By: Kenneth DiFilippo
In recent years, prediction markets have emerged from relative obscurity to become a prominent and controversial feature of the modern financial landscape. Platforms such as Kalshi and Polymarket now allow users to “bet” on the outcomes of occasions ranging from sporting events to presidential elections, blurring the line between financial instruments and gambling. Americans receive constant promotion of these platforms, solidifying them increasingly in the public zeitgeist.[1] Their rapid expansion has exposed a fundamental tension within the existing regulatory framework and implicates the fundamental division between federal and state regulation. Ultimately, the current regulations raise concerns for states, like Delaware, which seek to regulate commercial speculation through anti-gambling legislation and regulation.
Legal Foundation and Federal Oversight of Prediction Markets
A prediction market is an online platform that offers event-based contracts tied to the outcome of a specific future event.[2] These contracts typically present a binary question—whether a defined event will occur by a certain date—and allow traders to purchase “Yes” or “No” positions that pay out based on the outcome of the event.[3]
Prediction markets are often classified as a subset of commodity exchanges, where participants historically traded physical goods such as grain, gold, or oil.[4] Over time, these exchanges evolved to trade standardized contracts representing underlying commodities, reducing the costs of physical delivery.[5] Unlike traditional commodity markets, however, prediction markets do not involve any underlying asset; instead, they settle based on the occurrence of a defined real-world event.[6] This distinction places them in a legal gray area between regulated commodity trading and—what much of the public understands them to be—gambling.[7]
The United States regulates prediction markets through the Commodity Futures Trading Commission (“CFTC”). Established in 1974, the CFTC administers the Commodity Exchange Act (“CEA”), which governs the trading of commodity futures—derivative contracts that obligate parties to buy or sell a specified quantity of a commodity at a predetermined price on a future date.[8] The agency has consistently asserted exclusive jurisdiction over prediction markets under the CEA.[9] Specifically, the CFTC maintains that federal law preempts both state and other federal regulation of registered platforms, importantly undercutting states’ ability to apply existing gambling regulation.[10]
Delaware as a Case Study—“Gambling” Where Gambling is Regulated
The CFTC’s ongoing assertion of exclusive jurisdiction is the basis for a regulatory mismatch: while many states have historically restricted sports betting, federally regulated prediction markets operate largely outside those limits. This tension is evident in Delaware, which was the first state to legalize sports betting,[11] but continues to tightly control its online gambling market.[12] The state permits mobile wagering only through a single platform, BetRivers Casino.[13]
By contrast, prediction markets like Kalshi and Polymarket operate under CFTC oversight and remain accessible statewide. As a result, Delaware residents can use these platforms to speculate on a wide range of outcomes—from sporting events[14] to political races[15]—despite the State’s otherwise restrictive approach to mobile betting.
Controversies and Emerging Legal Challenges to Prediction Markets
As prediction markets have become ubiquitous, they have generated numerous controversies, not the least of which is the legality of these platforms in states where gambling remains largely illegal.[16] Also, Kalshi has recently faced scrutiny after traders invested more than $54 million in an event contract asking whether Iran’s Ali Khamenei would be removed as supreme leader.[17] After Khamenei’s death, Kalshi invoked a “death carveout” provision, and declined to pay out the full value of contracts for which the result was solely the result of death.[18] On March 5, plaintiffs filed suit, seeking class certification and alleging breach of contract, fraud and intentional misrepresentation, negligent misrepresentation, unjust enrichment, and violation of various California consumer protection statutes.[19] Five days later, U.S. Senator Adam Schiff introduced the Death Bets Act, which would prohibit any CFTC-registered entities from “listing any contract that involves, relates to, or references terrorism, assassination, war, or an individual’s death.”[20]
