Prediction markets allow people to bet on anything from basketball games to the outcome of presidential elections and, most recently, the downfall of former Venezuelan President Nicolás Maduro.
The latter are taking a fresh look at the dark world of speculative, 24/7 trading. Last week, an anonymous trader pocketed more than $400,000 betting that Maduro would soon step down.
The majority of the trader’s bids on the Polymarket platform came just hours before President Donald Trump announced the overnight raids that led to Maduro’s arrest, fueling online suspicions of potential insider trading due to the timing of the bets and the trader’s narrow activity on the platform. Others believe the risk of getting caught is too great and that previous speculation about Maduro’s future may have led to such a deal.
Polymarket did not respond to a request for comment.
The commercial use of prediction markets has exploded in recent years, opening the door for people to invest in the likelihood of an increasing number of future events. But despite some high-profile windfalls, traders are still losing money every day. For purposes of U.S. government regulation, these transactions are classified differently from traditional forms of gambling — raising questions about transparency and risk.
Here’s what we know:
How prediction markets work
Prediction markets cover a wide range of topics – from escalating geopolitical conflicts to pop culture moments and even the fate of conspiracy theories. Recently, elections and sports competitions have resulted in significant wage increases. But some users have also placed millions of dollars in bets on things like the rumored “secret finale” of Netflix’s “Stranger Things” that never came to fruition, whether the U.S. government will confirm the existence of extraterrestrial life and how much content billionaire Elon Musk might post on social media this month.
In industry terms, something someone buys or sells on a prediction market is called an “event contract.” They are often promoted as “yes” or “no” bets. The price fluctuates between $0 and $1 and reflects what traders are collectively willing to pay based on their belief that there is a 0% to 100% chance of whether an event will occur.
The more likely a trader believes an event is to occur, the more expensive the contract will be. As these odds change over time, users can cash out early to gain incremental profits or try to avoid higher losses on their already invested money.
Proponents of prediction markets believe that investing money can lead to better predictions. Experts such as Koleman Strumpf, an economics professor at Wake Forest University, believe there is value in monitoring these platforms for potential news, pointing to the past success of prediction markets in some election outcomes, including the 2024 presidential race.
However, he noted that this is never a “crystal ball” and prediction markets can be wrong.
It’s also fairly unclear who is behind all the dealings. While the companies operating these platforms collect users’ personal information to verify identity and make payments, most people can transact online under anonymous pseudonyms, making it difficult for the public to know who is profiting from many of the active contracts. In theory, people investing might be paying close attention to certain events, but others might just be making random guesses.
Critics stress that the ease and speed of joining these 24/7 bets results in financial losses every day, especially hurting users who may already be struggling with gambling. The space also expands the possibility of potential insider trading.
major players
Polymarket is considered the largest prediction market in the world and its users can fund active contracts via cryptocurrency, debit or credit card, and bank transfer. Its biggest rival, Kalshi, has taken a similar approach, laying the groundwork for nationwide election and sports contracts after winning court approval weeks before the 2024 election to allow Americans to pour money into upcoming political campaigns. Kalsi started hosting sports deals about a year ago.
Restrictions vary from country to country, but in the United States, the scope of these markets has expanded rapidly over the past few years, along with policy shifts away from Washington. Former President Joe Biden aggressively cracked down on prediction markets. Polymarket was banned from doing business 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 United States after receiving permission from the commission. U.S. users can now join the platform’s “waitlist.”
The space is now packed with other big names. Sports betting giants DraftKings and FanDuel both launched prediction platforms last month. Online broker Robinhood is expanding its product offerings. Trump’s social media site Truth Social has also pledged to offer in-platform prediction markets through a partnership with Crypto.com, while one of the president’s sons, Donald Trump Jr., holds advisory roles at both Polymarket and Kalshi.
“The trains have left the station under these active contracts, and they are not going away,” said Melinda Ross, a visiting associate professor at Washington and Lee University School of Law.
loose regulation
Because prediction markets are positioned to sell event contracts, they are regulated by the U.S. Commodity Futures Trading Commission (CFTC). This means they can avoid today’s state-level restrictions or bans on traditional gambling and sports betting.
“It’s a huge hole,” said Karl Lockhart, an assistant professor of law at DePaul University who studies this area. “You just have to follow one set of rules, not the rules of every state in the country.”
Sports betting is taking center stage. Sports betting remains illegal in a handful of large states, such as California and Texas, but people can now place bets on games, athlete trades, and more through event contracts.
A growing number of states and tribes are filing lawsuits to stop this. Lawyers expect the lawsuit will eventually make its way to the U.S. Supreme Court, as the Trump administration appears unlikely to increase regulations.
Federal law prohibiting contracts for activities related to gaming as well as war, terrorism and assassination could put some prediction market transactions in jeopardy, at least in the United States, Ross said. But users may still find ways to purchase certain contracts while traveling abroad or connecting to a different VPN.
It remains to be seen whether the CFTC will take any action. The agency, which did not respond to a request for comment, has taken steps it will no longer enforce.
Although the CFTC oversees the trillions of dollars in the entire U.S. derivatives market, it is also much smaller than the SEC. At the same time, active contracts on prediction market platforms have grown rapidly, the U.S. Commodity Futures Trading Commission (CFTC) has further cut its workforce, and there has been a wave of leadership departures during Trump’s second term. Currently, only one of the five commissioner seats that run the agency has been filled.
Still, other lawmakers have called for a tougher crackdown on potential insider trading in prediction markets — especially after the Maduro trade on Polymarket came into question last week. Democratic Rep. Rich Torres introduced a bill on Friday aimed at curbing contracts for government employees involved in politically-related activities.
