the Answer" Are the Real Target
Compared to sports markets themselves, insider trading and manipulation risks are the core problems this round of regulation truly aims to address. Unlike traditional financial markets, in prediction markets, the outcome of many events is not generated externally by the market but may be determined by an individual, an institution, or a small group. Once these people participate in trading, the market is no longer just "predicting the future" but may turn into "cashing in on insider information in advance."
Recently, similar issues have emerged multiple times. Several alleged insider trading cases have occurred in prediction markets, including U.S. military personnel accused of using information related to actions involving Venezuela, a former U.S. congressman predicting "I will not attend Trump's State of the Union address," and a Google engineer 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 necessarily better at judging; they are simply closer to the answer. This directly undermines market credibility, turning prediction markets from information aggregation tools into vehicles for insider arbitrage.
Clearer Regulatory Framework Doesn't Mean the End of Controversy
However, the CFTC's proposal does not mean the controversy over prediction markets has ended. Currently, multiple state regulators in the U.S. still oppose the CFTC's stance on sports prediction events, arguing that such events are essentially sports gambling and platforms should not circumvent state gambling regulatory systems. Bill Miller, head of the American Gaming Association, also criticized the CFTC's proposal as an attempt to redefine sports gambling.
Behind this lies a power struggle between federal regulation and state gambling regulation. If sports prediction events are recognized as financial derivatives under CFTC oversight, platforms could potentially offer trading services to a broader user base through the federal framework. But if they are deemed sports gambling, they must face complex state-level licensing, taxation, and consumer protection requirements.
Therefore, even if the rule is finalized, legal disputes surrounding prediction markets will not disappear but will instead focus more sharply on one question: Can prediction markets under CFTC regulation circumvent state-level gambling regulation to offer nationwide sports prediction trading?
Prediction Markets Are Becoming More Like Financial Markets
Returning to the proposal itself, the CFTC's stance is already relatively 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 compliant space. Markets that are easily influenced by a few, incentivize harm, or involve non-public information will become regulatory priorities.
This also means the next phase for prediction markets is not more freedom, but more institutionalization.
Previously, the expansion of prediction markets relied more on trending topics, traffic, and the number of markets. Hereafter, whether platforms can continue to grow will increasingly depend on their ability to demonstrate market fairness, settlement transparency, and risk control. The CFTC's proposal may not be a brake on prediction markets but more like a dividing line—the industry is moving from gray-area expansion toward more rule-based competition, closer to that of financial markets.