Prediction markets have also increasingly drawn scrutiny over the risk of insider trading by government officials and politically connected actors. In January 2026, an anonymous user on Polymarket placed a roughly $20,000 wager on the removal of Venezuelan President Nicolás Maduro from power just hours before U.S. forces captured him, ultimately generating more than $400,000 in profit and raising concerns about the use of nonpublic information.[21] Similar concerns emerged after traders wagered on the duration of a White House press briefing delivered by Press Secretary Caroline Leavitt, where the outcome narrowly fell below the voting threshold, prompting widespread allegations of manipulation.[22]
In response to mounting criticism over the potential for insider trading on their platforms, both Kalshi and Polymarket have explored placing increased restrictions on trading by government officials.[23] Meanwhile, Senator Chris Murphy and U.S. Representative Greg Casar have introduced the Banning Event Trading on Sensitive Operations and Federal Functions (Bets Off) Act, which would prohibit the “wagering on government actions, terrorism, war, assassination, and events [by] an individual [who] knows or controls the outcome.”[24]
Conclusion
Prediction markets occupy an uncertain position at the intersection of derivatives regulation and gambling law, creating persistent legal and regulatory tension. Through the CFTC’s assertion of exclusive authority under the CEA, these platforms currently operate nationwide, often beyond the reach of state gambling restrictions.[25] This dynamic has produced clear mismatches, as illustrated by states like Delaware that tightly regulate traditional betting while failing to limit access to federally regulated prediction markets. At the same time, high-profile controversies and allegations of insider trading have intensified scrutiny from courts, regulators, and lawmakers. As litigation and proposed legislation continue to evolve, the legal status of prediction markets remains uncertain, signaling massive litigation in the face of likely future reform and increased federal or state oversight.
About the Author
Kenneth is the Editor-in-Chief of Volume 51 of the Delaware Journal of Corporate Law. He is a 3L student who will be graduating summa cum laude and valedictorian in May 2026. During law school, Kenneth interned at Lenox Law Firm in Lawrenceville, NJ; Edelstein, Martin & Nelson in Philadelphia, PA; and Begley, Carlin & Mandio, LLP, in Langhorne, PA. During his 3L year, he served as Josiah Oliver Wolcott Fellow to the Honorable Justice Gary F. Traynor in the Delaware Supreme Court. After graduation and passing the Bar, Kenneth will join Richards, Layton & Finger, P.A., in Wilmington, DE.
[1] Companies like Kalshi and Polymarket have taken to various unique forms of advertising, including extensive partnerships with numerous media organizations and sports teams. Dennis Romboy, Prediction Markets to Block Athletes and Politicians From Trading on Their Games, Campaigns. Will It Work?, Deseret News (Mar. 24, 2026), https://www.deseret.com/sports/2026/03/24/prediction-market-kalshi-polymarket-ban-athletes-politicians-wager-games-campaign/#:~:text=Kalshi%20and%20Polymarket%20have%20signed,military%20action%20in%20those%20countries (“Kalshi and Polymarket have signed business partnerships with several sports teams and pro leagues in order to bolster credibility with sports fans.”); Golden Globes Inks Exclusive Prediction Market Partnership with Polymarket, The Hollywood Rep. (Jan. 9, 2026), https://www.hollywoodreporter.com/news/general-news/golden-globes-polymarket-predicition-market-partnership-1236468336/. In early February 2026, Kalshi went so far as to run a promotion at Manhattan’s Westside Market offering shoppers up to $50 in free groceries. Bryan Metzger & Henry Chandonnet, The Dueling ‘Free Grocery’ Stunts From Polymarket and Kalshi in NYC, Bus. Insider (Feb. 3, 2026), https://www.businessinsider.com/polymarket-kalshi-free-grocery-store-marketing-stunt-nyc-2026-2. Not to be outdone, Polymarket opened “New York’s First Free Grocery Store,” the Polymarket, for a limited time from February 12 to February 16. Id.; The Polymarket Free Grocery Store, NYC for Free, https://www.nycforfree.co/events/the-polymarket-free-grocery-store (last visited Apr. 12, 2026).
[2] Jay B. Sykes, Congressional Research Service, Prediction Markets and Insider Trading Law 1 (2026).
[3] Id.
