An Operator's Guide to the PredictionMarket Boom

Prediction markets are platforms that let users place predictions on uncertain outcomes: election results, sports match outcomes, inflation rates, referendums, wars. This is a new stock market for trends evolving in the attention economy. Geopolitical events in the Middle East drove $529M in Polymarket trading volume within days.

Participants buy "yes" or "no" contracts that pay $1 if correct. A market on "Will Team A win the Super Bowl?" — Yes shares at 60 cents. If Team A wins, each share pays $1 (profit: 40 cents). If they lose, it's worth $0. The 60-cent price means the crowd sees a 60% chance. Anyone can buy or sell anytime; prices self-correct as traders act on new information.

Types of Prediction Markets

Continuous Double Auctions (CDA)

A stock exchange for outcomes. Users buy and sell contracts tied to a specific result. The operator runs an order book, matching buyers with sellers, and settles winning positions when the event resolves. Kalshi uses this model.

Automated Market Makers (AMM)

AMMs fix the liquidity problem of CDA by turning the platform itself into the counterparty. Every trade goes against the house. The platform prices contracts automatically based on how much money is sitting on each side. The operator now carries financial risk: misprice a contract, and a large payout comes out of the platform's pocket.

Play Money Markets

Some platforms skip real money altogether. Users get virtual tokens instead of cash. The appeal is regulatory. Legal status still depends on how prizes are structured and what counts as "value" under local law.

Blockchain-Based Markets

No company runs these platforms. Smart contracts handle every trade, oracle protocols like UMA or Chainlink verify outcomes, payouts release automatically. You cannot freeze a suspicious account or roll back a bad trade. CFTC-style compliance does not apply.

Who's Running Prediction Markets Today

Monthly volume went from under $100 million in early 2024 to over $13 billion by December 2025 — 130x growth in under two years.

Kalshi

Kalshi was the first platform to receive CFTC Designated Contract Market (DCM) status for event contracts. In May 2026, Kalshi closed a $1 billion Series F at a $22 billion valuation. By June, the World Cup pushed its cumulative trading volume past $100 billion. The company is reportedly in early IPO talks.

Kalshi built an API that lets other apps integrate its markets directly. Sleeper (10 million US users), Robinhood, Coinbase, and PrizePicks followed. This model is called Prediction as a Service. In July 2026, OpenAI integrated Kalshi's odds into ChatGPT.

Polymarket

Polymarket is the largest prediction market by liquidity, running on the Polygon blockchain using USDC for settlement. In late 2025, Polymarket re-entered the US market as a CFTC-registered DCM, with US users accessing it through registered FCMs. Trust Wallet integrated Polymarket directly into its app across 12 networks.

OG (Crypto.com)

Crypto.com launched OG on February 3, 2026, after its prediction markets business grew 40x in weekly trading volume over six months. OG runs on CDNA, a CFTC-registered exchange and clearinghouse, offering margin trading on event contracts.

The market is splitting into two tiers: CFTC-regulated platforms for US audiences, and offshore or blockchain-based platforms serving international users. Prediction markets are becoming infrastructure, not destinations.

The Legal Reality: CFTC Rules and Offshore Alternatives

United States

There is one legal path to operating prediction markets in the US: register as a DCM with the CFTC. Kalshi has that status. Polymarket got it in late 2025. The Third Circuit ruled on April 6, 2026 that CFTC jurisdiction over sports-related event contracts on a licensed DCM preempts state gambling law. On June 11, 2026, the CFTC published its first rulemaking proposal for prediction markets.

United Kingdom

The Gambling Commission confirmed on February 4, 2026 that prediction markets fall under UK gambling law and must be licensed as betting intermediaries. Kalshi and Polymarket are both inaccessible to UK retail users under current rules.

European Union

The Netherlands fined Polymarket €420,000 per week. France's ANJ ordered ISPs to block Polymarket entirely in July 2026. Belgium blacklisted the platform. Portugal ordered it to wind down. Hungary temporarily blocked access. Germany banned prediction market betting in September 2025. Spain blocked both Kalshi and Polymarket on May 26, 2026. Italy returned Polymarket to its blacklist in July 2026. The Czech Republic followed the same week. Malta is drafting the EU's first licensing rules for prediction markets.

