In this guide
Key takeaway: The CFTC has become the de facto US regulator for prediction markets since 2022. Platforms must register as Designated Contract Markets (DCMs) or face enforcement. Kalshi is the only fully compliant platform; Polymarket settled and geo-blocks US users.
Should you participate in prediction markets from within the United States — or are you evaluating whether to do so — grasping the CFTC's role in prediction markets is essential. This regulatory body dictates which contracts remain tradeable, which venues permit such trading, and the operational requirements platforms must satisfy.
What is the CFTC?
The Commodity Futures Trading Commission serves as the principal US federal regulator overseeing commodity futures, options, and swaps. Given that prediction market contracts operate much like binary options, they come within CFTC authority whenever offered to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement with the CFTC for $1.4 million upon running an unlicensed event contract marketplace. Notable components of this settlement were:
- $1.4M financial penalty assessed by the regulator
- Commitment to discontinue non-compliant contract offerings
- Implementation of geographic restrictions preventing US-based users from accessing the platform directly
Following this resolution, Polymarket has concentrated efforts on international expansion whilst investigating potential compliance mechanisms for US market entry.
Kalshi vs. CFTC (2023-2024)
Kalshi, operating as a CFTC-registered DCM, initiated litigation against the CFTC after the regulator declined to approve its congressional control contracts. This pivotal ruling determined that the CFTC lacked authority to impose a categorical prohibition on event contracts merely because they reference electoral processes — a significant development for market participants. The DC Circuit Court decision expanded possibilities for event contract innovation.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has supplied CFTC-regulated binary options for an extended period, encompassing certain event-linked contracts. Their operational framework illustrates that lawful prediction markets remain achievable within the existing US regulatory framework.
What Makes a Prediction Market Legal in the US?
For a platform to lawfully provide prediction market contracts to Americans, it must:
- Obtain DCM registration from the CFTC
- Adhere to Core Principles — 23 operational standards addressing market integrity, surveillance capabilities, and participant safeguards
- Secure contract authorisation — each distinct event contract category requires CFTC review and non-objection
- Deploy KYC/AML systems — customer identification and financial crime prevention measures
The "Gaming" Exception
The Commodity Exchange Act (CEA) restricts event contracts connected to "gaming" — terminology the CFTC construes expansively. Consequently, sports-linked prediction markets continue facing regulatory uncertainty. Historically, the CFTC has characterised sports event contracts as gaming activities, though Kalshi's judicial success has muddied these distinctions.
What Happens if You Trade on Unregistered Platforms?
End users encounter limited direct enforcement exposure — the CFTC pursues venues rather than individual traders. Nonetheless, participation on unregistered venues carries significant drawbacks:
- CFTC protections governing customer assets do not extend to your holdings
- Your deposits and withdrawals lack segregation requirements protecting against platform insolvency
- No CFTC remedies available if the venue becomes insolvent or engages in misconduct
For comprehensive insight into worldwide regulatory frameworks, consult our 2026 global regulation guide. Seeking to participate on a platform with robust safeguards? Discover PolyGram's operational model. Start trading on PolyGram →