How to Get Your Piece of the $1 Trillion PredictionMarket Pie

The closest comparison is the sweepstakes casino wave of 2024 and 2025: a product category that outpaced regulation, created real revenue early, and rewarded operators who moved first. Prediction markets are in that position today.

This guide covers what prediction markets are, how they work, how to enter legally, what compliance requires, and how the revenue model actually works.

What are Prediction Markets

Prediction markets are platforms that let anonymous users gamble on uncertainty and place “predictions” rather than bets.

The events can be anything. These might be the outcome of elections in any country, the passing of laws, referendums, the resignation of politicians, the results of sports matches, inflation rates, hurricanes, release dates for TV shows, epidemics, wars, and even the existence of aliens and their upcoming visit to Earth. This is a new “stock market for trends” that is evolving in the “attention economy”.

Types of Prediction Markets

Not all prediction markets work the same way. The model you choose shapes your capital requirements, technical build, and licensing path.

Continuous Double Auctions (CDA)

Think of it as a stock exchange for outcomes. Users buy and sell contracts tied to a specific result. If more people start betting on that result, the price goes up. If sentiment shifts, the price drops. 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)

The problem with CDA is liquidity. When not enough people are trading a given contract, prices get distorted and some bets can't fill at all. AMMs fix this 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. That creates a different problem: 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. They still trade and compete, but there's nothing to withdraw. The appeal is regulatory: real-money event betting is illegal in several jurisdictions. Play money sidesteps that. But it's not a clean escape — 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, and payouts release automatically when events resolve. You can't freeze a suspicious account or roll back a bad trade. CFTC-style compliance, as licensed platforms understand it, doesn't apply here.

Who's Running Prediction Markets Today

Monthly prediction market volume went from under $100 million in early 2024 to over $13 billion by December 2025. That 130x growth in under two years is what brought every major fintech and gaming platform to the table.

Kalshi

Kalshi was the first platform to receive CFTC Designated Contract Market (DCM) status specifically for event contracts — the same regulatory classification as the Chicago Mercantile Exchange (CME), applied to prediction markets for the first time. Users trade on election results, interest rate decisions, and sports outcomes through a fully authorized exchange.

Its competitive edge is distribution. Kalshi built an API that lets other apps integrate its markets directly. Sleeper, a fantasy sports app with over 10 million US users, added Kalshi's contracts to its platform. Robinhood, Coinbase, and PrizePicks followed. The model has a name: Prediction as a Service. Instead of users downloading a new app, predictions become a native feature inside products they already use.

Polymarket

Polymarket is the largest prediction market by liquidity. It runs 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 Futures Commission Merchants (FCMs). Trust Wallet integrated Polymarket directly into its app across 12 networks.

OG (Crypto.com)

Crypto.com launched OG on February 3, 2026, spinning it out as a standalone platform after its prediction markets business grew 40x in weekly trading volume over six months. OG runs on Crypto.com Derivatives North America (CDNA), a CFTC-registered exchange and clearinghouse covering sports, politics, finance, and entertainment.

What this means for operators entering now

The market is splitting into two tiers: CFTC-regulated platforms for US audiences, and offshore or blockchain-based platforms serving international users. The API distribution model Kalshi built is already being replicated. Prediction markets are becoming infrastructure — a feature layer that other products sit on top of, not destinations in themselves.

The Legal Reality: CFTC Rules and Offshore Alternatives

Two years ago, most jurisdictions had no rules on prediction markets. Today, major markets have taken formal positions. Operators who haven't noticed are getting blocked.

United States

There is one legal path to operating prediction markets in the US: register as a Designated Contract Market (DCM) with the CFTC. That puts a platform in the same regulatory category as the Chicago Mercantile Exchange. Kalshi has that status. Polymarket got it in late 2025. Everyone else is either offshore or unlicensed.

The Third Circuit made the jurisdictional picture clearer on April 6, 2026, ruling in KalshiEX LLC v. Flaherty that New Jersey gaming regulators cannot interfere with Kalshi's operations in the state. The court held that CFTC jurisdiction over sports-related event contracts on a licensed DCM preempts state gambling law.

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 — the same category as betting exchanges like Betfair. Kalshi and Polymarket are both inaccessible to UK retail users under current rules.

