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 be engaging with prediction markets from within the United States — or thinking about it — grasping the CFTC's function within prediction markets is absolutely essential. This body dictates which contracts are permissible to trade, which venues allow them, and the specific rules governing such activity.
What is the CFTC?
The Commodity Futures Trading Commission stands as the principal federal regulator overseeing commodity futures, options, and swaps. Given that prediction market contracts operate much like binary options, the CFTC claims authority whenever they are made available to American participants.
Key CFTC Enforcement Actions
Polymarket (January 2022)
Polymarket reached a settlement with the CFTC for $1.4 million following its operation of an unregistered event contract exchange. The settlement's principal components were:
- $1.4M civil monetary penalty
- Agreement to wind down non-compliant markets
- Geo-blocking US users from direct platform access
Following this settlement, Polymarket has redirected efforts toward overseas markets whilst investigating potential compliance mechanisms for the American market.
Kalshi vs. CFTC (2023-2024)
Kalshi, holding CFTC-registered DCM status, initiated legal proceedings against the CFTC after the regulator declined its congressional control contracts. This pivotal ruling determined that the CFTC cannot impose sweeping prohibitions on event contracts merely because elections are involved — a significant achievement for the sector. The DC Circuit Court's decision broadened possibilities for event contract expansion.
Nadex and Other Platforms
Nadex (North American Derivatives Exchange) has long furnished CFTC-regulated binary options, encompassing certain event-based offerings. Their operational framework illustrates that compliant prediction markets remain achievable within the current American regulatory structure.
What Makes a Prediction Market Legal in the US?
For a prediction market platform to lawfully provide contracts to American customers, it must:
- Register as a DCM with the CFTC
- Comply with Core Principles — 23 requirements covering market surveillance, financial integrity, and customer protection
- Obtain contract approval — each new event contract type must be submitted and not objected to by the CFTC
- Implement KYC/AML — know-your-customer and anti-money-laundering protocols
The "Gaming" Exception
Under the Commodity Exchange Act (CEA), event contracts tied to "gaming" are forbidden — a definition the CFTC construes expansively. This explains why sports-focused prediction markets remain contentious. Historically, the CFTC has contended that sports event contracts qualify as gaming, though Kalshi's courtroom success has complicated this interpretation.
What Happens if You Trade on Unregistered Platforms?
Retail participants encounter negligible personal exposure — the CFTC pursues platforms rather than individual traders. Nevertheless, using unregistered venues carries significant drawbacks:
- No CFTC customer protection rules apply to your funds
- No segregated account requirements for your deposits
- No CFTC recourse if the platform fails or acts fraudulently
For a comprehensive examination of international frameworks, consult our 2026 global regulation guide. Prepared to engage with a properly regulated venue? Discover PolyGram's platform mechanics. Start trading on PolyGram →