First Series of Prediction Markets in the United States
A prediction market is a platform enabling users to predict (or trade) the outcomes of future events, whether political elections, economic indicators, regulatory decisions, weather forecasts, or awards ceremonies. These are contracts with a binary outcome, the price of which reflects participants’ bets on the probability of an event occurring. Prediction markets have experienced rapid growth in recent years, thanks to the emergence of platforms attracting millions of users, such as Kalshi and Polymarket, which have also proven successful in predicting the outcomes of diverse events.
Although many consider prediction markets a legitimate tool for predicting and hedging risks, several regulatory authorities consider them tantamount to unlicensed gambling.
Legal Battles Result in Regulatory Innovation
Kalshi is one of the more established platforms in the field and the first to secure full federal regulatory recognition in the United States to operate as an exchange for trading event contracts. In 2020, the Commodities Futures Trading Commission (CFTC) granted it a license to operate as a designated contract market (DCM). Entities operating derivative marketplaces must obtain this license and comply with numerous regulatory principles, including risk management, consumer protections, operational transparency, and meticulous supervision. DCMs are entities at the level of traditional exchanges like CME and ICE.
Are Prediction Markets Considered Gambling?
Kalshi’s core legal innovation derives from its success in convincing the courts that event contracts should not be considered “gambling” under the US Commodity Exchange Act. Following the CFTC’s opposition to allowing Kalshi to offer contracts on election results, Kalshi petitioned the federal court. The court found in Kalshi’s favor and ruled that an event contract on a political outcome, when traded on a regulated exchange, is not a game of chance and does not fall under the definition of “gaming,” thus drawing a clear distinction between regulated legal activities and illegal gambling. In May 2025, the CFTC withdrew its appeal, solidifying the legal precedent in Kalshi’s favor.
Kalshi’s strategic decision to cooperate with regulatory authorities, and its ultimate success in obtaining a license, stands in contrast to the path taken by its competitor Polymarket. The latter was blocked and fined in several countries, including the United States, until it acquired a CFTC-licensed derivatives exchange and clearinghouse, enabling it to operate legally under regulatory compliance in the United States.
Significant Support from the Capital Market
In addition to its successful regulatory battles, Kalshi recently recorded another significant achievement—raising USD 185 million in a Series C round, catapulting its value to about USD 2 billion and officially positioning it as a unicorn. The venture capital fund Paradigm led the round, with participation from leading entities in the US capital market.
This significant capital raising reinforces the general perception that Kalshi is no longer a speculative platform, but a regulated and institutionalized financial infrastructure, earning the increased trust of the US capital market and financial system.
A Change in Global Trends?
Alongside regulatory recognition in the United States and the vote of confidence from the capital market, another fundamental dimension is also in play here: Kalshi operates in an arena largely reminiscent of the world of binary options, a field that has been nearly universally banned. In Israel, for instance, binary options has even been categorized as a unique criminal offense, with a prohibition on offering such services abroad.
Thus, the fact that through precise legal advice and effective regulatory engagement Kalshi was able to achieve a thriving business model, demonstrates the importance of legal counsel grounded in experience and in-depth insight.
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Adv. Eran Elharar and Adv. Andrey Yanai, partners in the firm’s Regulation Department, and Adv. Avihai Tal, an associate in the department, are at your service to answer any questions in this regard or in relation to trading arenas, licensing, etc.
Barnea Jaffa Lande’s Regulation Department is one of the leading practices in Israel. It provides comprehensive legal advice on a wide range of regulatory issues in various sectors to local and international corporations, investment funds, financial institutions, technology companies, industrial companies, and more.