By Jaqob Sharifi
Before Covid-19 companies such as Kalshi, Polymarket, and Predictit were experiments in a corner of the internet most Americans had never heard of. In 2025, however, the volume of trades on these platforms reached $44 billion and even made the co-founder of Kalshi the youngest self-made woman billionaire.[1] Now, all world events somehow seem connected to the industry, including the United States recent capture of Venezuelan president Nicolás Maduro. Just hours before the operation, analysts picked up on a suspicious Polymarket trade. Someone profited over $400,000 on a contract that Maduro would no longer be president by January 31, 2025.[2] Polymarket had the odds of this event occurrence at only 11%.[3] Despite unusual circumstances like this, the prediction market industry can provide beneficial insight into world events, economic health, and broader market sentiment.[4] Some experts have even suggested that prediction markets offer better data over traditional polling because they react to public opinion instantaneously.[5] Despite their benefits, one may question how such platforms exist given their similarity to gambling.
To answer that question we can look at the biggest and most profitable player in the industry, Kalshi. The company has supplied derivative contracts under the Commodities and Futures Trading Commission’s (CFTC) jurisdiction since 2020 as a Designated Contract Market (DCM).[6] A derivative is a type of financial contract set between two parties that “derives [its] value from an underlying asset, a group of assets, or a benchmark.”[7] Kalshi and other prediction market operators specifically offer event contracts, a derivative which binds two parties from the outset on agreed upon terms and in which the payoff is based on the probability of an event occurring.[8] Event contracts on Kalshi’s website range from the weather in New York City on a particular day to who will win the 2028 presidential election.[9] Despite the variety of contract offerings that prediction markets offer, the CFTC and state regulators have tried to narrow their scope.
In 2024, the CFTC filed suit to enjoin Kalshi from offering contracts regarding which political party would control congress after the midterms.[10] The CFTC claimed jurisdiction under a special rule that grants them review of derivative contracts that are “contrary to the public interest,” including those that involve activities “unlawful under any federal or state law.”[11] Thus, the CFTC argued that these contracts were unlawful because betting on congressional elections is illegal under state law.[12] The D.C. Circuit disagreed, however, interpreting the statute as only giving the CFTC power to prohibit contracts involving activities that are themselves illegal under state law.[13] Since elections are not an illegal activity, Kalshi could continue to offer them.[14]
This decision was a huge win because Kalshi realized it could expand their contract offerings.[15] Soon after the D.C. Circuit’s ruling, Kalshi self-certified to offer sports events contracts.[16] This time, state gaming commissions in Nevada and Maryland filed suit, arguing that Kalshi was operating an unregistered gambling business.[17] Kalshi argued that the comprehensive regulatory scheme Congress created under the Commodity Exchange Act (CEA) coupled with express language in the statute prevented states from regulating their platform.[18] The Nevada court agreed with Kalshi’s arguments, holding that federal law preempted Nevada law.[19] On the other side of the country however, a Maryland court reasoned that the CEA intended to preserve state law and held that Kalshi was subject to Maryland law.[20]
Other companies in the gambling and prediction market industries felt the impact of these two cases. On November 13, 2025, DraftKings and FanDuel, the two biggest sportsbooks in the world, surrendered their Nevada gaming licenses, in part citing the legalization of prediction markets.[21] Whether the path forward involves states easing their gambling restrictions, the Supreme Court resolving a circuit split on the preemption question, or Congress enacting legislation, one thing is clear: certain contracts offered by prediction markets operate in a legal loophole and now the only question is whether lawmakers choose to accept the innovation or decide to constrain it.
Jaqob Sharifi is a 2L from Los Angeles, California and will be a Summer Associate at Kirkland & Ellis Chicago in the corporate practice group.
[1] Alicia Park, How Kalshi’s Luana Lopes Lara Co-Founder Went from Professional Ballerina to World’s Youngest Self-Made Woman Billionaire, FORBES (Dec. 2, 2025), https://www.forbes.com/sites/aliciapark/2025/12/02/how-kalshis-luana-lopes-lara-cofounder-went-from-professional-ballerina-to-worlds-youngest-self-made-woman-billionaire/.
[2] Wyatte Grantham-Philips, A $400,000 Payout After Maduro’s Capture Is Putting Prediction Markets in the Spotlight, AP NEWS (Jan. 11, 2026), https://www.apnews.com/article/prediction-markets-maduro-trades-1f47e737f915fff00c57f03e7390b41f.
[3] See id.
[4] Sharon Rabinovitz and Nizan G. Packin, All Bets Are On: Addiction, Prediction, Regulation, and the Future of Financial Gambling, 36 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 90, 95 (2025).
[5] Kevin Brett, Calling for CFTC Reform: Regulated Political Prediction Markets Serve the Public Interest, GEO. LAW TECH. REV. (March 2023), https://georgetownlawtechreview.org/calling-for-cftc-reform-regulated-political-prediction-markets-serve-the-public-interest/GLTR-03-2023/.
[6] Kalshi, About Us https://kalshi.com/about, (last visited Jan. 11, 2026).
[7] Jason Fernando, Understanding Derivatives: A Comprehensive Guide to Their Uses and Benefits, INVESTOPEDIA (Dec. 31, 2025), https://www.investopedia.com/terms/d/derivative.asp.
[8] See id.
[9] See Brett, supra note 5.
[10] KalshiEX LLC v. CFTC, 119 F.4th 58(D.C. Cir. 2024).
[11] Id. at 7; 7 U.S.C. § 7a-2(c)(5)(C)(i).
[12] KalshiEX LLC, 119 F.4th 58.
[13] See id. (In simpler terms, a contract offered on the odds of a bank robbery would be prohibited since that “involves” an activity illegal under state law.)
[14] See id.
[15] See id.
[16] See U.S.C. § 7a-2(c)(2); 17 C.F.R. § 40.11(c).
[17] See KalshiEX, LLC v. Hendrick, No. 2:25-cv-00575-APG-BNW (D. Nev. Nov. 24, 2025); KalshiEX LLC v. Martin, No. 1:25-cv-01283-ABA (D. Md. Aug. 1, 2025).
[18] See KalshiEX, LLC v. Hendrick, No. 2:25-cv-00575-APG-BNW (D. Nev. Nov. 24, 2025). (CEA language specifically says that the “CFTC shall have exclusive jurisdiction”)
[19] See id.
[20] See KalshiEX LLC v. Martin, No. 1:25-cv-01283-ABA (D. Md. Aug. 1, 2025).
[12] See Amy Calistri, DraftKings, FanDuel Withdraw Nevada License in Wake of Prediction Markets Push, YAHOO FINANCE (Nov. 13, 2025), https://finance.yahoo.com/news/draftkings-fanduel-withdraw-nevada-license-140900101.html.