Prediction markets let people wager on anything from a basketball game to the outcome of a presidential election — and recently, the downfall of former Venezuelan President Nicolás Maduro.
The latter is drawing renewed scrutiny into this murky world of speculative, 24/7 transactions. In early January, an anonymous trader pocketed more than $400,000 after betting that Maduro would soon be out of office.
The bulk of the trader’s bids on the platform Polymarket were made mere hours before President Donald Trump announced the surprise nighttime raid that led to Maduro’s capture, fueling online suspicions of potential insider trading because of the timing of the wagers and the trader’s narrow activity on the platform. Others argued that the risk of getting caught was too big, and that previous speculation about Maduro’s future could have led to such transactions.
Polymarket did not respond to requests for comment.
The commercial use of prediction markets has skyrocketed in recent years, opening the door for people to wager their money on the likelihood of a growing list of future events. But despite some eye-catching windfalls, traders still lose money everyday. And in terms of government oversight in the U.S., the trades are categorized differently than traditional forms of gambling — raising questions about transparency and risk.
Here’s what we know:
How prediction markets work
The scope of topics involved in prediction markets can range immensely — from escalation in geopolitical conflicts, to pop culture moments, and even the fate of conspiracy theories. Recently, there’s been a surge of wagers on elections and sports games. But some users have also bet millions on things like a rumored — and ultimately unrealized — “secret finale” for Netflix’s Stranger Things, whether the U.S. government will confirm the existence of extraterrestrial life, and how much billionaire Elon Musk might post on social media this month.
In industry-speak, what someone buys or sells in a prediction market is called an “event contract.” They’re typically advertised as “yes” or “no” wagers. And the price of one fluctuates between $0 and $1, reflecting what traders are collectively willing to pay based on a 0% to 100% chance of whether they think an event will occur.
The more likely traders think an event will occur, the more expensive that contract will become. And as those odds change over time, users can cash out early to make incremental profits, or try to avoid higher losses on what they’ve already invested.
Proponents of prediction markets argue putting money on the line leads to better forecasts. Experts like Koleman Strumpf, an economics professor at Wake Forest University, think there’s value in monitoring these platforms for potential news — pointing to prediction markets’ past success with some election outcomes, including the 2024 presidential race.
Still, it’s never a “crystal ball,” he noted, and prediction markets can be wrong, too.
Who is behind all of the trading is also pretty murky. While the companies running the platforms collect personal information of their users in order to verify identities and payments, most people can trade under anonymous pseudonyms online — making it difficult for the public to know who is profiting off many event contracts. In theory, people investing their money may be closely following certain events, but others could just be randomly guessing.
Critics stress that the ease and speed of joining these 24/7 wagers leads to financial losses everyday, particularly harming users who may already struggle with gambling. The space also broadens possibilities for potential insider trading.
The major players
Polymarket is one of the largest prediction markets in the world, where its users can fund event contracts through cryptocurrency, debit or credit cards, and bank transfers.
Restrictions vary by country, but in the U.S., the reach of these markets has expanded rapidly over recent years, coinciding with shifting policies out of Washington. Former President Joe Biden was aggressive in cracking down on prediction markets and, following a 2022 settlement with the Commodity Futures Trading Commission, Polymarket was barred from operating in the country.
That changed under Trump late last year, when Polymarket announced it would be returning to the U.S. after receiving clearance from the commission. American-based users can now join a platform “waitlist.”
Meanwhile, Polymarket’s top competitor, Kalshi, has been a federally-regulated exchange since 2020. The platform offers similar ways to buy and sell event contracts as Polymarket — and it currently allows event contracts on elections and sports nationwide. Kalshi won court approval just weeks before the 2024 election to let Americans put money on upcoming political races and began to host sports trading about a year ago.
The space is now crowded with other big names. Sports betting giants DraftKings and FanDuel both launched prediction platforms last month. Online broker Robinhood is widening its own offerings. Trump’s social media site Truth Social has also promised to offer an in-platform prediction market through a partnership with Crypto.com — and one of the president’s sons, Donald Trump Jr., holds advisory roles at both Polymarket and Kalshi.
“The train has left the station on these event contracts, they’re not going away,” said Melinda Roth, a visiting associate professor at Washington and Lee University’s School of Law.
Loose regulation
Because they’re positioned as selling event contracts, prediction markets are regulated by the CFTC. That means they can avoid state-level restrictions or bans in place for traditional gambling and sports betting today.
“It’s a huge loophole,” said Karl Lockhart, an assistant professor of law at DePaul University who has studied this space. “You just have to comply with one set of regulations, rather than (rules from) each state around the country.”
Sports betting is taking center stage. There are a handful of big states — like California and Texas, for example — where sports betting is still illegal, but people can now wager on games, athlete trades, and more through event contracts.
A growing number of states and tribes are suing to stop this. And lawyers expect litigation to eventually reach the U.S. Supreme Court, as added regulations from the Trump administration seem unlikely.
Federal law bars event contracts related to gaming as well as war, terrorism, and assassinations, Roth said, which could put some prediction market trades on shaky ground, at least in the U.S. But users might still find ways to buy certain contracts while traveling abroad or connecting to different VPNs.
Whether the CFTC will take any of that on has yet to be seen. But the agency, which did not respond to request for comment, has already taken steps away from enforcement.
Despite overseeing trillions of dollars for the overall U.S. derivatives market, the CFTC is also much smaller than the Securities and Exchange Commission. And at the same time event contracts are growing rapidly on prediction market platforms, there have been additional cuts to the CFTC’s workforce and a wave of leadership departures under Trump’s second term. Only one of five commissioner slots operating the agency is currently filled.
Still, other lawmakers calling for a stronger crackdown on potential insider trading in prediction markets — particularly following suspicion around last week’s Maduro trade on Polymarket. On Friday, Democratic Rep. Ritchie Torres introduced a bill aimed at curbing government employees’ involvement in politically-related event contracts.
The bill has already gotten support from Kalshi CEO Tarek Mansour — who on LinkedIn maintained that insider trading has always been banned on his company’s platform but that more needs to be done to crack down on unregulated prediction markets.
