Prediction markets let people bet on anything from basketball games to the outcome of presidential elections — and, more recently, the fall of former Venezuelan President Nicolas Maduro.
The latter is bringing renewed scrutiny to this murky world of speculative, 24/7 transactions. Last week, an unidentified businessman pocketed more than $400,000 by betting that Maduro would soon leave office.
The bulk of trader bids on the platform Polymarket were made just hours before President Donald Trump announced a surprise overnight raid that would lead to Maduro’s capture, fueling online suspicions of possible insider trading due to tenants’ time and narrow trader activity on the platform. Others argued that the risk of being caught was too great, and that previous speculation about Maduro’s future could have led to such transactions.
Polymarket did not respond to a request for comment.
Commercial use of prediction markets has skyrocketed in recent years, opening the door for people to make money on the possibility of a growing list of future events. But despite some eye-popping winds, traders still lose money daily. And in terms of government oversight in the United States, the trades are classified differently from traditional forms of gambling — raising questions about transparency and risk.
Here’s what we know:
How the prediction market works
The range of topics involved in prediction markets can be vast – from the rise in geopolitical conflict, to the fate of pop culture moments and conspiracy theories. Recently, wages have increased during elections and sports. But some users are betting millions on things like the rumored — and ultimately unreal — “Secret Finale” for Netflix’s “Stranger Things,” whether the U.S. government will confirm the existence of extraterrestrial life and how much billionaire Elon Musk might post on social media this month.
In industry-speak, what one buys or sells in the prediction market is called an “event contract.” They are usually advertised as “yes” or “no”. And the price of one fluctuates between $0 and $1, which traders are collectively willing to pay based on the 0% to 100% chance that they think an event will occur.
The more potential traders think the event will happen, the more expensive the deal will be. And as those odds change over time, users can cash out early to make incremental profits, or try to avoid high losses on what they’ve already invested.
Proponents of prediction markets argue that putting money on the line leads to better forecasts. Experts, such as Wake Forest University economics professor Coleman Strumpf, say there’s value in monitoring these platforms for potential news — pointing to the past success of forecast markets with some election outcomes, including the 2024 presidential race.
Still, it’s never a “crystal ball,” he said, and even prediction markets can be wrong.
Who is behind all the business is also very unclear. As the companies running the platforms collect their users’ personal information to verify identities and payments, many 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 some events closely, but others can speculate randomly.
Critics point out that the ease and speed of joining these 24/7 wagers leads to financial losses every day, especially harming users who may already be gambling. The space also widens the possibilities for potential internal trade.
is the main player
Polymarket is considered the world’s largest prediction market, where its users can fund event contracts through cryptocurrency, debit or credit cards and bank transfers. Its top rival, Kalshi, operates similarly — and has laid the groundwork for nationwide election and sports event contracts by winning court approval weeks before the 2024 election to let Americans put money into upcoming political races. Kalsi started running sports business about a year ago.
Restrictions vary by country, but access to these markets in the United States has expanded rapidly over the past two years, with policies shifting out of Washington. Former President Joe Biden was aggressive in cracking down on the prediction market. Polymarket was barred from operating in the country following a 2022 settlement with the Commodity Futures Trading Commission.
That changed under Trump late last year, when Polymarket announced it would return to the U.S. after receiving clearance from the commission. US-based users can now join a platform “waitlist”.
The space is now filled with other big names. Sports betting giants DraftKings and FanDuel both launched prediction platforms last month. Online broker Robinhood is broadening its offerings. Trump’s social media site Truth Social has also promised to offer an in-platform prediction market through a partnership with Crypto.com — and one of the president’s sons, Donald Trump Jr., has advisory roles at both Polymarket and Kalashi.
“The train has left the station on these event contracts, they’re not going away,” said Melinda Roth, a visiting associate professor at Washington and Lee University’s School of Law.
Slow regulation
Because they are marketed as event contracts, prediction markets are regulated by the CFTC. This means they can avoid state-level restrictions or bans for traditional gambling and sports betting today.
“It’s a huge loophole,” said Carl Lockhart, an assistant professor of law at DePaul University who has studied the space. “You just have to follow one set of rules, rather than (rules) from every state around the country.”
Sports betting is taking center stage. For example, there are a handful of large states like California and Texas where sports betting is still illegal, but people can now bet on more through sports, athlete trades and event deals.
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 regulations added by the Trump administration appear unlikely.
Federal law bars gaming as well as event contracts related to war, terrorism and assassination, Roth said, which could put at least some prediction market trades in the U.S. on shaky ground, but users can still find ways to buy certain contracts while traveling abroad or connecting to different VPNs.
Whether the CFTC will take any of them up remains to be seen. But the agency, which did not respond to requests for comment, has stepped away from enforcement.
Despite its trillion-dollar oversight of the overall U.S. derivatives market, the CFTC is also much smaller than the Securities and Exchange Commission. And at the same time that event contracts are growing rapidly on prediction market platforms, there are additional cuts to the CFTC’s workforce and a wave of leadership departures under Trump’s second term. Only one of the five commissioner slots that run the agency is filled.
Still, other lawmakers are calling for a tougher crackdown on potential insider trading in the prediction markets – especially after the skepticism surrounding last week’s Maduro trading at Polymarket. On Friday, Democratic Representative Richie Torres introduced a bill to prevent the involvement of government employees in politically related event contracts.