Canada

Canada treats event contracts as derivatives. CIRO authorized Wealthsimple in March 2026. Scope is narrow: economic forecasts, environmental indicators, and financial data only. Sports and political event contracts are prohibited. In June 2026, Kalshi partnered with Wealthsimple to enter Canada.

Latin America

Brazil blocked 27 prediction market domains in April 2026. Political, electoral, social, cultural, and entertainment events are no longer allowed as underlying assets. Argentina, Venezuela, and Colombia also blocked Polymarket.

Asia

India ordered ISPs to block Polymarket in May 2026. Indonesia blocked it the same week. South Korea opened a formal review. Singapore, China, and Thailand ban prediction markets outright.

Offshore licensing options

Gibraltar licensed its first prediction market operator, Predict Street Ltd, on March 26, 2026. On July 13, 2026, Gibraltar brought the Prediction Market Regulations 2026 (LN.2026/176) into force under the Gambling Act 2025 — the world's first dedicated prediction market regime, supervised by the Gambling Commissioner. These regulations place prediction-market activity in its own category, treated as neither betting, gaming nor a financial instrument. Gibraltar also hosts Europe's first Prediction Markets Summit in November 2026.

Liberia's National Lottery Authority confirmed that its international gaming license covers prediction markets. The framework launched at the end of 2025.

Your Entry Options, Ranked

White-Label API

Kalshi exposes its markets through a public API. No additional regulatory registration required. Sleeper, Robinhood, and Coinbase entered this way. You can be live in weeks. The catch: thin margins and zero ownership — if Kalshi faces enforcement, your product disappears with it.

iGaming Platform Module

In mid-2026, major iGaming platform providers started shipping prediction markets as a turnkey vertical. SOFTSWISS launched with N1 Bet as its first live brand. Slotegrator opened pre-orders for Predictor. DATA.BET released a prediction markets vertical. BetConstruct partnered with ADI Predictstreet. The module solves technology, not licensing — your existing casino or sportsbook license does not cover event contracts in most jurisdictions.

Technology Service Provider (TSP)

You partner with a DCM, FCM, or offshore platform as their technology vendor. No FCM, DCM, or IB registration required. Timeline: 1 to 3 months. Risk: this model is new and untested with regulators.

Offshore Setup

Operating outside the US under a Gibraltar or Liberia license removes CFTC complexity entirely. Gibraltar provides stronger banking acceptance and institutional credibility. Liberia is faster (14 to 28 days) but carries more friction on the payment processing side. Neither gives you US users.

Introducing Broker (IB)

An IB finds customers and routes orders to a partnered FCM. It does not hold client funds. Registration with CFTC and NFA takes 60 to 90 days. Non-guaranteed IBs need $45,000 in adjusted net capital. DraftKings registered as a CFTC IB in December 2025, connecting to CME Group at launch.

Futures Commission Merchant (FCM)

The FCM holds your customers' money. Registration takes 6 to 10 months and requires $1 million in adjusted net capital. More control over your economics; you are responsible for client funds.

Designated Contract Market (DCM)

At this level, you are the exchange. Compliance with all 23 Core Principles under CEA Section 5(d). The 180-day review begins only when the application is materially complete. Timeline: 12 to 24 months.

DCM + DCO: The Full Stack

A DCO settles every trade on a DCM. Kalshi built it from scratch. Polymarket acquired QCEX for $112 million in July 2025. This is the same tier as the Chicago Mercantile Exchange. Full product control, nationwide US access, entire fee stack.

AML and KYC: What Your Compliance Stack Actually Needs

Under CFTC Registration

DCMs, FCMs, and IBs are classified as financial institutions under the BSA, under FinCEN oversight. Every registered entity must maintain a written AML program: written policies, a designated AML Officer, ongoing employee training, and an independent audit. SAR filing for transactions of $5,000+ that appear suspicious (within 30 days). CTR for cash transactions above $10,000.