European Union

The Netherlands was the first EU jurisdiction to take formal action. The Dutch Gaming Authority fined Polymarket €420,000 per week and classified the platform as "games of chance." France placed Polymarket in view-only mode in early 2025. Belgium's Gaming Commission blacklisted the platform. Portugal ordered Polymarket to wind down. Germany's GGL issued a formal warning in September 2025. Spain blocked both Kalshi and Polymarket on May 26, 2026.

Canada

Canada treats event contracts as derivatives, not gambling. The Canadian Investment Regulatory Organization (CIRO) authorized Interactive Brokers Canada first, then Wealthsimple in March 2026, to offer event contracts to Canadian users.

Offshore licensing options

Gibraltar licensed its first prediction market operator in March 2026 under its Gambling Division's framework. Gibraltar provides stronger banking acceptance and institutional credibility. Liberia issues licenses through the National Lottery Authority with a timeline of 14 to 28 days — faster, but with more PSP friction. Neither gives you US users.

Your Entry Options, Ranked

White-Label API

The fastest entry. No license required. You integrate Kalshi's API, inherit its order book and liquidity, and earn a revenue share. Product control is zero — the market is Kalshi's. Key risk: your product disappears if Kalshi faces enforcement.

Technology Service Provider (TSP)

You build the trading infrastructure and license it to others as B2B vendor. Registration: 1 to 3 months. Capital required: none. You carry no client funds. The concept is untested with regulators — B2B tech vendor classification has not been formally confirmed for prediction market infrastructure.

Offshore Setup

Gibraltar: 4 to 6 months, ~£100,000/year in license fees plus local structure costs. Liberia: 14 to 28 days, €50,000 all-in for Year 1. Medium product control. Neither path gives you US users. PSP acceptance for prediction markets specifically has not been tested at scale in Liberia.

Introducing Broker (IB)

An IB finds customers and routes their orders to a partnered FCM. It does not hold client funds. CFTC and NFA registration takes 60 to 90 days. Non-guaranteed IBs need $45,000 in adjusted net capital. DraftKings registered as a CFTC-registered IB in December 2025. Your economics depend entirely on the FCM partner's fee structure.

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 than an IB. You are now responsible for client funds under NFA oversight and regular audits.

Designated Contract Market (DCM)

At this level, you are the exchange. You list the markets, run the order book, and take responsibility for market integrity. Compliance with all 23 Core Principles under CEA Section 5(d). The statutory 180-day review begins only when the application is materially complete. Timeline: 12 to 24 months.

DCM + DCO: The Full Stack

A DCO (Derivatives Clearing Organization) is the clearinghouse that settles every trade on a DCM. Running both gives you the entire stack — full product control, nationwide US access, and the entire fee stack. Kalshi built it from scratch. Polymarket acquired QCEX for $112 million in July 2025. This is the same regulatory tier as the Chicago Mercantile Exchange.

AML and KYC: What Your Compliance Stack Actually Needs

The obligations differ by licensing path. The direction is the same everywhere: full identity verification at onboarding, a documented AML program, and active transaction monitoring.

Under CFTC Registration

DCMs, FCMs, and IBs are all classified as financial institutions under the Bank Secrecy Act (BSA) and fall under FinCEN oversight. Every registered entity must maintain a written AML program covering four elements:

Operators must file a Suspicious Activity Report (SAR) with FinCEN for any transaction of $5,000 or more that appears suspicious — within 30 days of becoming aware. Every FCM and IB must adopt a written Customer Identification Program (CIP) before opening accounts: full legal name, date of birth, residential address, government-issued ID number.

Kalshi's CIP in practice: government-issued ID, SSN, and proof of residency (utility bill or bank statement dated within 90 days). That standard made Kalshi a viable API partner for regulated platforms. Robinhood initially distributed Kalshi's markets, then in January 2026 acquired MIAXdx — a CFTC-licensed DCM, DCO, and SEF — for their own exchange infrastructure.

Under Offshore Licensing: Gibraltar and Liberia

Both jurisdictions require identity verification and documented AML programs. Gibraltar: AML procedures aligned with Gibraltar's Proceeds of Crime Act 2015, suspicious activity reporting to Gibraltar's FIU, full identity verification at onboarding, Enhanced Due Diligence for high-value accounts. Liberia's NLA mandates written AML/CFT policies, identity verification, and ongoing transaction monitoring, all aligned with FATF standards.

