Prediction markets allow people to bet on everything from a basketball game to the outcome of a presidential election — and recently, the fall of former Venezuelan president Nicolás Maduro.
The latter is attracting renewed attention in this murky world of 24/7 speculative trading. Last week, an anonymous trader pocketed more than $400,000 after betting that Maduro would soon be out of office.
Most of the trader’s offers on the Polymarket platform were made just hours before President Donald Trump announced the surprise overnight raid that led to Maduro’s capture, fueling online suspicions of potential insider trading due to the timing of the bets and the trader’s narrow activity on the platform. Others argued that the risk of getting caught was too great and that past speculation about Maduro’s future could have led to such deals.
Polymarket did not respond to requests for comment.
The commercial use of prediction markets has skyrocketed in recent years, opening the door for people to stake their money on the probability of a growing list of future events. But despite some attractive advantages, traders still lose money every day. And in terms of US government oversight, the transactions are classified differently from traditional forms of gambling – raising questions about transparency and risk.
Here’s what we know:
How Prediction Markets Work
The scope of topics involved in prediction markets can vary enormously – from escalating geopolitical conflicts, to pop culture moments and even the fate of conspiracy theories. Recently, there has been an increase in salaries in elections and sports games. But some users have bet millions on things like a rumored — and ultimately unrealized — “secret ending” to Netflix’s “Stranger Things,” whether the U.S. government will confirm the existence of alien life and how much billionaire Elon Musk might post on social media this month.
In the industry, what someone buys or sells in a prediction market is called an “event contract.” These are usually advertised as ‘yes’ or ‘no’ bets. And the price of one fluctuates between $0 and $1, reflecting what traders are collectively willing to pay based on a 0% to 100% chance of believing an event will occur.
The more traders believe an event will occur, the more expensive that contract will become. And as these odds change over time, users can cash out early to gain additional profits or try to avoid larger losses on what they’ve already invested.
Proponents of prediction markets argue that putting money on the line leads to better predictions. Experts like Wake Forest University economics professor Koleman Strumpf believe it’s useful to monitor these platforms for potential news — pointing to the past success of prediction markets with some election outcomes, including the 2024 presidential race.
Still, it’s never a “crystal ball,” he noted, and prediction markets can also be wrong.
Who is behind all the deals is also pretty murky. While companies running the platforms collect personal information of their users to verify identities and payments, most people can trade online under anonymous pseudonyms, making it difficult for the public to know who is profiting from many event contracts. In theory, people who invest their money can follow certain events closely, but others might just make random guesses.
Critics point out that the ease and speed of joining these 24/7 bets leads to daily financial losses, particularly harming users who may already struggle with gambling. The space also expands insider trading possibilities.
The major players
Polymarket is considered the largest prediction market in the world, where its users can fund event contracts through cryptocurrencies, debit or credit cards and bank transfers. Its main competitor, Kalshi, offers similar ways to transfer funds – and has set the stage for event contracts for elections and sports nationwide. Kalshi won court approval just weeks before the 2024 election to allow Americans to put money on upcoming political races, and the platform began hosting sports trading about a year ago.
Restrictions vary by country, but in the US, coverage of these markets has expanded rapidly in recent years, coinciding with changing policies in Washington. Former President Joe Biden was aggressive in cracking down on prediction markets, and following a 2022 settlement with the Commodity Futures Trading Commission, Polymarket was banned from operating in the country.
That changed under Trump late last year, when Polymarket announced it would return to the US after receiving commission approval. US users can now join a “waiting list” of the platform. Meanwhile, Kalshi is a federally regulated scholarship as of 2020.
The space is now crowded with other big names. Sports betting giants DraftKings and FanDuel both launched prediction platforms last month. Online broker Robinhood is expanding its own offerings. Trump’s social media site Truth Social has also promised to offer a prediction market on the platform through a partnership with Crypto.com — and one of the president’s sons, Donald Trump Jr., holds advisory roles at both Polymarket and Kalshi.
“The train has left the station with these event contracts, they’re not going away,” said Melinda Roth, an associate professor at Washington and Lee University’s School of Law.
Lax regulation
Because they are positioned as sellers of event contracts, prediction markets are regulated by the CFTC. That means they can avoid state-level restrictions or bans on traditional gambling and sports betting today.
“It’s a huge gap,” said Karl Lockhart, an assistant professor of law at DePaul University who has studied the gap. “You just have to follow one set of regulations, rather than (rules from) every state in the country.”
Sports betting is in the spotlight. There are a few big states like California and Texas for example where sports betting is still illegal, but now people can bet on games, sports deals and more through event contracts.
A growing number of states and tribes are suing to stop it. And lawyers expect the litigation to eventually reach the U.S. Supreme Court, as added regulations from the Trump administration appear unlikely.
Federal law prohibits contracts for gaming-related events as well as war, terrorism and assassinations, Roth said, which could put some prediction trading on shaky ground, at least in the US. But users could still find ways to buy certain contracts while traveling abroad or connecting to different VPNs.
Whether the CFTC will take this up has yet to be seen. But the agency, which did not respond to a request for comment, has already taken enforcement steps.
Despite overseeing the trillion-dollar global U.S. derivatives market, the CFTC is also much smaller than the Securities and Exchange Commission. And at the same time event contracts are growing rapidly on prediction market platforms, there have been further cuts to the CFTC’s workforce and a wave of executive departures during Trump’s second term. Only one of the five commissioner positions operating the agency is currently filled.
However, other lawmakers are calling for a stronger crackdown on potential insider trading in the prediction markets — particularly following suspicions about last week’s Maduro deal on Polymarket. On Friday, Democratic Representative Ritchie Torres introduced a bill aimed at reducing the involvement of government employees in contracts for politically connected events.
The bill has already received support from Kalshi CEO Tarek Mansour, who said on LinkedIn that abusive trading has always been prohibited on his company’s platform, but that more needs to be done to clamp down on unregulated prediction markets.