By Haider Ali, Associate, Esquare Legal
There was a time when guessing what might happen next was just talk. People argued about elections over dinner, traded opinions about football scores at the office, and made small wagers between friends about whether it would rain on the weekend. None of it meant much. The opinions floated around and then disappeared. Today something has changed. Those same guesses now carry a price tag, and millions of people are buying and selling them every single day. This is the world of prediction markets, and it has grown faster than almost anyone expected.
What a Prediction Market Actually Is
The idea is simple once you sit with it for a moment. A prediction market lets people trade contracts that are tied to the outcome of a future event. The event could be a presidential election, a central bank decision, a sports final, or even the price of Bitcoin on a given day. Each contract settles at one dollar if the predicted outcome turns out to be true, and at zero if it does not.
So the price of a contract becomes something interesting. It becomes a number that reflects what the crowd collectively believes the chances are. If a contract is trading at sixty cents, the market is roughly saying there is a sixty percent chance the event will happen. In effect, public opinion gets turned into a live, moving signal that anyone can read.
The concept is not new. People were betting on election results on Wall Street back in the nineteenth century, and academics gave the idea serious credibility in the late nineteen eighties. But the technology, the audience, and the timing were never quite right until recently.
Why the Boom Happened Now
The turning point arrived with the 2024 United States presidential election. Two platforms, Polymarket and Kalshi, suddenly found themselves in the middle of mainstream conversation. Newsrooms began quoting their odds. Traders poured in. What had been a quiet corner of finance became something people talked about at the dinner table again, except this time there was real money moving.
The numbers tell the story better than words can. Combined monthly trading volume across the major platforms rose from less than five billion dollars in September 2025 to roughly twenty-four billion dollars by April 2026. The whole industry recorded more than sixty-three billion dollars in volume across 2025, and some monthly peaks in early 2026 came close to twenty-six billion dollars on their own. Daily volumes that once sat in the millions began crossing four hundred million dollars on a regular basis.
The big players grew with it. Kalshi became the first federally regulated prediction exchange in United States history when it secured approval as a designated contract market in 2021, and by April 2026 it had overtaken Polymarket in trading volume for the first time. Polymarket, which runs on the blockchain and settles in stablecoins, became the largest decentralised prediction market in the world. Major names like Coinbase, Kraken, and Robinhood have all moved into the space as well, which tells you how seriously the established players are taking it.
There is even a venture capital fund now built specifically to back companies in this sector, supported by the chief executives of both Polymarket and Kalshi. The money is no longer just chasing the platforms themselves. It is chasing the data tools, the liquidity services, and the compliance systems that these markets need to function properly. That last point matters more than people realise, because compliance is exactly where the story gets complicated.
The Licensing Puzzle Across Borders
Here is the heart of the difficulty. A prediction market does not fit neatly into any single legal box. It behaves a little like a financial exchange, with order books and traded contracts. It also behaves a little like a betting shop, where people speculate on outcomes they cannot control. Two reasonable regulators can look at the very same product and reach completely opposite conclusions about what it is. And in 2026, that is precisely what is happening around the world.
In the United States, the federal approach has leaned toward treating these markets as financial instruments. The Commodity Futures Trading Commission has claimed exclusive jurisdiction over event contracts and has shown willingness to license platforms as regulated derivatives exchanges rather than as gambling operations. But the picture is far from settled. State regulators in places like Nevada, Massachusetts, and Tennessee have pushed back hard, launching enforcement actions and arguing that these products are gambling and fall under their own authority. Courts in different parts of the country have ruled in opposite directions, and many observers expect the Supreme Court will eventually have to settle the question.
The United Kingdom took a clearer but very different road. In early 2026, the Gambling Commission stated that real money prediction markets aimed at the public would be treated as gambling products rather than financial instruments. Under this view, a platform that lets users trade on event outcomes works much like a betting exchange, which means it needs a gambling licence to operate lawfully.
Australia reached a similar conclusion, deciding that these platforms amount to online gambling and cannot operate without the proper licence.
Europe is perhaps the most fragmented of all. The European Union built one of the most comprehensive crypto frameworks in the world, yet it has no dedicated framework for prediction markets specifically. The result is a patchwork. Countries such as France, Belgium, Poland, Portugal, Hungary, Romania, and Ukraine have moved to block or restrict platforms like Polymarket. Others, including Germany, Spain, Denmark, and Greece, have kept them accessible. The Netherlands gambling authority ordered Polymarket to stop targeting Dutch users and imposed a penalty for operating without a licence.
So a single business model can be a regulated derivatives exchange in one country, an unlicensed gambling operation in another, and a legal grey zone in a third. For anyone hoping to build or expand a prediction market platform, this is not a minor detail. Getting the classification wrong can mean platform bans, financial penalties, or even criminal exposure. Getting it right, on the other hand, is what separates a serious operator from a short-lived one.
This is the work that needs people who understand both the financial side and the gambling side, who can read regulatory signals across multiple jurisdictions at once, and who know how to build a structure that holds up when the rules are still being written.
Where Esquare Legal Fits
This is the kind of challenge we were built for.
At Esquare Legal we have spent years working at the exact intersection where this industry now lives. Our work sits where digital assets, financial regulation, and cross-border compliance meet, which is the same crossroads where every prediction market platform eventually has to stand. We have advised tokenization platforms, drafted the regulatory groundwork for digital asset businesses, and guided clients through licensing pathways in jurisdictions that range from the British Virgin Islands and Cayman to the United Arab Emirates, Malaysia, and the European framework under MiCA.
That breadth matters here, because a prediction market is rarely a single jurisdiction problem. It is a layered structure that touches incorporation, licensing, anti-money laundering rules, consumer protection, and tax all at once. We have built exactly these kinds of structures before. We understand the difference between a product that a regulator will read as a derivative and one that a regulator will read as a wager, and we know that the difference often comes down to how the structure is designed and documented from the very beginning.
Setting up a prediction market platform is not a matter of picking a friendly country and filing a form. It is a careful exercise in reading where the law is today, anticipating where it is heading, and building something that can survive the journey. If you are thinking about entering this space, the most valuable thing you can do is get the legal foundation right before you build anything on top of it. We would be glad to help you do exactly that.