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The CFTC dropped a 267-page regulatory proposal on June 10. It wants to bring prediction markets under formal oversight — but the plan’s reach is narrower than it sounds, and the offshore world that handles most of the actual money stays pretty much untouched.
The commission’s framework amends Regulation 40.11, setting up a case-by-case review process for event contracts. That’s a real shift — moving away from one-off enforcement actions toward structured rulemaking. The proposal lays out specific criteria for contracts tied to sensitive activities, including terrorism and illegal acts. There’s also a public-interest standard baked in for evaluating contracts that touch on things like assassination and gambling. Stakeholders get 90 days to submit comments. So the clock is running, and the industry has a window to push back, reshape the language, or just watch it go through.
But here’s the catch.
Offshore Volume the CFTC Can’t Reach
The framework only covers federally regulated platforms. Decentralized markets and offshore venues — where a huge chunk of real trading happens — are basically outside its scope. Per a report by Crane Zeng, U.S. users generate around $34 billion annually in prediction market volume on offshore platforms. Polymarket accounts for a significant portion of that. So the CFTC is building a fence around the yard while most of the activity is happening down the street.
That gap isn’t lost on critics. Lawmakers have already pushed back, arguing the proposal is too lenient. Some say it could open the door to gambling addiction risks. Others raised national security concerns. It’s a mixed bag of objections, but the common thread is skepticism that this framework actually addresses the scale of the problem.
And the scale is real. Prediction markets have grown fast, and the demand from U.S. users clearly didn’t wait for regulatory clarity before flowing offshore.
Kalshi’s Insider Trading Screen
Kalshi — one of the few federally regulated prediction market platforms — isn’t waiting around. The company is rolling out a new screening process aimed at catching insider trading before it happens. Users may need to disclose employment details to access certain contracts, specifically those where someone with inside knowledge could have an edge. The idea is to flag conflicts early, before a trade ever goes through.
It’s a preemptive approach. Rather than chasing bad actors after the fact, Kalshi wants to build a risk-scoring system that catches potential insider threats at the door. Whether that’s enough to satisfy regulators and critics is unclear. But it’s a signal that at least some market participants are taking compliance seriously ahead of whatever rules eventually land.
The broader industry, though, is still figuring out how to handle compliance across wildly different platforms. Some are regulated, some aren’t. Some operate onshore, many don’t. Kalshi’s move probably won’t set a universal standard overnight.
Prediction Markets Inside Prop Trading Desks
On the tech side, Trade Tech Solutions has embedded event contracts directly into its Match-Trader platform. Proprietary trading firms can now offer these markets alongside their existing tools. The contracts work as binary YES/NO markets — they settle automatically once an outcome is confirmed. Clean, fast, no ambiguity.
That kind of integration matters. It’s not just that prediction markets are growing — it’s that they’re getting wired into existing trading infrastructure in ways that make them harder to separate out. Prop firms can now give traders access to event contracts without building anything from scratch. The barrier to entry drops, participation probably rises, and the markets get more liquid.
It’s also a sign of how mainstream prediction markets have become. A few years ago, these were niche instruments. Now they’re sitting inside professional trading platforms next to futures and options.
What the CFTC’s Framework Actually Does
The proposal wants to bring structure to a market that’s been operating in a regulatory gray zone. By setting a formal review process for event contracts, the CFTC is at least creating a defined path — something that didn’t really exist before. Federally regulated platforms like Kalshi get clearer rules. That’s not nothing.
But the limits are obvious. Offshore platforms aren’t going to suddenly fall in line because Washington published a 267-page document. Decentralized markets don’t have a compliance department to call. The $34 billion in offshore volume that Crane Zeng’s report tracked isn’t going to reroute itself onshore just because there’s a new framework.
Some in the industry see the proposal as a step toward legal clarity. Others think it doesn’t come close to addressing the complexity of markets that operate well outside traditional regulatory reach. Both camps are probably right, depending on which part of the market you’re looking at.
The 90-day comment window gives everyone a chance to weigh in. After that, the CFTC has to decide how much of the feedback it actually incorporates — and whether the final rules end up tighter or looser than what’s on the table now.
Kalshi’s screening rollout is already underway, and Trade Tech Solutions has the Match-Trader integration live.
Frequently Asked Questions
What does the CFTC’s prediction market proposal actually cover?
The 267-page proposal amends Regulation 40.11 and sets up a case-by-case review process for event contracts on federally regulated platforms, with specific criteria for contracts tied to terrorism and illegal acts. Offshore and decentralized markets are not covered.
How much do U.S. users trade on offshore prediction market platforms?
Per a report by Crane Zeng, U.S. users generate roughly $34 billion annually in prediction market volume on offshore platforms, with Polymarket responsible for a significant share of that activity.