CIP at onboarding: full legal name, date of birth, residential address, government-issued ID number. Kalshi's CIP: government-issued ID, SSN, proof of residency within 90 days. When Polymarket received CFTC approval on November 25, 2025, it moved to the same KYC standard. US users access Polymarket through registered FCMs; direct wallet connections no longer apply.

Under Offshore Licensing: Gibraltar and Liberia

The permissionless era is over offshore too. Both jurisdictions require identity verification and documented AML programs. Gibraltar: AML procedures under the Proceeds of Crime Act 2015, full EDD for high-risk accounts. Gibraltar wrote dedicated prediction market rules in July 2026 — product classification is no longer a grey area.

Liberia: written AML/CFT policies, identity verification at onboarding, ongoing transaction monitoring aligned with FATF standards. PSP acceptance for prediction markets specifically has not been tested at scale.

How Prediction Market Operators Make Money

Prediction markets profit when users trade, regardless of outcome. The operator matches opposing sides and charges a fee. It never takes a position against a user.

Transaction fee (taker/maker model): Kalshi

Kalshi charges fees only on taker orders. Per-contract fee: 0.07 × price × (1 − price). Kalshi generated $263.5M in fee revenue in 2025 on $22.88B in trading volume — 1.15% effective take rate. By early 2026: annualized volume exceeding $100B, revenue run rate approaching $1.5B.

Phased fee rollout: Polymarket

Polymarket ran fee-free through 2025. In early 2026 it started charging: Sports $0.75/100 shares, Politics/Finance/Tech $1.00, Economics/Culture/Weather $1.25, Crypto $1.80, Geopolitical/World events free. Polymarket also earns yield on USDC collateral it holds and sells real-time market data to hedge funds, Bloomberg, and Reuters.

AMM spread

Platforms using an automated market maker set a spread on contract prices. Thin at scale, but revenue from the first trade without needing a matched order book.

At $500M in annual volume at a 1% take rate: $5M in fee revenue, before yield or data products. The first 12 to 18 months are about liquidity, not revenue.

Where Prediction Market Projects Stall

The US: federal vs. state

Arizona filed criminal charges against Kalshi. Connecticut issued cease-and-desist orders to Kalshi, Polymarket, and Crypto.com in a single day. Nevada and Tennessee followed; Tennessee escalated to litigation. Minnesota became the first state to pass a law banning prediction markets in May 2026 — the CFTC and Kalshi both sued within weeks. Rhode Island sued Kalshi and Polymarket in May. Kentucky passed a prediction market tax. New Mexico faces a CFTC lawsuit.

On April 2, 2026, the Trump administration sued Arizona, Connecticut, and Illinois, arguing states cannot regulate a federally licensed derivatives exchange. The Third Circuit ruled in Kalshi's favor on April 6. Michigan cut the other way in June 2026: a judge ruled Polymarket's sports contracts fall outside CFTC authority and the state expanded its ban in July. Until the Supreme Court resolves the split, courts will keep contradicting each other.

Cross-licensing risk

If you hold state gambling licenses and add prediction markets, you are not making an isolated product decision. A state deciding prediction markets are being used to circumvent gambling law will investigate the full operation. Arizona and Connecticut have both moved on this.

Outside the US

On June 17, 2026, nine European regulators announced a joint crackdown: France, Belgium, Germany, Italy, the Netherlands, Poland, Portugal, Spain, and Switzerland. Gibraltar licensed its first prediction market operator in March 2026 and brought dedicated prediction market rules into force on July 13, 2026 under the Gambling Act 2025. Liberia continues issuing licenses through the NLA.

Where This Market Is Heading in 2026

A CFTC-registered prediction market operator can reach California and Texas without additional state licensing. State-licensed sportsbooks have no equivalent path. Combined, those two states have roughly 70 million people and no legal online sports betting.

State gaming taxes do not apply to federally regulated event contracts. New York sportsbooks pay 51% of GGR; Pennsylvania, 36%. The AGA estimates states and tribes have already lost over $1 billion in tax revenue to prediction markets.

