Kalshi and Polymarket Launch Perpetual Futures, Blurring the Lines with Exchanges

Written by: Oluwapelumi Adejumo

Compiled by: Luffy, Foresight News

Leading prediction market platforms Kalshi and Polymarket are rushing to launch high-leverage crypto derivatives; meanwhile, U.S. federal and state regulators are locked in fierce legal battles over whether these products constitute illegal gambling or legitimate financial instruments.

Over the past year, these prediction market platforms have gained recognition for allowing users to bet on real-world events. Now, they are preparing to launch perpetual contracts—a complex instrument with no expiration date that enables traders to leverage their positions—thereby blurring the lines between niche prediction platforms and full-fledged cryptocurrency exchanges.

This transition significantly expanded their potential user base but also increased the platform's legal risks.

In the past, platforms like Kalshi operated on an event-driven model: traffic and trading volume surged during key events such as presidential debates or sports finals, then quickly declined once the outcomes were determined.

In this type of market, users buy binary "yes/no" contracts, which settle upon the event's conclusion. Perpetual contracts fundamentally transform this business model: with no expiration date, traders can hold positions indefinitely as long as they meet ongoing margin requirements.

These tools typically allow users to place bets with 50x leverage, attracting aggressive speculators seeking quick returns from minor price movements. By launching such derivatives, Polymarket and Kalshi are moving away from their original business of event contracts and directly competing with centralized exchanges. The core strategy of both platforms is to convert occasional political bettors into daily high-frequency traders.

Kalshi has explicitly announced its entry into the perpetual futures market, while Polymarket’s specific roadmap remains undisclosed, including which assets will be listed and whether access will be restricted for U.S. users.

The primary reason for transitioning to this new feature lies in the underlying market structure.

Traditional spot trading has declined from its previous cycle's speculative peak, with volume reaching $18.6 trillion last year, while perpetual contracts traded more than three times that amount. According to CryptoQuant data, global crypto perpetual contract trading volume reached $61.7 trillion last year.

The significant difference in trading volume determines corporate strategy. The platform recognizes that to maintain user engagement during periods of low volatility, it must offer tools that allow users to short, hedge portfolios, and use leverage.

Although prediction markets have currently attracted substantial funding, with notional trading volume exceeding $150 billion, the intermittent nature of event contracts cannot match the round-the-clock fee income generated by highly active derivatives markets.

Moreover, the boundaries of the broader fintech industry are rapidly blurring: centralized platforms such as Robinhood, Coinbase, and Gemini are increasingly entering the event-based contract market.

Aptos blockchain co-founder Mo Shaikh noted that financial applications have historically tended toward consolidation, citing the expansion of traditional platforms like PayPal as an example. However, he warned that forcing different user groups into a single application rarely succeeds.

“Traders, gamblers, long-term investors, and payment users have entirely different needs,” said Shaikh. “The real value lies in controlling the underlying infrastructure—clearing, liquidity, identity, settlement, and data—these layers can be unified even if the front end remains decentralized.”

Meanwhile, the platform's transformation also has a defensive nature.

Decentralized exchange Hyperliquid is a leading player in the perpetual contracts space and has recently announced plans to launch its own event contracts, entering the prediction market sector.

Therefore, there is disagreement in the market over who holds the strategic advantage in this battle for dominance.

Jiani Chen, Head of Growth at the Solana Foundation, believes that adding prediction markets to a decentralized derivatives exchange is far more complex than building a futures trading engine from a technical standpoint. However, Kyle Samani, Chairman of Forward Industries, downplays the technical barriers, arguing that user acquisition is the real bottleneck for digital asset platforms. He stated: “It’s much harder for trading platforms to initiate liquidity and attract mainstream users for prediction markets. Kalshi’s perpetual contracts will dominate.”

Aggressive product expansion coincides with a survival-threatening legal challenge, as state regulators are coordinating efforts to classify prediction platforms as unlicensed casinos and refusing to recognize event contracts as sophisticated financial instruments.

