With its origins tracing as far back as 4,000 BC in Ancient Egypt, sports betting has come a long way to become a major market involving millions of people across the world today. Pioneered by British professional bookmakers like Harry Ogden and Richard Tattersaul — who introduced systematic odds-setting and risk management — the modern commercial betting industry began taking shape in the late 18th century.
For over 200 years the sector remained largely stagnant, with centralized oddsmakers having full control over most factors like setting the odds, holding inventory risk, payout rules, restrictions, and others — until peer-to-peer platforms, including blockchain-based ones, began disrupting this status quo.
However, despite offering largely similar services, platforms like Polymarket and Kalshi position themselves as regulated trading venues or derivatives exchanges for event contracts rather than gambling or betting platforms, significantly reducing user-experience friction. This is possible due to some major structural differences between prediction markets and traditional sportsbooks, even in light of the growing regulatory overlap.
In this article, we will explain the main differences in how prediction markets are regulated and when does putting money on an uncertain future outcome stop being a bet against the house and start being a trade against other market participants.
They’re Just Built Differently
Historically, the traditional sportsbooks model was centered around operators unilaterally setting the odds (including extra fees called the vig, typically amounting to +4–6% on moneylines), acting as a counterparty, managing inventory risks, dictating settlement rules, and potentially limiting or banning successful customers. This model has been remarkably stable for over two centuries and still dominates in terms of global volumes, product variety — such as props, parlays, or live betting, for example — and recreational use.
On the downside, sportsbooks are legally classified as betting/gambling in most countries and must adhere to strict regulation, creating an extra layer of friction for regular users. For instance, in the U.S. such platforms fall under state-level gambling regulation (post-PASPA), have an age limit of 21+ in most jurisdictions, and must be licensed, as well as employ responsible-gaming rules and pay state taxes. Moreso, sportsbooks’ availability is also limited to ~35–40 states and they only allow for reduced (or none at all) early cashouts.
Conversely, prediction markets have a number of structural differences that enable these platforms to distance themselves from classic sportsbooks and invert the established model. Rather than taking the opposite side of users’ bets, they facilitate trading of binary (or multi-outcome) event contracts between market participants via an order book. In case of most popular “Yes/No” contracts, for instance, the price of each pair always amounts to $1 or 100%, where traditional bookmakers’ added vig pushes the final figure beyond 100%.
This way, prediction markets can stay neutral, earn transparent fees or spreads, and have no directional exposure, with early exit also being possible whenever liquidity exists. Further, skilled participants are not systematically limited or banned on such exchanges the way they often are on sportsbooks. Whether blockchain-based (Polymarket) or more traditional (Kalshi), these CFTC-regulated exchanges represent variants of the same core idea.
Swaps or Gambling?
Thanks to their innovative structure, platforms like Kalshi and Polymarket — along with supporters, lawyers, and some regulators — frequently argue they operate as regulated trading venues or derivatives exchanges for event contracts rather than gambling or betting platforms. To back these claims up, they emphasize peer-to-peer matching, no “house” taking the opposite side, fee-based revenue (instead of profits taken from user losses), price discovery via order books, and federal CFTC oversight that they claim preempts state gambling laws.
Kalshi, for one, is a CFTC-designated contract market (DCM) that frames its products as event contracts or swaps under the Commodity Exchange Act. In recent interviews, the platform’s CEO Tarek Mansour argued that sports event contracts and Super Bowl-related activity are not really gambling, adding that if Kalshi is gambling, then “you’re basically calling the entire financial market gambling.” He added that unlike sportsbooks, prediction markets’ users trade against each other in an open ecosystem instead of betting against a house that sets odds and profits from losses.
Kalshi’s official statements and legal position echo that sentiment, insisting that the platform is a derivatives exchange that matches buyers and sellers, with prices reflecting supply/demand and nothing else. Lawyers like Josh Sterling have also argued there are “no odds being set” by the platform, and even terms like “bets” or “odds” don’t change anything — similar to how one can “bet” on stocks or derivatives. Kalshi’s executives, such as Andy Ross, similarly describe it as a derivatives exchange, highlighting its data/price-discovery value.
In the past, however, some U.S. courts have rejected preemption for certain sports-event contracts, with Nevada Governor Joe Lombardo stating that “prediction markets offering sports-event contracts constitute gambling and must comply with Nevada’s gaming laws and regulatory framework.”
