Prediction markets explained: event contracts, Kalshi and Polymarket
How event contracts work, how Kalshi and Polymarket differ, the state-versus-CFTC fight over sports, and volumes as of October 2026.
Key takeaways
- A prediction market lists event contracts: instruments that pay a fixed amount (usually $1) if a specified event happens and nothing if it does not, so the trading price reads as a crowd-implied probability.
- Kalshi is a CFTC-regulated designated contract market. Polymarket runs a global crypto-based venue and, since May 12, 2026, a separate CFTC-regulated US app built on the QCEX exchange it acquired in July 2025.
- Volume has grown sharply: tracked venues traded about $77.7 billion in September 2026, according to DeFi Rate, with Kalshi taking roughly 78% of Kalshi and Polymarket activity over the 30 days to October 4.
- Whether sports contracts are federally regulated swaps or state-regulated gambling is unresolved. As of early October 2026 the Third Circuit sides with Kalshi, the Ninth and Sixth Circuits side with the states, and Supreme Court petitions are pending.
What an event contract is
An event contract is a binary derivative. It asks a yes or no question with a defined resolution source, such as “Will the Fed cut rates at its December meeting?” or “Will Team A win Sunday’s game?” A “yes” share pays $1 if the event occurs; a “no” share pays $1 if it does not. Before resolution, both trade between $0 and $1.
Because the payout is fixed, the price doubles as a probability estimate. A “yes” share trading at 62 cents implies the market sees roughly a 62% chance of the outcome, before adjusting for fees and the bid-ask spread (the gap between the best buy and sell quotes). Prices move as traders with different information and views buy and sell, which is why supporters describe these venues as information-aggregation tools rather than only betting platforms.
Two features matter for anyone reading the odds. First, every contract depends on its resolution rules: the exact wording, the data source and who decides edge cases. Second, a probability is only as good as the money behind it. A thinly traded contract can show a confident-looking number set by a handful of small orders.
The two leading venues
Kalshi became a designated contract market (DCM), the CFTC license used by regulated futures exchanges, in 2020. Its contracts are dollar-denominated, it performs identity checks on customers and it self-certifies new contracts with the CFTC. It has expanded from economic and political questions into sports, which now drive much of its volume, and distributes through brokerages such as Robinhood.
Polymarket began as a crypto-native venue where trades settle in the USDC stablecoin on a public blockchain. In January 2022 it settled with the CFTC for offering unregistered event contracts and blocked US users. Its route back was the July 2025 acquisition of QCEX, a CFTC-licensed exchange and clearinghouse. The resulting Polymarket US app removed its waitlist for iOS users on May 12, 2026, and is a separate, regulated venue from the global on-chain platform, which remains closed to US residents. Intercontinental Exchange, owner of the NYSE, agreed in October 2025 to invest up to $2 billion in Polymarket and added $600 million in March 2026.
| Measure | Kalshi | Polymarket (global plus US) |
|---|---|---|
| US regulatory status | CFTC designated contract market since 2020 | Global venue offshore; US app via CFTC-licensed QCEX, opened to iOS users May 12, 2026 |
| Settlement | US dollars | USDC stablecoin on-chain (global venue) |
| August 2026 volume | $37.17 billion | $8.16 billion |
| 30 days to Oct 4, 2026 | $66.3 billion (about 78% share) | $4.8 billion (global venue) |
August figures are from The Block and Shift Markets; the 30-day figures are from DeFi Rate as of October 5, 2026. Venues and trackers count volume differently (for example, by notional contracts or dollars traded), so cross-source comparisons are approximate.
Regulation and the fight over sports
The legal question is whether a contract on a sporting event is a “swap” under the Commodity Exchange Act, which the CFTC regulates exclusively, or a wager that states can police under their gambling laws. The answer decides whether a CFTC-licensed exchange can offer sports contracts in states where sports betting is restricted or licensed separately.
- Courts are split. The Third Circuit ruled for Kalshi against New Jersey in April 2026. The Ninth Circuit ruled 3-0 against Kalshi in the Nevada case on August 28, 2026, and the Sixth Circuit held on September 25, 2026 that Ohio and Tennessee can regulate event contracts under their gambling laws. A Fourth Circuit decision in the Maryland case was pending after May 2026 argument.