On April 21, New York Attorney General Letitia James filed a major lawsuit against Coinbase and Gemini, seeking a total of $3.4 billion in fines and restitution. James alleged that these companies offered prediction markets to retail investors, including minors, while evading state taxes and consumer protection laws.

State officials cited research from the National Institutes of Health indicating that early exposure to mobile betting is associated with increased risks of anxiety and financial hardship; they also referenced data from the American Psychological Association showing that gambling addiction is linked to serious mental health risks.

James stated: "Changing the name of gambling doesn't make it any less gambling, nor does it exempt it from state laws and constitutional regulations."

The industry firmly opposes the "gambling" label, arguing that these contracts are essential tools for hedging geopolitical and economic risks.

The U.S. Commodity Futures Trading Commission (CFTC) supports this position, asserting exclusive federal regulatory authority over the industry. To prevent state interference, federal agencies have recently filed lawsuits against regulatory bodies in Arizona, Connecticut, and Illinois.

The judicial system has begun addressing jurisdictional conflicts. Earlier this year, a federal appeals court in Philadelphia ruled against the New Jersey gaming regulator, determining that the CFTC holds exclusive regulatory authority over Kalshi’s election and sports-related contracts.

A series of lawsuits highlight that companies must navigate an extremely fragmented regulatory environment when launching new derivatives.

Entering the perpetual futures market will further integrate prediction markets into mainstream financial infrastructure, rather than leaving them as a niche area of online speculation. This shift has attracted attention from traditional finance: Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, recently invested $2 billion in Polymarket, signaling that major institutions see commercial value in event pricing platforms.

Supporters of this model argue that prediction markets serve both as forecasting tools and trading venues. In highly liquid markets, the standard metric for measuring probability accuracy—the Brier score—can be as low as 0.0247 before settlement, indicating that pricing errors narrow significantly as capital and participation increase. Industry estimates also show that approximately 10% of proprietary trading firms are active in event contract markets, partly to hedge against macroeconomic and policy risks.

The combination of data value and trading activity explains why the platform is eager to expand its product offerings.

Dragonfly managing partner Rob Hadick bluntly articulated the business logic: “In this new world of full financialization, owning users is the only path to long-term survival.”

But not everyone believes perpetual contracts are the natural next step.

Alex Momot, CEO and co-founder of Peanut Trade, told CryptoSlate that the current trend appears more like a response to tightening regulatory pressure rather than a sustainable product strategy. He noted that regulators in some jurisdictions are cracking down on prediction markets, prompting these operators to shift toward cryptocurrency exchange models with clearer rules and lower perceived gambling risk.

Momot believes the buffering effect of this strategy is limited. In his view, the deeper issue is liquidity—without sufficient depth, even the most promising use cases, such as hedging against real-world events, struggle to scale.

He stated that a more robust long-term path may involve index products, market aggregation, and cross-event liquidity pools, bringing prediction markets closer to traditional derivatives or synthetic exposures.

This perspective reflects the industry’s core tension: one side views perpetual contracts as the fastest way to boost trading volume and retain users between major events, while the other sees this as merely a tactical maneuver—the real challenge lies in building deeper, more resilient liquidity.

Regardless, legal risks are rising. Dyma Budorin, founder and CEO of CORE3, said that the convergence of forecasting with derivatives markets is likely to attract stricter scrutiny from regulators.

What we are truly seeing is that the market is moving toward perpetual contract-like behavior without the accompanying risk controls. If this trend continues, regulators will no longer view prediction markets as harmless forecasting tools, but rather as unlicensed derivative platforms.

The lawsuit in New York has ensured that jurisdictional disputes will become a central issue for the industry’s future. This battle may ultimately reach the U.S. Supreme Court or compel Congress to establish a clearer legal framework.

Previously, platform operators appeared willing to continue expanding amid uncertainty, betting that the commercial gains from perpetual futures justified assuming certain legal risks.