As the CFTC weighs in on prediction markets, the real question is no longer whether these markets matter. It is who gets to define them, regulate them, and decide what they are allowed to become.
Prediction markets are having a moment again.
That should not come as a surprise. Markets that let people put money behind a view on the future are almost inevitable in a world that is increasingly online, financialized, and tokenized. If the internet made information instantly tradable, blockchain was always going to make conviction tradable too.
That is part of what makes this moment feel almost too perfect. Just as prediction markets are drawing renewed attention from founders, investors, and the broader market, the CFTC released today (March 12, 2026) fresh guidance on how it views the category. In a way, that captures the state of the sector perfectly: capital is flowing in, builders are experimenting, and regulators are no longer content to watch from the sidelines.
What is especially interesting is that these platforms are increasingly being framed not simply as prediction tools, but as markets for conviction – places where users put real financial weight behind strongly held beliefs about future outcomes.
And yet, the moment you move from “this market predicts something” to “this market lets users financially express a view on something,” the legal question becomes obvious: when is that a market, and when is it just gambling with better branding?
That question sits at the heart of the current prediction market debate.
Prediction versus conviction
At first glance, “prediction market” and “conviction market” can sound like branding variations on the same idea. In one sense, they are. In another, the difference matters, because it reveals what these platforms are actually trying to turn into a market.
A prediction market is usually sold as an information machine. People trade on future outcomes, the market price moves, and that price supposedly tells us something useful about probability.
A conviction market feels slightly different. The emphasis is less on passive information aggregation and more on expression. You are not just observing a forecast – you are backing a view, turning your belief into a position.
That distinction may matter culturally and commercially. Legally, though, labels only get you so far. The law does not care much what founders call the thing. It cares what the thing does.
Is it a derivative? A hedging tool? A speculative instrument? A wagering product? Some uncomfortable combination of all four?
That is why the deeper issue is not really prediction versus conviction.
The real distinction is hedging versus gambling
The line regulators keep circling is the line between hedging and gambling.
That is what makes this category so interesting, and so unstable. Our friends at Drew & Napier recently published a thoughtful piece on prediction markets under Singapore law. Their point is a useful one: at a functional level, prediction markets can resemble futures or other derivatives. Participants take positions that pay out at a specified future time, and those positions can in some cases serve a genuine hedging function. But when similar event-based contracts are offered outside traditional financial markets and without the accompanying safeguards, regulators may be inclined to view them through the lens of gambling law instead.
That gets to the broader point. The distinction between gambling and legitimate investment conduct often turns less on economic logic than on regulatory classification and consumer-protection concerns. Two products can do almost the same job and still end up in very different legal buckets.
That is not a bug in the system. It is the system.
And that is why prediction markets keep forcing regulators to confront a question finance has never fully resolved: when does taking a position on uncertainty count as investment, and when does it count as betting?
Why the CFTC’s new guidance matters
The most important thing about the CFTC’s new guidance is not that it is permissive. It is that it is serious.
The advisory does not treat prediction markets as some odd corner of the internet. It treats event contracts as part of the derivatives landscape. These markets are not being dismissed as novelty products. They are being addressed as real market infrastructure.
That matters. It means the conversation is moving beyond the easy question of whether prediction markets are interesting and toward the harder question of what kind of products they actually are, and what kind of oversight they demand.
The message from the CFTC is clear enough: if prediction markets want to be treated as legitimate financial infrastructure, they will be expected to behave like it. That means real attention to contract design, surveillance, anti-manipulation controls, settlement methodology, and participant protection. It means specificity, not abstraction. It means a regulator looking past the rhetoric of innovation and into the plumbing.
And the plumbing is where the hardest problems usually are. What data settles the market? Who chooses the source? How vulnerable is the contract to manipulation? How broad is the product specification?
Those are not side questions. They are the legal architecture of the product.
Can prediction markets be legal in the U.S.?
Yes. But the better answer is: yes, within a particular regulatory structure.
The CFTC’s new advisory is helpful because it says plainly that event contracts can sit inside the federal derivatives framework. It explains that “event contracts are a type of derivative contract,” and notes that, depending on how they are structured, they may be treated as swaps or futures under the Commodity Exchange Act.
But that is not the same thing as saying that prediction markets are simply “legal” in some broad, free-floating sense.
The advisory is speaking to designated contract markets, or DCMs — CFTC-registered exchanges that list derivatives products and have their own front-line compliance and surveillance obligations. The lawful path in the U.S. is not just calling something a prediction market. The lawful path is bringing the product within a regulated exchange framework and satisfying the obligations that come with it.
Those obligations are substantial. The advisory reminds DCMs that they may list only contracts that are not readily susceptible to manipulation. It emphasizes the need to prevent manipulation, price distortion, and settlement disruption through surveillance, compliance, and enforcement procedures, and to protect market participants from abusive practices.
The CFTC is especially focused on settlement integrity. For cash-settled contracts, including event contracts, the advisory warns that they can create incentives to manipulate the data used for settlement or to exert undue influence over the settlement calculation itself. It also makes clear that product submissions cannot be vague. Contract specifications cannot be overly broad. Settlement cannot be hand-waved. A submission needs to identify specific settlement sources and explain why those sources are reliable, objective, and resistant to manipulation.