Enter Blockchain
Blockchain-based Polymarket — as well as QCX/QCEX, its CFTC-licensed arm acquired in 2025 — similarly positions itself as an exchange for event contracts. The platform has been operating under the CFTC purview as a DCM since November 25, 2025, allowing it to establish a U.S.-specific exchange, Polymarket US, subject to the same regulatory framework as traditional futures exchanges like the CME.
In an interview, attorney Aaron Brogan also argued that prediction markets “aren’t gambling because they’re not structured to be” and “they’re tools for understanding, hedging, and creating public goods. That’s what makes them fundamentally different.”
Ethereum founder Vitalik Buterin has also publicly argued that classifying Polymarket as “gambling” is “a massive misunderstanding of what prediction markets are or why people (including economists and policy intellectuals) are excited about them.”
“Prediction markets are interesting because they're a social epistemic tool: the public gets a view of how important certain events are and what kinds of things are likely to happen, that is much less vulnerable to biased editorial opinion than either social media or news websites,” Buterin wrote in his X post in 2024. “Conditional prediction markets have applications in governance, which we're starting to see already.”
Overall, Polymarket features largely the same structural differences as Kalshi, including neutral matching of trades, fees instead of house edge, and not taking the opposite side of positions.
Betting on CFTC Regulation
From the legal standpoint, Polymarket and Kalshi’s CFTC licensing and positioning as exchanges — or DCMs for event contracts/derivatives — eliminate a number of major friction points usually inherent to betting platforms. Among the most evident benefits are federal preemption, a single national regulatory framework, and structural differences in how the products are treated.
Operating under one regulator nationwide, prediction markets can — or at least aim to — operate across all 50 U.S. states with a single federal CFTC license, allowing them to avoid the need for state-by-state gambling licenses, partnerships with casinos or tribes, and varying local rules that constrain traditional sportsbooks like DraftKings or FanDuel. Notably, this also enables them to operate in states that ban or heavily restrict sports betting, such as California and Texas.
Because of this, prediction markets can feature lower age restriction thresholds (often 18+ instead of traditional 21+ for sports betting) as well as avoid many state-specific limits on bet types, advertising rules, responsible-gambling mandates, self-exclusion systems tailored, and other consumer-protection rules enforced by state gaming commissions. Prediction markets licensed as DCMs are also free from share revenue enforced by high state gambling taxes, which can amount to 20–50%.
Further, platforms licensed as DCMs assert that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over their derivatives/event contracts. This preemption is often used to argue that individual state gambling laws do not apply, creating a form of regulatory arbitrage.
In addition to facilitating peer-to-peer trading and allowing for exits before resolution, prediction markets also frame their products as financial instruments rather than gambling. This helps support claims of price discovery, hedging, and informational value, which can attract more institutional users, market makers, and data partners.
Licensed prediction markets’ credibility is additionally supported by their adherence to the CFTC’s rules, which require following its core principles around transparency, surveillance for manipulation and insider trading, reporting, customer fund segregation, and fair access.
Combined, these features allow for easier scaling, more potential partnerships (with brokers or apps, for example), and positioning as financial infrastructure rather than pure gambling, enabling broader event contracts beyond sports and making prediction markets more attractive to broader capital or users interested in forecasting tools.
Overall, the exchange classification ensures regulatory uniformity, broader geographic reach, lighter — or different — tax and compliance burdens, and a financial-product framing that supports growth and legitimacy claims.
Conclusion
As it stands today, prediction markets like Polymarket and Kalshi function as peer-to-peer exchanges for event contracts, allowing participants to trade shares priced as probabilities. On their part, traditional sportsbooks operate as house-banked bookmakers that set odds and take the opposite side of every wager.
The line between “trading” and “betting” is structural rather than merely semantic, with their distinctions cascading into pricing, liquidity, market-making, regulation, and settlement — and determine where one model ends and the other begins.
At the same time, this status quo is still often challenged by state regulators, gaming industry groups, and some courts that still view many — especially sports-related — contracts as functionally equivalent to gambling. Outside the U.S., many jurisdictions also classify them as gambling, with the debate continuing amid new lawsuits and regulatory reviews.
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