Prediction markets: In search of a balanced regulatory approach

We have become accustomed to viewing the gambling industry through the lens of its traditional verticals - casinos, slot machines, sports betting, and lotteries. Each of these sectors has both land-based and online segments that are subject to dedicated legislation and regulatory oversight. However, technological innovation continues to give rise to new forms of gambling, which often attract the attention of regulators only after they have already evolved into substantial gray markets. One such emerging sector is the prediction market -platforms where users can wager on the likelihood of various political, economic, or societal events.

Ukraine's experience with blocking prediction platforms that accepted wagers on the war and territorial issues demonstrated a clear red line: such "markets of blood" are unacceptable and inevitably provoke a strong response from both the state and society. Betting on how long the war will last or whether a particular town will be liberated turns human tragedy into an object of gambling, and no democratic country should tolerate such practices.

Yet this extreme example also revealed the existence of a gambling segment that is rarely mentioned in discussions about gambling regulation. As a result, current legislation does not even recognize or define the concept of a "prediction market" as a distinct phenomenon.

By their very nature, prediction markets represent a relatively new type of gambling product. Instead of playing roulette or placing sports bets, participants wager on whether a particular event will occur, from election outcomes and central bank decisions to fluctuations in gold prices or the completion date of a major infrastructure project. In the absence of a separate legal definition, any such product automatically falls into the category of unregulated gambling, with virtually no opportunity to operate legally. In most jurisdictions, there is simply no legislative framework under which these platforms can be licensed, leaving the entire sector operating in the shadows.

Prediction markets are rapidly gaining popularity around the world. In the United States, Kalshi and Polymarket - the two largest players in this sector are currently valued at approximately $22 billion and $15 billion, respectively, while the Commodity Futures Trading Commission (CFTC) considers them legitimate businesses. At the same time, several U.S. states, including Nevada, Connecticut, Arizona, and others, disagree with this approach, and the CFTC is currently engaged in litigation with nine states over the issue.

Meanwhile, France, Belgium, Singapore, Portugal, Argentina, and Italy have taken the opposite route by blocking such platforms altogether. However, as with any other form of gambling, outright bans do not eliminate demand; they merely push users toward underground or decentralized alternatives, where there is no regulatory oversight, no consumer protection, and little or no control over the origin of funds.

Against this backdrop, Gibraltar offers an interesting example. The British Overseas Territory has become the first jurisdiction in the world to establish a dedicated regulatory framework specifically for prediction markets, introducing a separate licensing regime rather than attempting to squeeze this new product into existing casino or sportsbook regulations. Two companies ADI Predictstreet and Wire Markets have already received licenses from the Gibraltar regulator.

The new framework provides for oversight of market integrity, including safeguards against manipulation and the misuse of insider information an especially important consideration when markets involve political events, armed conflicts, or financial markets. It also establishes requirements for consumer protection, anti-money laundering controls, sanctions compliance, and dedicated rules governing the use of digital assets, including stablecoins, which are commonly used for settlement on these platforms.

Importantly, this approach does not imply unrestricted permission. The most sensitive categories of prediction markets including those involving wars or territorial conflicts can still be prohibited outright. However, for the remainder of the sector, the framework provides a clear and transparent regulatory environment instead of a vast gray area in which operators must either function illegally or not operate at all. This balance is likely to shape how regulators around the world respond to this emerging gambling phenomenon in the years ahead.