- The Supreme Court has been asked to decide. New Jersey petitioned on September 2, 2026 (Flaherty v. KalshiEX, No. 26-299), followed by Robinhood Derivatives on September 10 and Crypto.com’s North American Derivatives Exchange on September 11, both challenging the Ninth Circuit.
- The CFTC is backing the exchanges. In April 2026 it sued Connecticut, Arizona and Illinois, and later other states, arguing they cannot ban CFTC-registered markets. Chair Michael Selig has said the agency will defend its exclusive authority. A June 10, 2026 proposal to amend Rule 40.11 would define gaming contracts but leave the CFTC discretion to permit many sports contracts; 44 states filed a joint letter disputing its authority.
- States keep escalating. According to New Jersey’s petition, at least 39 lawsuits span 20 states. Connecticut sued Kalshi on August 27, 2026, and a Washington court ordered Kalshi to stop offering a wide range of contracts in August.
How institutions and media use the odds
Prediction market prices are increasingly treated as a data feed. Polymarket probabilities have appeared in The Wall Street Journal, Barron’s and MarketWatch under a Dow Jones data partnership announced on January 8, 2026, and Kalshi has comparable integrations with CNBC and CNN. ICE’s investment included plans to distribute Polymarket data to institutional clients.
For allocators and analysts, the practical uses are a real-time read on event risk (rate decisions, elections, legislation, macro releases) that complements surveys and options-implied measures, and a check on consensus narratives. The key discipline is to look at depth and volume before quoting a number, and to read the contract’s resolution criteria rather than the headline question.
Risks to understand
- Manipulation and insider trading. A large order in a thin market can move the displayed probability, which matters when media outlets quote it. The CFTC’s Division of Enforcement issued a prediction markets advisory on February 25, 2026 covering misappropriation of confidential information and manipulation, citing cases where Kalshi fined and suspended a candidate trading on his own race and an employee trading on employer information.
- Liquidity. Headline volumes are concentrated in sports and a few marquee events. Many economic and political contracts have wide spreads and shallow order books, so their prices can be noisy.
- Legal and jurisdictional risk. Contract availability can change state by state with court orders, and a Supreme Court ruling could reshape the sports business that drives most volume.
- Resolution and platform risk. Ambiguous wording or disputed outcomes can lead to contested settlements. On the global Polymarket venue, users also carry smart contract and stablecoin risk.
What to watch next
Whether the Supreme Court takes the sports question, the Fourth Circuit’s Maryland ruling, the final form of the CFTC’s Rule 40.11 amendments, and how far Polymarket US expands beyond iOS. Volume trends after the summer World Cup spike will also show how much of the growth is durable.
Sources and further reading
- DeFi Rate prediction market volume tracker (figures as of October 5, 2026)
- The Block: Kalshi and Polymarket’s combined volume falls 15% in August
- DLA Piper: tracking developments in prediction markets and sports betting (September 2026)
- Al Jazeera: Sixth Circuit rules states can regulate prediction markets
- Covers: Polymarket opens its US app to iOS users
- Willkie: CFTC Division of Enforcement prediction markets advisory
Frequently asked questions
Are prediction markets legal in the US?
Event contracts on CFTC-registered exchanges such as Kalshi and Polymarket US are federally regulated. Whether states can restrict sports contracts under gambling law is split between federal appeals courts as of October 2026, with Supreme Court petitions pending.
Is Polymarket available to US users?
US users can access Polymarket US, a separate CFTC-regulated app built on the QCEX exchange, which opened to iOS users on May 12, 2026. The global crypto-based Polymarket venue remains closed to US residents.
How do you read a prediction market price?
A contract paying $1 that trades at 40 cents implies roughly a 40% probability, before fees and spreads. Check trading volume and the contract's resolution rules before relying on the number.
How large are prediction markets?
DeFi Rate counted about $77.7 billion traded across six tracked venues in September 2026. Kalshi accounted for roughly 78% of Kalshi and Polymarket volume over the 30 days to October 4, 2026.
This explainer is reviewed and updated as the rules and the market change. Last reviewed October 5, 2026. It is educational content and not financial, legal or tax advice.