The difference shows up on banking. Gibraltar has operated a licensed gambling sector for over a decade — banks and processors have it mapped. Liberia launched its framework at end of 2025. PSP acceptance for prediction markets specifically hasn't been tested at scale.

How Prediction Market Operators Make Money

The revenue mechanics differ from sportsbooks — and that changes which entry route makes sense financially. Sportsbooks profit when users lose. 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. Closer to a financial exchange than a casino.

Transaction fee (taker/maker model): Kalshi

Kalshi charges fees only on taker orders — contracts filled immediately at market price. Maker orders that add liquidity are free. Per-contract taker fee: 0.07 × price × (1 − price). Kalshi generated $263.5M in fee revenue in 2025 on $22.88B in trading volume, for an effective take rate of 1.15%. By early 2026, Kalshi reported annualized volume exceeding $100B and a revenue run rate approaching $1.5B.

Phased fee rollout: Polymarket

Polymarket ran fee-free through 2025, subsidizing liquidity to grow market share. In early 2026, it started charging taker fees by category:

Fees are one revenue stream. Polymarket also earns yield on USDC collateral it holds, and sells real-time market data through its RTDS product to hedge funds, Bloomberg, Reuters, and institutional traders. Fees, treasury yield, data. A sportsbook has one. Prediction markets have three.

The Economics at Scale

Exchange economics scale. The marginal cost of each additional trade is near zero once the platform is live, and you never carry risk on outcomes. An operator running $500M in annual volume at a 1% take rate generates $5M in fee revenue, before yield or data products. Volume is the bottleneck: fee revenue only materializes at scale, and a thin order book drives users away faster than a low margin.

Where Prediction Market Projects Stall

Five states took enforcement action against prediction market operators in a single year. Two filed criminal charges. If you are adding prediction markets to an existing product, that is what you are entering.

The US: federal vs. state

The CFTC classifies prediction market contracts as event contracts under derivatives law, not gambling. State attorneys general have a different reading, and several have acted on it. Arizona went furthest, filing 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. A federal judge issued a temporary restraining order blocking state enforcement in January 2026.

On April 2, 2026, the Trump administration sued Arizona, Connecticut, and Illinois, arguing that states cannot regulate a federally licensed derivatives exchange. A CFTC-registered platform has defensible ground in federal court. Without that registration, operating in a state that has already issued cease-and-desist orders carries real legal exposure.

Cross-licensing risk

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

Outside the US

Most markets have not acted yet. The UK is the clearest exception: the UKGC requires a Betting Intermediary license as of February 4, 2026. The Netherlands imposed €420,000 per week in fines on Polymarket. Switzerland, Hungary, and Portugal blocked access. Germany issued a formal warning in September 2025. Spain blocked both Kalshi and Polymarket on May 26, 2026.

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 into either market. Combined, those two states have a population of roughly 70 million and no legal online sports betting.

Where the cost structure differs from state sportsbooks

State gaming taxes do not apply to federally regulated event contracts. New York sportsbooks pay 51% of gross gaming revenue; Pennsylvania, 36%. New contract types are added through CFTC self-certification under Rule 40.2. Expanding into five states as a sportsbook means running five separate approval processes; the CFTC framework requires one certification.

What the numbers show

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

The federal position

On April 2, 2026, the Trump administration sued Arizona, Connecticut, and Illinois on behalf of the CFTC. The federal government's position is that states cannot override a federally licensed derivatives exchange. That is a different category of support than regulatory neutrality.

B2B opportunity

High transaction volume creates immediate demand for compliance infrastructure: KYC, payment processing, and geolocation services. Prediction market operators need these vendors from launch, and few suppliers have built specifically for this market.

If you are evaluating prediction markets as a product line, the licensing structure is the first decision. MGL has handled licensing for 100+ iGaming operators, including the jurisdictions that have explicitly licensed prediction market operators today. We can tell you which structure fits your product, what it costs, and how long it takes to get operational. The first conversation takes 30 minutes. Book your free conversation right now.

