The prediction-market moment is here. At its best, the embrace of events-based contracts could represent a new asset-class: event outcomes traded with derivatives-grade infrastructure transparency and liquidity.

At its worst, it could serve as a potential regulatory arbitrage path around state gaming laws, one with thin consumer-protections and opaque payout mechanics.

The only sure outcome? Right now, it appears to be forward momentum.

On Tuesday (Oct. 21), DraftKings acquired Railbird Technologies and its wholly owned subsidiary, Railbird Exchange, which is a federally licensed exchange designated by the Commodity Futures Trading Commission (CFTC) and focuses on event-based contracts. Polymarket will reportedly serve as the designated clearinghouse for DraftKings’ upcoming prediction market.

Polymarket, alongside its prediction market competitor Kalshi, on Tuesday also announced a landmark partnership with the National Hockey League (NHL).

The moves underscore how both prediction markets are moving into professional sports, and sports betting platforms are moving into events-based contracts.

Advertisement: Scroll to Continue

Cryptocurrency platform Kraken last week (Oct. 16) acquired Small Exchange, a CFTC-licensed designated contract market, from IG Group for $100 million, showing that crypto platforms are interested in this emerging asset class, too.

Unlike traditional sports betting markets, prediction markets are regulated federally by the Commodity Futures Trading Commission (CFTC), and that leaves a lot of opportunity for potentially capturing users across states that have individually stringent iGaming, sports betting, and gambling laws.

Access to a CFTC-regulated designation, such as designated contract market (DCM) status, is increasingly becoming the gateway for prediction-market legitimacy.

See also: Prediction Markets Eye US Growth While Watching Out for Crypto Whales 

Why the Surge in Events-based Contracts?

The momentum in the prediction-market space is underpinned by several forces. First, the market architecture allows for far broader products: finance, culture, politics, entertainment, weather and increasingly sports, all packaged as yes/no contracts or binary outcomes.

Second, the entry of major platforms signals scale. Per a Monday (Oct. 20) report, prediction markets have hit a new all-time record high of $2 billion in weekly volume, reaching higher heights and more volume than during the 2024 U.S. Presidential election.

Still, despite the appearance of financial-market sophistication, prediction markets can raise troubling parallels with gambling. That is most apparent when the event contracts track sports competitions, anecdotal political outcomes or entertainment awards. Such structures can resemble bets more than hedges on commodity futures.

The functional difference is subtle but material. In a state-licensed sports book, the operator carries risk, sets odds (vig or juice) and keeps an eye on gaming compliance, anti-money-laundering (AML) controls, responsible-gambling safeguards and state tax remittances, all tailored to the sports-betting context.

Prediction-market exchanges, in contrast, offer contracts where traders can buy and sell shares (or positions) at prices reflecting probabilities, enter and exit positions freely across the life of a contract and ideally face no built-in house edge. A probability of 0.30 that a team wins the next game might translate into a price of $0.30; if the event happens, the position pays $1; if it doesn’t, $0. And the market mechanism determines the rate of return.

That structure aligns with trading rather than wagering — hence the attractiveness of the derivatives-regime path. But it also means participants may not be protected by responsible-gaming guardrails, or by the licensing oversight intended to safeguard state-licensed gamblers. State regulators, tribal gaming entities and the American Gaming Association (AGA) have flagged the issue repeatedly.

Read more: Robinhood Sues States to Turn Sports Bets Into Wall Street Trades 

Betting, Hedging or Trading?

In September, the U.S. CFTC appeared to boost the trajectory of prediction markets when it issued a no-action letter regarding event contracts. Still, Kalshi is currently facing an ongoing legal battle over its right to offer sports event contracts, as is Robinhood which has sued regulators in Nevada and New Jersey.

For regulators, the central challenge is to decide whether prediction markets are genuinely derivatives or essentially bets in disguise. For operators, the challenge could be to build compliant, transparent infrastructures around payments, payouts, clearing and liquidity, all while fending off competition.

Intercontinental Exchange (ICE), owner and operator of the New York Stock Exchange (NYSE), announced Tuesday (Oct. 7) that it invested $2 billion in Polymarket, gaining not only a financial stake but also a central role as the global distributor of Polymarket’s event-driven data.

Robinhood  CEO Vlad Tenev, in an interview earlier this year, characterized prediction markets as distinct from gambling with societal value, though he acknowledged the regulatory gray zone.