How Are Kalshi and Polymarket Worth Billions Without a Gambling License? | WSJ The Economics Of

Why It Matters

The ruling will decide if multi‑billion‑dollar prediction markets can operate legally in the U.S., reshaping betting, fintech liquidity and regulatory oversight.

Key Takeaways

• Kalshi valued over $20B, PolyMarket $9B despite no gambling license.
• Platforms treat event contracts as CFTC‑regulated swaps, not traditional bets.
• Market makers provide liquidity; most users lose money on predictions.
• Legal battle intensifies as states demand gambling licenses for sports contracts.
• Insider‑trading probes highlight regulatory scrutiny and future compliance risks.

Summary

The Wall Street Journal video examines why two prediction‑market platforms—Kalshi and PolyMarket—are worth billions even though they operate without a traditional gambling license.

Both sites sell binary “event contracts” that settle at $1 or $0, with prices reflecting collective probability. The CFTC classifies these contracts as swaps, allowing Kalshi to obtain a CFTC license in 2020, while PolyMarket runs an offshore version to skirt U.S. restrictions. Market makers, including Kalshi’s own trading arm, supply liquidity and earn fees; however, a journal analysis shows roughly three losers for every winner, with a tiny fraction of users capturing most profits.

Professional bettor Frank Satlo praises Kalshi for unlimited bet sizes, and the video notes that Donald Jr. advises both firms. CFTC leadership, appointed by former President Trump, asserts exclusive authority over such derivatives and warns of court battles. A recent insider‑trading case involving a special‑forces soldier underscores enforcement concerns.

The looming Supreme Court fight and bipartisan bills to bar sports betting on prediction markets could reshape the sector, forcing platforms to tighten compliance or lose access to lucrative U.S. states. The outcome will determine whether billions‑valued prediction markets can coexist with traditional gambling regulations.

Original Description

Prediction markets like Kalshi and Polymarket allow traders to buy and sell "event contracts" on the future of nearly anything. The rapid growth of these markets–regulated by the Commodity Futures Trading Commission–has ignited a fierce legal battle with state attorneys general and gambling regulators over whether sports betting contracts should be allowed.

WSJ explains how prediction markets work and what is at stake in the legal battle that threatens the future of the industry.

Chapters:

0:00 The rise of prediction markets

0:32 How they work

1:52 How prediction markets make money

4:22 The regulatory fight with states and Congress

6:15 Insider trading and what’s next

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