Prediction markets in the United States can be traced back to the 1800s, when they were primarily focused on election outcomes. These hedging pools were organized on Wall Street directly outside of the New York Stock Exchange and posted alongside election news. They were seen as the most accurate forecasters.

1988

In 1988, at the University of Iowa, the Iowa Electronic Market (IEM) was launched as a research tool to study the ability of small financial bets to forecast election outcomes. In a 2008 study, IEM data was found to outperform national polls 74% of the time. The next prediction market to launch was InTrade in 2001. It became the most prominent market of its time, correctly predicting Obama’s 2008 victory. Its success was cut short when it was sued by the Commodity Futures Trading Commission (CFTC) for offering commodity options to U.S. customers without proper registration. This case warned other markets about the importance of regulatory compliance.

2010

In 2010, under the Dodd-Frank Act, Congress extended the CFTC’s exclusive jurisdiction over “agreements…and transactions involving swaps.” In 2014, PredictIt filled the gap left by InTrade. Its contracts focused on U.S. politics and operated under the guidance of a no-action letter from the CFTC. This letter allowed it to function, similar to the IEM, as a research tool using real-money trading. Despite the limitations of the no-action letter, PredictIt began to grow. During this period of growth for prediction markets, Augur launched the first blockchain-based prediction market. While there were initial challenges due to low liquidity, it laid out the groundwork for integrating blockchain technology with prediction markets.

2020

In 2020, the CFTC adopted a new regulatory approach to prediction markets, shifting from a primarily research-based framework to full approval under the designation of a contract market (DCM). Kalshi became the first prediction market to receive this approval. As part of this shift away from the research-based model, the CFTC withdrew PredictIt’s no-action letter.

This “open-arms” policy shifted in 2023, when the CFTC sought to restrict Kalshi from offering event contracts based on election outcomes. Kalshi challenged this decision in court and won. With a change in administration in 2025 that was more favorable toward prediction markets, the number of markets increased, and total market volume exceeded $50 billion by the end of the year. While at the federal level, governments were paving the way for prediction markets, the states in 2025 began to send cease-and-desists and sue CFTC-registered companies like Kalshi, claiming the contracts they offered trading on constituted “gambling” under state gaming laws. This began an over-year-long battle in the courts, that is still occurring, over whether event contracts are swaps, thus under exclusive federal jurisdiction, or gambling, allowing for states to have jurisdiction. In an amicus response on February 17, 2026, in the U.S. Circuit of Appeals for the Ninth Circuit, CFTC Chairman Mike Selig came out as saying prediction markets are swaps and thus fall under the exclusive jurisdiction of the CFTC. It remains unclear which way the courts will ultimately rule, and the issue may need to be resolved by the Supreme Court.

If you have any questions, please reach out to policy@digitalchamber.org.