Frequently Asked Questions

Is Polymarket legal for US users?

Yes, as of November 25, 2025. Polymarket received CFTC DCM approval and US users now access it through registered Futures Commission Merchants. Onboarding requires a government-issued ID and SSN, plus proof of address dated within 90 days. Before November 2025, US users were blocked from the platform; direct wallet access no longer applies.

Do users pay taxes on prediction market winnings?

User tax obligations depend on their jurisdiction, not the platform’s license. In the US, prediction market profits are treated as ordinary income, and CFTC-registered platforms issue 1099 forms for reportable gains. The no-state-gaming-tax advantage is an operator benefit. Users carry their own tax obligations under their local law.

Can I run prediction markets alongside my existing online casino?

Yes, but the legal entity structure matters. Adding prediction markets to an entity that holds state gambling licenses is not an isolated product decision. States looking for a circumvention argument will investigate the full operation. Arizona and Connecticut have already moved on this scenario.

A separate legal entity for the prediction market product limits that exposure. An offshore license under Gibraltar or Liberia removes US state risk entirely; you give up US users in exchange.

What happens if I operate a prediction market without a license?

In the US, enforcement has included cease-and-desist orders from Connecticut, which targeted Kalshi, Polymarket, and Crypto.com on the same day, criminal charges from Arizona, and platform-level blocks from Nevada and Tennessee. The Netherlands fined Polymarket €420,000 per week. Switzerland blocked access under its national gambling legislation; Hungary and Portugal followed.

Operating without a license in a jurisdiction that has taken formal action is not a gray area in 2026.

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

In the US, there is no “prediction market license” category. The CFTC registers platforms as Designated Contract Markets under derivatives law, the same regulatory classification as commodity exchanges. 

Standard offshore sports betting licenses cover casino and sportsbook products. Prediction markets fall outside their scope. Curacao and Kahnawake are the clearest examples; neither was written for event contract trading. The regulatory bodies are different, and so are the capital requirements and compliance obligations.

Offshore, Gibraltar and Liberia have issued licenses specifically for prediction markets, separate from their existing sports betting and casino licensing regimes.

Can prediction market operators accept cryptocurrency?

On the offshore path, yes. Gibraltar and Liberia-licensed platforms can accept crypto subject to AML obligations. Every deposit still requires identity verification regardless of payment method.

Polymarket settles in USDC on the Polygon blockchain, but US users access it through registered FCMs rather than direct wallet connections. Standard CFTC FCM requirements prohibit crypto-native settlement. Client funds must be segregated in approved financial institutions.

What is the cheapest way to enter the prediction market business?

White-label API integration with Kalshi requires no capital and can be live in weeks. You earn a share of Kalshi’s fee revenue without holding a license of your own.

If you want your own license, Liberia is the lowest-cost option at €50,000 all-in for year one. Gibraltar costs roughly £100,000 per year in license fees plus local structure costs.

CFTC registration is not a budget path. An IB requires $45,000 in adjusted net capital. The FCM threshold is $1 million. A DCM sets no fixed dollar minimum but requires capital sufficient to cover 12 or more months of operating expenses.

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

The fastest option is Liberia: 14 to 28 days. Gibraltar takes 4 to 6 months. On the CFTC path, IB registration runs 60 to 90 days and FCM registration takes 6 to 10 months. A DCM license takes 12 to 24 months, with the 180-day statutory review starting only when the application is materially complete.

Acquiring an existing licensed entity is faster than building from scratch. Polymarket paid $112 million for QCEX rather than go through the full DCM process.

Are prediction markets classified as gambling?

The CFTC classifies prediction market contracts as event contracts under derivatives law, not gambling. Several states have taken the opposite position.

Outside the US, the picture varies. The Netherlands fined Polymarket €420,000 per week for operating without a license. Belgium, Switzerland, Hungary, and Portugal have blocked access. The UK requires a Betting Intermediary license. Gibraltar and Liberia have created licensing categories specific to prediction markets.

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

No. Existing iGaming licenses do not cover prediction market contracts. Gibraltar and Liberia issued the first dedicated prediction market licenses in 2025 and 2026. If you hold a sportsbook license and add prediction markets, you are running an unlicensed product in that jurisdiction.