Singapore and Thailand recently decided to ban Polymarket from their respective jurisdictions, arguing that the site was just another gaming platform.
At first glance, this argument seems logical. Polymarket’s inclusion of sports prediction markets makes it a competitor to licensed sports betting worldwide.
After all, even the harshest critics of the prediction market recognize that there is some value in an investment mechanism to hedge against events like an election, but the outcome of a sports match is not everything. just not the same material impact as an election or a war.
But, beneath the surface, the argument that prediction markets are simply a Web3 version of the game falls short, says Aaron Brogan, a New York-based crypto lawyer.
“If you are a state-licensed gaming product, you only take one part of the bet. Essentially, you’re betting against your users,” Brogan said. “You’re booking the bets…and offering certain odds to the users. Whether you win money or not depends on the odds you set.
Prediction markets like Polymarket and Kalshi, on the other hand, act as neutral intermediaries that match trades without taking sides, making money through transaction fees.
“In this case, you’re not taking sides with the market, which fundamentally changes the incentives involved and makes the product different overall,” Brogan said, emphasizing that prediction market platforms don’t ban their top users . similarly, casinos eliminate card counting professionals because it kills the house’s mathematical edge.
“Prediction markets don’t play because they aren’t structured to do so,” Brogan said. “They are tools for understanding, protecting and creating public goods. This is what makes them fundamentally different.
Obtaining an online gaming license in the United States was a herculean effort, and one might wonder why new players in the industry, like Draft Kings or incumbents like MGM, who later opened up online sports betting operations , do not attack prediction markets. at the state level where gambling is regulated.
According to Brogan, the main legal distinction lies in the regulatory framework. In the United States, prediction markets registered as Designated Contract Markets (DCMs) fall under federal regulation via the Commodity Exchange Act, which preempts state gambling laws.
“In the United States, federal law takes precedence over state law,” Brogan explained. “The Commodity Exchange Act includes a specific provision that excludes state regulation of federally registered derivatives. If you are federally registered, states cannot regulate you. »
Kalshi appears to have confidence in this argument, as the prediction market platform, which actively sought registration with the Commodities Futures and Trading Commission – and fought its early attempts to block election-related prediction markets – recently launched Super Bowl betting markets.
But that might not work for its competitors.
“Polymarket, for example, is not registered in the United States, so states could go to its founder and say, ‘You facilitated sports betting, which is a crime in this state,’ and sue legal action. However, registered exchanges do not face this problem due to their federal status,” Brogan said.
Although Polymarket and Kalshi are the two most recognizable names in the field, many other new entrants are following in their footsteps.
One of them is crypto exchange Crypto.com, which recently launched Crypto.com sports after filing for self-certification as a DCM with the CFTC.
The bottom line, Brogan explained, is that if the CFTC does not act within 24 hours of filing the self-certification documents, then the applicant can consider that a green light.
“If these manage to proliferate, and if the CFTC does not act, which it has not yet done, they will end up eating the lunch of these sports bets. This is a $21 billion industry, and this new product will be much better,” he concludes.