[4] Commodity Markets, Iowa PBS, https://www.iowapbs.org/shows/mtom/classroom/commodity-markets (last visited Apr. 12, 2026); Commodities Markets and Instruments, Library of Congress, https://guides.loc.gov/commodities/markets-instruments (last visited Apr. 12, 2026).
[5] Iowa PBS, supra note 4.
[6] Prediction Markets and the Economics of Belief, NC State Jenkins MBA News (Feb. 12, 2026), https://mba.ncsu.edu/2026/02/12/prediction-markets-and-the-economics-of-belief/.
[7] See id.
[8] Commodity Exchange Act & Regulations, CFTC, https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm (last visited Apr. 12, 2026); Futures and Commodities, FINRA, https://www.finra.org/investors/investing/investment-products/futures-and-commodities (last visited Apr. 12, 2026).
[9] Press Release, CFTC, CFTC Reaffirms Exclusive Jurisdiction over Prediction Markets in U.S. Circuit Court Filing (Feb. 17, 2026), https://www.cftc.gov/PressRoom/PressReleases/9183-26.
[10] Amicus Brief of Commodity Futures Trading Commission, a Federal Government Agency, in Support of Appellant and in Support of Reversal at 21–27, Nevada v. Nevada Resort Ass’n, Case No. 2:25-cv-00978-APG-BNW (Feb. 17, 2026).
[11] Camila Domonoske, Delaware Legalizes Sports Gambling, and Governor Makes First Bet, NPR (June 6, 2018), https://www.npr.org/2018/06/06/617483008/delaware-legalizes-sports-gambling-and-governor-makes-first-bet#:~:text=Delaware%20Legalizes%20Sports%20Gambling%2C%20And%20Governor%20Makes%20First%20Bet%20:%20NPR&text=Delaware%20Legalizes%20Sports%20Gambling%2C%20And%20Governor%20Makes%20First%20Bet%20After,taking%20advantage%20of%20the%20opportunity; Shane Brennan, Can I Bet on Sports in Delaware? What You Should Know, Delaware Online (Jan. 18, 2026), https://www.delawareonline.com/story/news/local/2026/01/18/is-sports-betting-legal-in-delaware/88244858007/.
[12] Shane Brennan, supra note 11; Delaware Online Sports Betting Overview, Betting USA, https://www.bettingusa.com/states/de/ (last visited Apr. 12, 2026).
[13] Shane Brennan, supra note X.
[14] See, e.g., The Masters Champion, Kalshi,https://kalshi.com/markets/kxpgatour/pga-tour/kxpgatour-mast26 last visited Apr. 12, 2026); Cubs vs Phillies, Polymarket, https://polymarket.com/sports/mlb/mlb-chc-phi-2026-04-14 (last visited Apr. 12, 2026).
[15] Delaware Governor Winner? (2028), Kalshi, https://kalshi.com/markets/govpartyde/deleware-governor/govpartyde-28 (last visited Apr. 12, 2026). In a particularly striking example of the types of bets seen on these platforms, Delawareans, in 2025, had the ability to wager on whether the Delaware Supreme Court would affirm or reverse the Delaware Court of Chancery’s decision in Tornetta v. Musk. Will The Delaware Supreme Court Rule in Elon Musk’s Favor?, Kalshi, https://kalshi.com/markets/kxstjude/st-jude-overturned/kxstjude-29 (last visited Apr. 12, 2026).
[16] Bobby Allyn, Arizona AG Files Criminal Charges Against Kalshi Over ‘Illegal Gambling’, NPR (Mar. 17, 2026), https://www.npr.org/2026/03/17/nx-s1-5751165/kalshi-criminal-charges-arizona (discussing Arizona’s criminal suit against Kalshi for illegal gambling); but see Judge Bars Arizona from Regulating Prediction Market Operators and Pauses Prosecution of Kalshi, AP (Apr. 10, 2026), https://apnews.com/article/arizona-kalshi-criminal-charges-prediction-markets-gambling-bb7cef24be5bd0d444bba670d2e41ceb (“A federal judge on Friday temporarily barred Arizona from enforcing its gambling laws against predictive market operators and put the brakes on a criminal wagering case that the state has failed against Kalshi.”).