Prediction market trading volume hit $51 billion in 2025. Polymarket and Kalshi recorded $60 billion in combined volume in the first months of 2026 — on pace for roughly $240 billion this year. Bernstein projects $1 trillion in annual volume by 2030, with industry revenue growing from $400 million in 2025 to $10.8 billion by end of the decade.

DraftKings reported an 80% drop in customer acquisition cost after adding prediction markets in March 2026, with 69% of its sports prediction volume from states where it holds no sportsbook license. By May, DraftKings Predictions ran at $3.1 billion in annualized trading volume. The 2026 World Cup is the first global event where prediction markets compete with sportsbooks at scale — wagers crossed $2 billion before the group stage ended.

On April 2, 2026, the Trump administration sued Arizona, Connecticut, and Illinois on behalf of the CFTC. On May 27, 2026, President Trump publicly backed exclusive CFTC jurisdiction over prediction markets, calling the matter critically important.

MGL has licensed 250+ iGaming operators across offshore and regulated jurisdictions, including Gibraltar and Liberia. The first conversation takes 30 minutes. Book your free consultation now.

Frequently Asked Questions

Can I use my existing iGaming or sportsbook license for prediction markets?

No. Existing iGaming licenses do not cover prediction market contracts. On July 13, 2026, Gibraltar brought in the world's first dedicated prediction market regime — the Prediction Market Regulations 2026, made under the Gambling Act 2025. If you hold a sportsbook license and add prediction markets, you are running an unlicensed product.

Are prediction markets classified as gambling?

The CFTC classifies them as event contracts under derivatives law, not gambling. Several states disagree. Outside the US: the Netherlands fined Polymarket €420,000 per week; Belgium, Switzerland, Hungary, and Portugal blocked access; the UK requires a Betting Intermediary license; Gibraltar and Liberia created licensing categories specific to prediction markets.

How long does it take to get a prediction market license?

Liberia: 14 to 28 days. Gibraltar: 4 to 6 months. CFTC IB: 60 to 90 days. FCM: 6 to 10 months. DCM: 12 to 24 months. Acquiring an existing licensed entity is faster — Polymarket paid $112 million for QCEX. Betr bought Ascent Capital in May 2026; Underdog acquired Aristotle and launched its own exchange in July 2026.

What is the cheapest way to enter?

White-label API integration with Kalshi: no capital, live in weeks. If you want your own license, Liberia is lowest-cost at €50,000 all-in for year one. Gibraltar has not yet published the PM authorisation fee; closest analogues are gambling licence tiers roughly £50k to £200k per year. CFTC registration: IB requires $45,000; FCM requires $1 million; DCM requires 12+ months of operating expenses.

Can prediction market operators accept cryptocurrency?

On the offshore path, yes. Gibraltar and Liberia-licensed platforms can accept crypto subject to AML obligations. US users access Polymarket through registered FCMs rather than direct wallet connections; standard CFTC FCM requirements prohibit crypto-native settlement.

What is the difference between a prediction market license and a sports betting license?

In the US, the CFTC registers platforms as DCMs under derivatives law. Standard offshore sports betting licenses do not cover prediction markets. Offshore, Gibraltar and Liberia both license prediction markets as their own product category distinct from ordinary betting or casino licences.

What happens if I operate without a license?

Enforcement in 2026: cease-and-desist orders from Connecticut (Kalshi, Polymarket, Crypto.com on the same day), criminal charges from Arizona, platform blocks from Nevada and Tennessee, €420,000 per week fines in the Netherlands, access blocks in Switzerland, Hungary, and Portugal. Operating without a license in a jurisdiction that has taken formal action is not a grey area in 2026.

Can I run prediction markets alongside my existing online casino?

Yes, but the legal entity structure matters. A separate legal entity limits cross-licensing exposure. An offshore license under Gibraltar or Liberia removes US state risk entirely; you give up US users in exchange.

Is Polymarket legal for US users?

Yes, as of November 25, 2025. Polymarket received CFTC DCM approval; US users access it through registered FCMs. Onboarding requires government-issued ID, SSN, and proof of address dated within 90 days.