Original | Odaily Planet Daily (@OdailyChina)
Author | Asher (@Asher_0210)
Prediction markets are迎来 a clearer set of regulations.
On June 10, the U.S. Commodity Futures Trading Commission (CFTC) issued a proposed rule to adjust the review process for event contracts. According to the CFTC announcement, the proposal would amend Regulation 40.11 and add Appendix F to evaluate whether event contracts in prediction markets involve terrorism, assassination, war, or illegal activities, and whether such contracts contravene the public interest. Through this proposed rule, the CFTC seeks to establish a framework for determining which events may be financialized and which should be excluded from the market.
For rapidly expanding prediction markets, the CFTC’s proposed rule may be a pivotal turning point.
Over the past few years, the leading prediction markets, Kalshi and Polymarket, have continuously turned real-world events into tradable contracts—ranging from presidential elections and macroeconomic data to sports events, entertainment shows, and geopolitical incidents. Almost any event with a verifiable outcome has the potential to be packaged as a “yes” or “no” trading market.
As scale increases, problems begin to surface prominently. Who is allowed to participate in trading? Which markets are vulnerable to manipulation? If someone can know the outcome in advance—or even influence it—can a prediction market still be considered fair?
The CFTC's action this time is precisely aimed at answering these questions.
Not a one-size-fits-all approach, but rather a case-by-case contract review.
The CFTC did not issue a simple statement this time, but rather a 267-page proposed rule document titled “Prediction Markets; Public Interest Determinations.” As its nature indicates, this is a rulemaking proposal currently in the comment period and has not yet become an effective, formal rule. In this document, the CFTC seeks to further clarify which event contracts may be deemed contrary to the public interest and therefore prohibited from being listed or cleared on CFTC-registered entities.
From a regulatory design perspective, the CFTC has not directly issued a comprehensive list of prohibited items but instead opted to review contracts on a case-by-case basis. According to the document, this proposal aims to establish a structured framework for determining whether a particular event contract involves sensitive categories outlined in the Commodity Exchange Act, including terrorism, assassination, war, and actions violating federal or state laws. If a contract involves these categories, the CFTC will further assess whether it contravenes the public interest.
Therefore, prediction markets are not automatically banned merely because they involve sensitive events. Regulatory attention focuses on what exactly the event predicts and whether it could induce manipulation, harm, or illegal activity. For example, a market that directly predicts whether a terrorist attack will occur in a specific location is likely to face intense scrutiny or be prohibited. However, a market that tracks crude oil shipment volumes through the Strait of Hormuz during a specific period—even if this data may be influenced by military conditions—is fundamentally measuring commercial shipping activity, not directly predicting war or terrorism.
The CFTC is not simply rejecting prediction markets; it is attempting to distinguish between "predicting the impact of risk" and "predicting the occurrence of harm." The former may still hold informational value, while the latter is more likely to cross the line of public interest.
Sports-related prediction events are expected to be retained, with clearer boundaries.
What concerns the public most may be whether sports prediction markets will be completely banned. Based on the current proposal, the CFTC has signaled a relatively positive stance—most prediction events centered on overall outcomes of sporting events may still find clear regulatory space. The CFTC preliminarily believes that sports prediction events designed around game scores, point differentials, win/loss results, advancement outcomes, team or player statistics, and seasonal performance may possess price discovery functionality and provide meaningful information.
Sports events such as the World Cup, NBA, NFL, and MLB naturally attract high attention, frequent trading, and clear settlement conditions, making them the primary source of trading volume in prediction markets. If the relevant rules are finalized and it is confirmed that markets for sports outcomes, advancement, and scores have regulatory compliance potential, sports-related prediction events will remain the main battleground for platforms to attract users and liquidity.
However, this does not mean that all sports-related markets will be approved. The CFTC also emphasizes that certain more niche markets, which are more susceptible to manipulation by a small number of individuals, may not serve the public interest. For example, markets on whether a player is injured, whether a conflict occurs during a game, whether a referee makes a specific call, the outcomes of youth competitions, and any markets that could encourage cheating or harm athletes may face stricter scrutiny.
What’s truly being targeted are those who know the answer.
Compared to the sports market itself, the real issues this regulation aims to address are insider trading and market manipulation. Unlike traditional financial markets, the outcomes of many events in prediction markets are not naturally determined externally but may be decided by individuals, institutions, or small groups. Once these parties participate in trading, the market ceases to merely “predict the future” and could instead become a means of “front-running insider information.”
Recently, similar issues have occurred multiple times, with several suspected insider trading cases emerging in prediction markets, including U.S. military personnel allegedly using information related to operations involving Venezuela, a former U.S. congressman predicting he would not attend Trump’s State of the Union address, and Google engineers using internal company tools to access data on the most searched individuals for 2025.
The above incident reveals that the most fundamental risk in prediction markets is that some traders are not better at judging but are simply closer to the truth. This directly undermines market credibility, turning prediction markets from information aggregation tools into insider arbitrage platforms.
A clearer regulatory framework does not mean the controversy is over.
However, the CFTC’s proposal does not mean the controversy surrounding prediction markets has ended. Several U.S. state regulators continue to oppose the CFTC’s stance on sports-related prediction events, arguing that such events are essentially sports betting and that platforms should not circumvent state gambling regulations. Bill Miller, head of the American Gaming Association, also criticized the CFTC’s proposal as an attempt to redefine sports betting.
Behind this is really a power struggle between federal regulation and state gambling regulation. If sports-related prediction events are classified as financial derivatives under CFTC oversight, platforms could potentially offer trading services to a broader user base under the federal framework. However, if they are classified as sports betting, they must navigate the complex licensing, taxation, and consumer protection requirements of individual states.
Therefore, even if the relevant rules are ultimately finalized, legal disputes surrounding prediction markets will not disappear; instead, they will become even more focused on one key question: Can prediction markets regulated by the CFTC bypass state gambling regulations to offer nationwide sports betting transactions?
Prediction markets are becoming more like financial markets.
Returning to the proposal itself, the CFTC’s stance is already fairly clear: prediction markets will not be simply dismissed, but their gray areas are being redrawn.
Prediction events with objective settlement criteria, the ability to provide informational value, and relatively controllable manipulation risks may still enjoy clearer regulatory clarity; whereas markets susceptible to influence by a few individuals, prone to causing harm, or involving non-public information will be a regulatory priority.
This also means that the next stage of prediction markets will not be more free, but more institutionalized.
Previously, the expansion of prediction markets relied more on trends, traffic, and the number of markets; going forward, a platform’s ability to sustain growth will increasingly depend on its capacity to demonstrate fair markets, transparent settlements, and controllable risks. This CFTC proposal may not be a brake on prediction markets but rather a dividing line—marking the industry’s shift from gray-area expansion toward a more regulated, finance-market-style competition.