Recently, Singapore and Thailand banned Polymarket, citing that it operates as a gambling platform. At first glance, this argument seems valid, given the site's inclusion of sports prediction markets, which appear to compete with licensed sportsbooks worldwide. However, according to New York-based crypto attorney Aaron Brogan, this argument is flawed. Brogan explains that traditional gambling platforms take one side of the bet, acting as the house and setting odds to ensure profit.
In contrast, prediction markets like Polymarket and Kalshi function as neutral intermediaries, matching trades without taking a side and generating revenue through transaction fees. This fundamental difference in structure and incentives sets prediction markets apart from traditional gambling. Brogan emphasizes that prediction markets are not designed for gambling but rather serve as tools for understanding, hedging, and creating public goods.
The regulatory framework in the U.S. supports this distinction, with prediction markets registered as Designated Contract Markets (DCMs) falling under federal regulation via the Commodity Exchange Act. This federal regulation preempts state gambling laws, offering protection to registered prediction markets. The key distinction lies in registration, with registered exchanges like Kalshi and Crypto.com, which recently launched Crypto.com Sports, enjoying federal status and avoiding state regulation.
Brogan notes that unregistered platforms, such as Polymarket, may face legal action from states for facilitating sports betting. As the prediction market space continues to grow, with new entrants following in the footsteps of pioneers like Polymarket and Kalshi, the distinction between prediction markets and traditional gambling will become increasingly important. If these new platforms can proliferate without regulatory pushback, they may pose a significant threat to the traditional sportsbook industry, which is valued at $21 billion.