Prediction markets let people bet on anything from a basketball game to the outcome of a presidential election — and recently, the fall of former Venezuelan President Nicolás Maduro.
The latter is drawing renewed scrutiny in this murky world of speculative transactions, 24/7. 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, raising online suspicions of potential insider trading due to the timing of the bets 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 requests for comment.
The commercial use of prediction markets has increased dramatically in recent years, opening the door for people to bet their money on the probability of a growing list of future events. But despite some eye-catching advantages, traders still lose money every day. And in terms of government oversight in the United States, the trades are categorized differently from traditional forms of gambling – raising questions about transparency and risk.
Here’s what we know:
How prediction markets work
The scope of the topics involved in the prediction markets can vary immensely – from escalation in geopolitical conflicts, to moments of pop culture and even the fate of conspiracy theories. Recently, there has been a sharp increase in wages on elections and sports games. But some users also bet millions on things like the rumored – and ultimately unrealized – “secret finale” for Netflix’s “Stranger Things,” if the US government will confirm the existence of extraterrestrial life and how much billionaire Elon Musk can publish on social media this month.
In the industry, what someone buys or sells in a prediction market is called an “event contract.” They are typically advertised as “yes” or “no” bets. And the price of one varies between $0 and $1, reflecting what traders are collectively willing to pay based on a 0% to 100% chance of whether they think an event will occur.
The more traders think an event will occur, the more expensive that contract will be. And as those odds change over time, users can cash out early to make incremental profits, or try to avoid higher losses on what they’ve already invested.
Proponents of prediction markets argue that putting money on the line leads to better predictions. Experts like Koleman Strumpf, a professor of economics at Wake Forest University, think there is value in monitoring these platforms for potential news — pointing to the past success of prediction markets with some election results, including the 2024 presidential race.
Still, it’s never a “crystal ball,” he noted, and forecast markets can be wrong, too.
Who is behind the whole business is also quite murky. While the companies running the platforms collect personal information of their users to verify identities and payments, many people can trade under anonymous pseudonyms online — making it difficult for the public to know who is profiting from many event contracts. In theory, people who invest their money may be closely following certain events, but others may just be stressing blindly.
Critics stress that the ease and speed of joining these 24/7 bets leads to financial losses every day, particularly harming users who may already struggle with gambling. The space also widens the possibilities for potential insider trading.
The main players
Polymarket is considered the largest prediction market in the world, where its users can finance event contracts through cryptocurrency, debit or credit cards and bank transfers. Its top competitor, Kalshi, offers similar ways to transfer funds – and has laid the groundwork for contracts for election and sports events across the country. Kalshi won court approval just weeks before the 2024 election to let Americans bet on upcoming political races, and the platform began hosting sports commercials about a year ago.
Restrictions vary by country, but in the United States, the range of these markets has expanded rapidly in recent years, coinciding with a policy shift away from Washington. Former President Joe Biden was aggressive in suppressing prediction markets and after a settlement in 2022 with the Commodity Futures Trading Commission, Polymarket was stopped from operating in the country.
That changed under Trump late last year, when Polymarket announced it would return to the United States after receiving approval from the commission. Users based in America can now join a platform “waitlist”. Kalshi, meanwhile, has been a federally regulated exchange since 2020.
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 expanding its own offerings. Trump’s social media site Truth Social has also promised to offer a prediction market in the platform through a partnership with Crypto.com — and one of the president’s sons, Donald Trump Jr., has advisory roles at both Polymarket and Kalshi.
“The train has left the station on these event contracts, they will not go away,” said Melinda Roth, a visiting associate professor at Washington and Lee University School of Law.
Loose regulation
Because they are positioned as sales event contracts, prediction markets are regulated by the CFTC. This means they can avoid state-level restrictions or bans on traditional gambling and sports betting today.
“It’s a big loophole,” said Karl Lockhart, an assistant professor of law at DePaul University who has studied this space. “You only have to comply with one set of regulations, rather than (rules from) every state across the country.”
Sports betting is taking center stage. There are a handful of large states — like California and Texas, for example — where sports betting is still illegal, but people can now bet on games, athlete trades and more through event contracts.
A growing number of states and tribes are seeking to stop this. And lawyers expect the litigation to eventually reach the US Supreme Court, as regulations added by the Trump administration seem unlikely.
Federal law prohibits event contracts related to gaming as well as war, terrorism and murder, Roth said, which can put some prediction market trades on shaky ground, at least in the U.S. But users can still find ways to buy certain contracts while traveling abroad or connecting to different VPNs.
It remains to be seen whether the CFTC will get anything out of this. But the agency, which did not respond to a request for comment, has already taken steps away from enforcement.
Despite overseeing trillions of dollars for the overall US 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 additional cuts in the CFTC workforce and a wave of leadership departures under Trump’s second term. Only one of the five commissioner slots operating the agency is currently filled.
Still, other lawmakers call for a stronger crackdown on potential insider trading in the prediction markets – particularly after suspicion about last week’s Maduro trade on Polymarket. On Friday, Democratic Representative Ritchie Torres introduced a bill aimed at curbing the involvement of government employees in contracts for politically related events.
The bill has already gained support from Kalshi CEO Tarek Mansour — who claimed on LinkedIn that insider trading has always been prohibited on his company’s platform but that more needs to be done to reduce unregulated prediction markets.