Stanford Law School

Unpacking Prediction Markets

The Stanford Rock Center webinar unpacked prediction markets, focusing on their legal and regulatory dimensions. Panelists from Kalshi, Goodwin, Polymarket, and Arktouros explained how electronic event contracts let participants trade on the probability of future outcomes, from elections to sports events. Key insights included the CFTC’s view that these contracts are swaps under the Commodity Exchange Act, prompting six congressional bills and over twenty lawsuits. Regulators grapple with distinguishing information‑driven markets from gambling, while the industry cites historical examples like the 1988 Iowa election market that outperformed traditional polls. Rebecca Rettig defined event contracts as binary payouts (typically $1 or zero) reflecting collective probability assessments. Neal Kumar highlighted Polymarket’s blockchain‑based, non‑custodial architecture and its need to geoblock U.S. users after a 2022 CFTC settlement. Rick Heaslip described Kalshi’s path to becoming a designated contract market, operating under a CFTC‑approved rulebook and adhering to rigorous disclosure, record‑keeping, and fair‑access requirements. The discussion underscores the urgent need for regulatory clarity as prediction markets expand. Companies must choose between centralized, regulated exchanges or decentralized platforms, each with distinct compliance burdens and liquidity implications, shaping the future of fintech innovation and risk management.