[17] Class Action Complaint, Demand for Jury Trial at 4, 9, 14–15, Risch v. Kalshiex LLC, No. 2:26-cv-02390 (Mar. 5, 2026).
[18] Id. at 3–4.
[19] Id. at 14–24.
[20] Press Release, Senator Adam Schiff, D-Calif., Sen. Schiff Introduces Legislation to Explicitly Ban Death and War Prediction Contracts (Mar. 10, 2026), https://www.schiff.senate.gov/news/press-releases/news-sen-schiff-introduces-legislation-to-explicitly-ban-death-and-war-prediction-contracts/. Representative Mike Levin introduced a companion legislation in the U.S. House of Representatives soon after. Press Release, Representative Mike Levin, D-Calif. 49, Rep. Mike Levin Introduces DEATH BETS Act to Ban Death & War Prediction Contracts (Mar. 17, 2026), https://levin.house.gov/media/press-releases/rep-mike-levin-introduces-death-bets-act-to-ban-death-and-war-prediction-contracts.
[21] Matty Merritt, An Anonymous Trader Made $400,000+ on the Venezuela Operation, Morning Brew (Jan. 9, 2026), https://www.morningbrew.com/stories/anonymous-trader-venezuela-operation; Rob Wile, Insider Trading Concerns Around Oil and Military Moves are on the Rise. Can Anyone Police the Bets?, NBC News (Mar. 27, 2026), https://www.nbcnews.com/business/consumer/insider-trading-prediction-markets-trump-rules-rcna265452. On April 23, 2026, U.S. Army soldier Gannon Ken Van Dyke was charged “with unlawful use of confidential government information for personal gain, theft of nonpublic government information, commodities fraud, wire fraud, and making an unlawful monetary transaction” in relation to the wager. Press Release, U.S. DOJ, U.S. Soldier Charged With Using Classified Information To Profit From Prediction Market Bets (Apr. 23, 2026), https://www.justice.gov/opa/pr/us-soldier-charged-using-classified-information-profit-prediction-market-bets. At the time of writing, Van Dyke has pled not guilty and a pretrial conference has been scheduled. Michael R. Sisak & Larry Neumeister, U.S. Soldier Pleads Not Guilty to Using Maduro Raid Intel to Win $400,000 on Polymarket (Apr. 28, 2026), https://www.pbs.org/newshour/nation/u-s-soldier-pleads-not-guilty-to-using-maduro-raid-intel-to-win-400000-on-polymarket.
[22] Oihyun Kim, White House Briefing Fuels Insider Trading Debate—Pelosi Joins the Irony, Yahoo Fin. (Jan. 11, 2026), https://finance.yahoo.com/news/white-house-briefing-fuels-insider-000428652.html?.
[23] Ken Sweet, Kalshi and Polymarket Place New Bans on Insider Trading as Senators Move to Curb Prediction Markets, AP (Mar. 23, 2026),https://apnews.com/article/kalshi-polymarket-prediction-markets-cftc-trump-insider-trading-fe7435cf6efefd922aa2edb9a0e80a05.
[24] Press Release, Senator Chris Murphy, D-Conn., Murphy, Casar Introduce Bicameral Bill to Ban Prediction Markets On Government Actions, War, and Events Ripe For Rigging (Mar. 17, 2026), https://www.murphy.senate.gov/newsroom/press-releases/murphy-casar-introduce-bicameral-bill-to-ban-prediction-markets-on-government-actions-war-and-events-ripe-for-rigging.
[25] But see U.S. Prediction Market Legal Status: State-By-State Breakdown for 2026, Lines (Feb. 19, 2026), https://www.lines.com/guides/u-s-prediction-market-legal-status-state-by-state (listing the actions taken by various states to restrict or regulate the operation of prediction markets).
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