From Singapore: Major financial institutions are betting heavily on prediction markets despite a tangled web of federal-level encouragement and state-level legal warfare that has yet to resolve what these platforms actually are.
Total trading in prediction markets exceeded $60 billion in 2025, a 400% increase from 2024, driven by platforms like Kalshi and Polymarket. The growth has attracted serious institutional money. In October 2025, Intercontinental Exchange, which owns the New York Stock Exchange, announced it would invest up to $2 billion in Polymarket. In December 2025, derivatives exchange giant CME Group teamed up with sports betting platform FanDuel to bring regulated CME-listed prediction contracts to FanDuel's U.S. retail base. A November 2025 study indicates that 10 percent of all proprietary traders surveyed were already trading prediction contracts, while 35 percent had an interest, with activity appearing highest among U.S. firms where 75 percent of respondents were either trading prediction contracts or planning to do so.
The institutional rush reflects confidence in a federal regulatory framework. The U.S. Commodity Futures Trading Commission submitted an advanced notice of rulemaking to the president's Office of Management and Budget for regulating prediction markets, the first formal step toward establishing a regulatory framework for platforms like Kalshi and Polymarket that have soared in popularity since 2024. In January 2026, CFTC Chairman Michael Selig outlined a four-point plan that directed staff to withdraw a rule proposed in 2024 that would have prohibited politics- and sports-related event contracts, and to begin drafting new rules specifically addressing event contracts.
Yet the legal certainty institutional players seek remains elusive. In late 2025 and early 2026, Nevada and Massachusetts filed lawsuits against Polymarket and Kalshi, with nine other states also issuing cease-and-desist letters. The state-federal dispute cuts to the heart of whether prediction markets are federal derivatives or state-regulated gambling. A Coalition for Prediction Markets, led by Crypto.com with members including Coinbase, Kalshi, Robinhood and Underdog, launched a media campaign in January 2025 aimed at pushing for codification of federal regulation, with a one-page ad in the Washington Post highlighting support for CFTC-governed domestic markets and seeking to distance its members from offshore markets such as Polymarket.
For institutional traders, the appeal is straightforward. Research found that changes in the prediction markets speculating on the Federal Reserve chair's potential departure were strongly correlated with movements in stock and bond markets, suggesting that prediction market prices contain economically meaningful information that is rapidly incorporated into broader financial markets. Robinhood's prediction market platform debuted during Q1 2025, and by Q3 2025, prediction market trading was generating around $100 million in quarterly revenue for Robinhood, with recent launches of contracts similar to prop and parlay bets potentially expanding this segment further.
But serious objections remain. NCAA president Charlie Baker recently said the current state of prediction markets is not only not sustainable, but potentially "catastrophic", with the NFL and NBA expressing concerns about the lack of regulation and potential harm to the integrity of games, and MLB prohibiting players from engaging with baseball event contracts. Prediction market platforms have drawn criticism from politicians who point to possible manipulation of markets that lead to profits from insider information, like with the capture of Venezuelan President Nicolás Maduro earlier this year.
Australia's position signals that international regulators are unlikely to defer to Washington's framework. Australia has ruled that platforms like Polymarket are not innovative financial tools but unlicensed gambling operations, with the decision emerging from a lengthy investigation by the Australian Communications and Media Authority sparked by local media scrutiny and confirmed through documents released under freedom of information laws. On 8 January, media reported that Polymarket has partnered with Dow Jones to provide prediction market data to The Wall Street Journal, even as regulators elsewhere question its legitimacy.
The core problem remains unresolved: are event contracts financial instruments for hedging and price discovery, or are they bets that should be treated like sports gambling? For Wall Street, the answer determines whether they have found a new asset class or a regulatory timebomb. The next 18 months will test whether federal rulemaking can settle that question before state courts or international regulators force a different answer altogether.