SCCG Research has provided its latest research excerpt, focusing on an increasingly controversial topic: Are prediction markets legitimate financial instruments, or merely a form of disguised gambling?
In this gray area at the intersection of law and ethics, the ambiguity of boundaries is prompting regulators, the judicial system, and the industry to engage in deep reflection.
The Ambiguous Attributes of Prediction Markets
Prediction markets are platforms for trading based on the outcomes of events, where users can buy and sell "contracts" on real-world events such as sports games and election results. These contracts essentially mimic financial futures products, but are very similar to traditional gambling—because they both involve betting on uncertain outcomes.
SCCG Research points out that this mechanism is not easily defined legally, especially within the U.S. judicial system, where federal and state laws often conflict in their definitions of "bets" and "contracts". The key issue is: When the subject of a transaction is the uncertain outcome of a future event, is this financial innovation or gambling in disguise?
Legal Perspective: The Struggle Between Federal and State
In the U.S., the Commodity Exchange Act (CEA) defines "commodity" very broadly, covering almost any "right or interest in future delivery". This allows platforms like Kalshi to claim that their trades are "futures contracts", regulated by the U.S. Commodity Futures Trading Commission (CFTC).
However, the problem is that CFTC Rule 40.11 also explicitly prohibits certain "gambling-like contracts", especially those involving illegal activities or those not in the public interest. In 2023, the CFTC attempted to ban election-related prediction contracts on the grounds of "harming public interest". However, the federal court rejected this motion, ruling that the CEA does not explicitly prohibit such contracts, and the CFTC failed to prove the legality of its ban.
Meanwhile, state regulatory bodies may still restrict these markets. For example, some states consider all contracts involving sports or election outcomes as illegal gambling activities, even if these contracts are listed on federally recognized exchanges. SCCG points out that this overlap of federal and state powers is precisely why platforms like Kalshi and Polymarket frequently face legal challenges.
The Core Debate of Skill and Luck
The other legal boundary between gambling and financial trading is the proportion of "luck and skill". Traditional gambling regulators believe that gambling activities heavily depend on luck, such as roulette and slot machines. However, supporters of prediction markets argue that their operation is more like stock investing, requiring research capabilities, information analysis skills, and market prediction abilities, constituting a "knowledge-intensive" activity.
But this view may not convince regulators. In 2025, the Arizona gambling regulatory authority publicly stated that buying contracts on sports event outcomes on the Kalshi platform is essentially no different from betting with a sports betting company—from the participant's perspective, both are speculative activities based on uncertainty.
Moral and Social Responsibility Risks
SCCG Research also warns that as prediction markets gradually venture into betting on politics, natural disasters, and even criminal events, related ethical issues are becoming increasingly prominent. For example, contracts around election results or climate disasters could lead to manipulation of public opinion or "speculating on misfortune" social criticism.
Furthermore, if regulatory boundaries are unclear, these platforms may attract a large number of ordinary users without sufficient financial education, leading them into high-risk operations on the blurred line between trading/gambling, posing potential consumer protection issues.
Conclusion
Prediction markets are challenging the traditional boundaries between gambling and financial services. As SCCG states, the issue is not whether its nature is "good" or "bad", but whether we are ready to set clear legal and ethical boundaries for it.
In the future, whether prediction markets can be incorporated into the formal financial system while protecting consumer rights will depend on whether regulators can provide a clear answer: When you bet on an event outcome, are you investing in the future, or betting on fate?
