Prediction markets are rapidly transforming from crypto curiosities to full-fledged financial infrastructure, but regulators have yet to decide whether they are an innovation or a gamble.
Massachusetts’ lawsuit against Calci over his 2025 NFL contract, despite prior CFTC approval, highlights the widening gulf between state and federal oversight. Meanwhile, Intercontinental Exchange’s (ICE) multibillion-dollar investment in polymarkets has propelled event-driven trading into the financial mainstream.
Once dismissed as “legalized gambling,” prediction markets are now attracting institutional investors as regulators race to define where speculation ends and financial innovation begins.
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Federal vs. state law: Who sets the boundaries?
To assess whether these markets represent the next stage of financial innovation or remain high-stakes speculation, BeInCrypto spoke with Rachel Lin (SynFutures), Juan Pellicer (Sentora), and Leo Chan (Sportstensor). Each offered different views on the legal and economic implications shaping prediction markets as 2026 approaches.
Massachusetts’ challenge to Calci’s NFL contract exposed conflicts between federal and state oversight. Although the CFTC had approved these contracts, states have classified them as unlicensed gambling, a dispute that now defines how the event market fits into U.S. law.
“Investors should ultimately rely on the federal CFTC framework, which preempts state laws on derivatives and explicitly authorizes Calci’s NFL contract. This provides national transparency as state challenges continue,” said Juan Pellicer, head of research at Centra.
Sportstensor CEO Leo Chan added that fragmented state-level regulations have already caused confusion in the oversight of sports betting, and said consistent federal guidance would restore clarity for both platforms and participants. Both executives agreed that a uniform regulatory framework is essential for institutional implementation.
Volume and Value: Actual indicators of market health
According to industry data from Dune, weekly trading volume on major platforms recently exceeded $2 billion, with token-free models accounting for the majority of the total lock, with Kalsi holding about 60% of the market and Polymarket holding about 35%, $1.3 billion and $773 million, respectively.
Critics say these numbers include round-trip trading that inflates trades without transferring any real risk. Industry leaders argue that transparency needs to evolve beyond raw volume metrics.
“Volume alone does not reflect economic reality,” said Rachel Lin of Shinfutures. “Time-weighted open interest and net nominal settlement amounts should be reported. This shows how much risk is actually transferred when the market resolves.”
Lin added that indicators such as liquidity depth, independently funded traders, and retention rates can help regulators and institutions distinguish true participation from superficial redemptions. Pellicer agreed, noting that standardized disclosure of open interest, number of traders, and holding periods would strengthen confidence and demonstrate that these markets transfer real risk rather than creating noise.
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Valuation and investor logic
Polymarket has launched a finance hub offering “up/down” stock and index markets and partnered with Stocktwits to embed outcome predictions directly into stock pages, turning investor sentiment into tradable probabilities.
Karshi’s valuation is reported to be around $2 billion and Polymarket’s is reported to be between $9 billion and $10 billion, sparking a debate over sustainability. Some investors believe that multiple is justified given its rapid growth. Others see them as speculative bets on future network effects.
“These multiples are justified by our rapid expansion,” Pellicer said. “Kalsi’s annual trading volume reached $50 billion, up from $300 million last year. Prediction markets could cause over $1 trillion in disruption in traditional derivatives trading.”
Leo Chan countered that Polymarket’s valuation reflects its potential to reshape the flow of information across global finance, a long-term strategy to monetize collective foresight rather than short-term profits.
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From sportsbooks to financial infrastructure
More than 60% of Carsi’s activity remains in the sports sector, but diversification will determine whether financial institutions consider prediction markets to be financial entities. Legitimacy, Lin argued, comes from pricing outcomes that cannot be measured in traditional finance.
“Financial institutions don’t need another way to trade earnings or macro events; they already have it,” Lin said. “The real value of prediction markets lies in quantifying things that traditional finance cannot do, such as policy decisions, technological breakthroughs, and geopolitical risks.”
Chan noted that adoption spikes during elections, major sports seasons, and breaking news, each of which attracts new users. Sustainability comes down to retention, Pellicer said, adding that if about 30% of new users remain active, “that would be meaningful adoption.”
Polymarket partners with Stocktwits to launch a revenue-based market, and X (formerly Twitter) names the company as its official data provider. Meanwhile, xAI partnered with Kalsi to expand the reach of its prediction market beyond crypto-native audiences.
Governance and transparency
The IMF has warned that weak transparency and governance can amplify the risks of manipulation in fast-growing financial markets, and this concern applies equally to growing prediction markets. For the sector to evolve into a trusted financial entity, it must adopt institutional-level standards regarding risk management, margining, and disclosure.
“Prediction markets require volatility-adjusted margins, real-time position disclosure, and independent auditing,” Pellicer said. “These reforms will transform the company from a speculative tool to a reliable hedging business.”
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Chan agreed, saying prediction markets behave much like options and should be supervised under a comparable framework. Mr. Lin emphasized that strategic investors, from venture funds to financial institutions, provide important regulatory credibility and policy access.
Pellicer added that backers such as Charles Schwab, Henry Kravis, Peter Thiel and Vitalik Buterin bring funding and legitimacy, accelerating policy engagement and public acceptance. Key backers include Founders Fund, Blockchain Capital, Ribbit, Valor, Point72 Ventures, and Coinbase Ventures, bridging crypto-native and traditional capital with a new “stochastic data” asset class.
World Perspectives: Beyond the United States
Europe’s MiCA framework leaves prediction markets undefined, while Singapore and Thailand prohibit prediction markets under gambling laws. Still, new jurisdictions like the UAE and Hong Kong are emerging as testbeds for regulated growth. Chan pointed to the UK, where balanced gambling laws and a “hyper-financialized” culture could close the policy gap and encourage early adoption of MiCA.
Lin saw the global experiment as a far-reaching change in how economies value information. Assigning prices to previously unmeasurable outcomes has the potential to redefine markets, from trading assets to trading knowledge. Chan suggested this path could lead to a “futarky” model, where market outcomes, rather than votes, determine public policy.
conclusion
The IMF’s July 2025 Outlook predicts global economic growth of 3.0%, providing a favorable backdrop for risk assets and event markets. With clearer rules, prediction venues could become a standard hedging tool for institutional and retail traders alike.
Prediction markets are moving from speculative bystanders to financial legitimacy. While ICE’s investment and CFTC approval demonstrate infrastructure maturity, legal fragmentation and governance risks remain. The line between innovation and gambling remains blurry, shaped more by regulation and trust than by technology.
As transparency and oversight increase with innovation, event contracts could evolve into a new type of risk pricing tool for investors and institutions alike. Until then, prediction markets are at a crossroads. So there’s experimentation and infrastructure, and it’s also a live test of how finance evaluates foresight.
