The Price of Uncertainty: Prediction Markets at the Edge of Finance and Gambling

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“The World Has Gone Mad, Trade It” was the disheartening, yet apt promotional tagline for the wildly popular prediction market site, Kalshi; a play on the general consensus on widespread global instability and a manifestation of the recently growing popularity of gambling across age groups and categories. As a regulated U.S. exchange that enables users to trade directly on the outcome of real-world events. Ranging from sports, elections, and even the weather through legal nationwide event contracts, priced from 1 cent to 1 dollar where users buy “yes” or “no” positions on outcomes, Kalshi is the first designated contract market regulated by the Commodity Futures Trading Commission (CFTC), a status that has become a divisive topic among those who still believe that the company exists as an unlicensed online gambling operation.

In early 2026, the state of Arizona brought the first set of criminal  charges against New York City based Kalshi, accusing it of operating an unlicensed gambling platform that allows betting on sports and elections without receiving approval from Arizona regulators. Prosecutors allege that Kalshi allows bettors to circumvent explicit sports betting regulations enforced by the Arizona gaming commission, as well as strictly illegal election gambling. Though there are currently 20+ civil lawsuits filed against Kalshi’s dubious legal status, Arizona has been the first to allege criminal violations that could potentially entail asset forfeiture and even jail time for Kalshi executives.

This cycle of litigation is the latest in a series that shows the growing rift between states and the Trump administration, which has embraced online prediction markets like Kalshi. Michael Selig, the current chair of the CFTC, recently declared that the Trump administration was ready to back prediction market companies in their battles against state regulations, citing the dispute’s jurisdictional ambiguity regarding Kalshi’s legal status as a key differentiator from the criminal prosecution Arizona pushed forward. This type of high-level support has only allowed the industry to continue to flourish, setting the stage for a massive clash over classification.

Given that the CTFC has historically monitored futures contracts on assets such as livestock, crude oil, gold, and silver, Kalshi argues that their business model, centered upon trading contracts under the broad term of “future events”, justifies their supervision under the CTFC. However, these same contracts closely resemble wagers, a more subtle subclassification of contract, raising the difficult question of whether Kalshi’s traded contracts rather lie under the traditional scope of state gambling prohibitions.

For those in support of prediction markets, the possibilities they represent and their close similarities to financial markets clearly illustrate the upside. As a structure, prediction markets mirror the qualities of general financial markets, with stock prices summarizing expectations about firms and prediction market prices summarizing expectations about events. These contracts can also be viewed as derivatives, with a prediction market contract closely resembling a forward contract on an event outcome. With a well-defined payoff at a future fate, a current market price, and the ability to be traded as beliefs change, one would be hard-pressed to distinguish one from the other. As a tool, prediction markets allow governments and firms to forecast a key but elusive variable, demand. Should demand for certain policies, products, and timelines become visible, organizations can utilize prediction markets to internally inform decisions that traditional structures may suppress. Financial economics would suggest that when people are willing to stake money on their beliefs, markets tend to produce forecasts that are both disciplined and accurate. 

Critics, however, contend that prediction markets are indistinguishable from gambling, with individuals enabled to buy contracts on “events” like the outcome of a sports game. Ethically, the waters get even murkier, with bettors on similar platforms profiting hundreds of thousands of dollars from the capture of  Nicolás Maduro and the killing of Iran’s supreme leader. Recently, an Israeli journalist faced death threats from bettors who were pressuring the journalist to change details in a story about Iranian bombing so the bettors–betting on whether it was a missile or a drone–could cash out. It raises the question, should people be able to profit so openly from war and death, and to what extent can prediction markets influence the very outcomes they seek to predict?

At the federal level, prediction markets are currently under the jurisdiction of the CFTC, which regulates derivatives and certain types of event-based contracts. Given those contracts so closely resemble gambling under state law, they are also placed under the regulatory authority of states exercising their police powers. It is a key doctrinal problem, with trading markets governance law evaluating contracts on an economic basis, gambling law evaluating these contracts on risk and chance, and prediction markets exhibiting both. It also raises questions of federal preemption, but with no existing federal legislation on this issue, Arizona’s recent actions simply reflect broad instability, in which platforms operating under one regulatory framework may simultaneously violate another.

Altogether, as prediction markets continue to grow in relevance, it has become increasingly necessary for regulators to confront whether or not existing frameworks, designed explicitly for either financial markets or gambling, are equipped to address platforms that blur the line between the two. The issue has evolved beyond a strict question of legality into a debate over how this classification problem will shape the trajectory of financial innovation, federal and state authority, and the integrity of public institutions.

Isaiah Sohn is a sophomore at Brown University studying Applied Mathematics-Economics. He is a writer for the Brown Undergraduate Law Review and can be contacted at isaiah_sohn@brown.edu.

Danny Moylan is a sophomore from Massachusetts studying Political Science and International/Public Affairs. He is a Staff Editor and Blog Director for the Brown Undergraduate Law Review and can be contacted at daniel_moylan@brown.edu.