Singapore and Thailand recently moved to ban PolyMket from their respective jurisdictions, arguing that the site was just another gambling platform.
On the surface, that argument seems logical. The inclusion of PolyMket sports prediction markets makes it look like a competitor to licensed bookmakers around the world.
After all, even the harshest critics of the prediction market recognize that there is some kind of value in an investment mechanism to protect against events like an election, but the outcome of a sports match simply does not have the same material impact as the election. or war.
But beneath the surface, the argument that prediction markets are simply a web3 version of gambling falls short, argues New York-based crypto lawyer Aaron Brogan.
“If you are a state-licensed gaming product, then you are taking one side of the bet. “You’re basically betting against your users,” Brogan said. ” You are reserving bets… and offering certain odds to users. Whether you make money or not depends on the odds you set.”
Prediction markets like Polymarket and Kalshi, in contrast, act as neutral intermediaries that match trades without having a side, making money through transaction fees.
“You’re not taking one side of the bet like the market in that case, which fundamentally changes the incentives involved and makes the product different holistically,” Brogan said, noting that prediction market platforms do not prohibit their Top users Likewise, casinos boot card professionals because it kills the mathematical house edge.
“Prediction markets are not playing because they are not structured to be,” Brogan said. “They are tools to understand, collect and create public goods. That’s what makes them fundamentally different.”
Obtaining an online gaming license in the United States was a Herculean effort, and one might wonder why new players in the space, such as draft kings or incumbents like MGM, continued to open online sports betting operations. , they do not go after the state-level prediction markets where gambling is regulated.
The key legal distinction, Brogan says, lies in the regulatory framework. In the US, prediction markets that are registered as designated contract markets (DCMS) fall under federal regulation through the Public Exchange Act, which bypassed state gambling laws.
“Federal law in the United States preempts state law,” Brogan explained. “The Commodity Exchange Act includes a specific provision that prevents state regulation of federally registered derivatives. If it’s registered with the federal government, states can’t regulate it.”
Kalshi seems confident in this argument, as the prediction market platform, which actively sought registration with the Commodity Futures and Trading Commission, and fought its initial attempts to block election-related prediction markets, recently launched the Super Bowl betting markets.
But this might not work for your competitors.
“The Polymarket, for example, is not registered in the United States, so arguably states could go to its founder and say, ‘You have been facilitating sports betting, which is a felony in this state’ and bring legal action. However, registered exchanges do not face this problem due to their federal status,” Brogan said.
While Polymarket and Kalshi are the two most recognizable names in the space, there are many other new entrants following in their footsteps.
One of which is the Crypto Exchange Crypto.com, which recently launched Crypto.com Sports after filing for self-certification as a DCM with the CFTC.
The key is, Brogan explained, is that if the CFTC does not take action within 24 hours of submitting the self-certification documents, then the applicant can treat that as a green light.
“If these can proliferate, and if the CFTC does not take action, which it has not yet done, they will end up eating these bookmakers’ lunch. “This is a $21 billion industry, and this new product will be much better,” he concludes.