So the real answer is this: prediction markets can be legal in the United States, but not as a matter of branding or theory. They can be legal as regulated derivatives products, listed on a CFTC-registered exchange and supported by real surveillance, real settlement discipline, and real anti-manipulation controls.
That is why the more useful question is not whether prediction markets are legal in the abstract.
It is: legal as what, on what venue, for whom, and subject to what controls?
Why the gambling question is still not going away
Even with a stronger federal derivatives framing, the gambling question is not disappearing. It is becoming a fight over characterization and jurisdiction.
That is the real tension. The CFTC may say that event contracts can sit within the federal derivatives framework. But that does not mean every regulator will view them the same way, especially where the underlying event looks less like traditional financial risk and more like a sports bet offered to the general public.
A recent Bloomberg Law commentary on online sports prediction markets captured this well. The piece explains that the current U.S. fight is no longer just conceptual. It is being litigated in real time. Prediction-market platforms argue that, because they are operating as CFTC-regulated exchanges, they fall within exclusive federal jurisdiction. State regulators, especially in the sports context, argue the opposite: that these products are really sports wagering and should still be governed by state gambling law.
That split is exactly why the gambling question still matters. The issue is not simply whether an event contract can be described as a derivative. The issue is whether that characterization is enough to displace state gambling law.
And that tension is not uniquely American. Drew & Napier makes a similar point from the Singapore side. Under Singapore’s Gambling Control Act, “betting” is defined broadly enough to capture staking money, money equivalents, or anything else of value on the outcome of an event, the likelihood of something occurring, or whether something is true. But Singapore also excludes certain contracts entered into by way of business where they constitute “investment activity,” drawing a deliberate line between gambling regulation and capital-markets regulation.
That, to me, is the heart of the problem. The same product can look like a derivative in one room and gambling in another. The same contract can be defended as hedging, attacked as betting, and litigated as a jurisdictional dispute all at once.
Or put more bluntly: the question is no longer just whether prediction markets are gambling.
It is who gets to decide.
Why blockchain makes this harder, not easier
This is where the category becomes especially interesting for blockchain-native teams.
Once these markets move onto blockchain rails, the legal analysis stops being only about the contract and starts reaching the entire stack – collateral, settlement, access, governance, and dispute resolution.
If digital assets are used for collateral or settlement, there are obvious AML, sanctions, custody, payment-flow, and user-access questions. If the platform is described as permissionless, that does not end the legal analysis. It starts a different one. Who designed the market logic? Who operates the front end? Who chooses the data source? Who resolves disputes? Who can intervene? Who earns fees?
And if settlement depends on external facts, then settlement integrity becomes everything. That is one of the clearest messages in the CFTC’s new guidance. Once the market depends on real-world outcomes, real-world data, and real-world resolution processes, the legal risk is no longer confined to the contract itself. It sits in the surrounding architecture.
That is why blockchain does not solve the characterization problem. It multiplies it.
The hard problem is characterization
Most founders do not underestimate demand for these products. They underestimate characterization risk.
They assume the legal problem is whether regulators will like the category. Usually the harder problem is more basic: whether the product has actually been designed to fit inside a coherent legal category at all.
That means asking the uncomfortable questions early.
What exactly is being traded?
Who is the intended user?
How are markets created?
How are outcomes resolved?
What data determines settlement?
Who has discretion when the system breaks?
What jurisdictions are implicated by the product as actually used, not just as described in a deck?
Those are not cleanup questions for counsel to handle after launch. They are part of the business model itself.
Why this matters now
The current wave of interest in prediction markets feels different from earlier ones. The products are more sophisticated. The user base is broader. The infrastructure is better. The overlap with crypto is deeper. And now the regulatory conversation is becoming more direct too.
That combination is what makes this moment so consequential.
Prediction markets are no longer just an interesting internet experiment. They are becoming a serious category of financial and quasi-financial infrastructure, which means the legal questions are becoming harder, not easier. Not because the category is failing, but because it is maturing.
And when a category matures, the law stops asking whether it is real and starts asking what rules will govern it.
Where we come in
Prediction markets and conviction markets do not sit neatly inside one doctrinal box. They touch derivatives law, gambling law, digital asset regulation, AML and sanctions compliance, consumer protection, governance, and dispute architecture. Once blockchain is part of the product stack, those issues stop being adjacent to the business. They become part of the business.
That is where specialist counsel like DLT LAW can add real value – not by flattening innovation, but by helping structure it in a way that can survive contact with regulators, counterparties, investors, and reality.
In this category, that means helping clients think through product design, jurisdictional strategy, token and settlement mechanics, oracle and data-source questions, front-end controls, terms and disclosures, and how to explain the product in a way that matches how it actually works.
Prediction markets are growing up. The CFTC’s latest guidance makes that unmistakable, which means serious builders need to treat the legal architecture with the same seriousness.
That is part of why we are so excited about backing teams building in this area, and about helping shape the legal frameworks they will have to navigate. Markets for information, belief, and uncertainty are not going away. If anything, they are becoming a more permanent part of the digital economy.
For companies building in this space, that makes this an especially interesting time to build: a moment when the market opportunity is expanding just as the legal architecture around it is starting to take clearer shape.
The harder question, and the more interesting one, is what kind of market structure the law will allow this category to become.
