Wall Street Bets $2B on Prediction Markets as Regulators Step Up Scrutiny

Prediction markets are undergoing a transformative phase as platforms like Kalshi and Polymarket navigate legal, regulatory, and financial challenges while attracting significant investment and scrutiny. These platforms, which allow users to trade on the outcomes of political, economic, and cultural events, are testing the boundaries of traditional finance and decentralized innovation. Kalshi, a U.S.-regulated platform, has secured a legal foothold through a 2024 court ruling allowing political-event contracts, while Polymarket, a crypto-native decentralized platform, faces mounting global restrictions but has drawn interest from Wall Street giants.

Kalshi's legal battles highlight the tension between innovation and regulation. Massachusetts Attorney General Andrea Campbell recently sued the platform, alleging it operates an unlicensed sports betting service, with the state joining a list of jurisdictions-including Arizona, Nevada, and New Jersey-in challenging its operations. Despite these hurdles, Kalshi has leveraged favorable court rulings, including preliminary injunctions in Nevada and New Jersey, to maintain operations. The platform's regulated approach has attracted high-profile endorsements, such as Donald Trump Jr.'s advisory role, and it currently holds a $2 billion valuation following a $185 million funding round led by Paradigm.

Polymarket, meanwhile, has faced stricter global regulatory scrutiny. Singapore and Thailand have moved to block the platform, citing its use of cryptocurrency for unregulated gambling. In the U.S., the Commodity Futures Trading Commission (CFTC) previously barred Polymarket from serving U.S. users but issued a no-action letter in September 2025 after the platform acquired a licensed derivatives exchange, QCX. This development, coupled with a $2 billion investment from Intercontinental Exchange (ICE)-the owner of the New York Stock Exchange-has positioned Polymarket for a potential $10 billion valuation. ICE's investment, announced in October 2025, underscores traditional finance's growing interest in prediction markets, with the exchange operator aiming to distribute Polymarket's event-driven data to clients.

The regulatory landscape remains fragmented. While Kalshi operates under CFTC oversight, Polymarket's decentralized model has drawn criticism for lacking clear accountability. France and Taiwan also imposed restrictions on Polymarket in 2024, with authorities condemning its role in facilitating bets on sensitive topics like natural disasters. Despite these challenges, Polymarket's user base and trading volumes surged during the 2024 U.S. presidential election, with $5 billion in turnover recorded in October and November. However, activity has since declined, and the platform's open interest dropped 77% between November 2024 and January 2025.

The rise of prediction markets reflects broader shifts in financial innovation. Traditional institutions are increasingly viewing these platforms as tools for price discovery and sentiment analysis, while crypto-native firms emphasize their potential to democratize information markets. Kalshi's regulated model offers a bridge to institutional adoption, whereas Polymarket's decentralized approach appeals to retail traders seeking flexibility. Both models, however, face questions about ethical boundaries, as regulators and critics scrutinize bets on tragic or politically charged events.

As prediction markets evolve, their future will depend on balancing innovation with compliance. Kalshi's legal victories and Polymarket's strategic partnerships signal a maturing industry, but global regulatory divergence remains a hurdle. With Wall Street's entry into the space and growing user demand, prediction markets may redefine how markets aggregate information, though their long-term impact will hinge on addressing risks related to gambling, ethics, and oversight.

Source: [1] AG Campbell Sues Online Prediction Market for Illegal and Unsafe Sports Wagering Operations (https://www.mass.gov/news/ag-campbell-sues-online-prediction-market-for-illegal-and-unsafe-sports-wagering-operations)

[2] Massachusetts AG Sues Kalshi Sports Betting (https://igamingbusiness.com/legal-compliance/regulation/massachusetts-ag-sues-kalshi-sports-betting/)

[3] Singapore, Thailand Move to Block Polymarket (https://www.bangkokpost.com/business/general/2940482/singapore-thailand-move-to-block-polymarket)

[4] NYSE Owner Nears $2B Stake in Polymarket (https://www.coindesk.com/business/2025/10/07/new-york-stock-exchange-owner-nears-usd2b-bet-on-polymarket-wsj)

[5] Polymarket Eyes $10B Valuation as Prediction Market Preps US Comeback (https://coincentral.com/polymarket-eyes-10b-valuation-as-prediction-market-preps-us-comeback/)

[6] Polymarket Targets $10B Valuation With US Launch (https://cointelegraph.com/news/polymarket-us-launch-10b-valuation-prediction-markets)