Former CFTC commissioner Brian Quintenz, who now sits on Kalshi's board, used that line on CNBC to describe a contract on Kalshi that asks how many times the Fed will cut interest rates in 2026.

In January, "0 rate cuts" was priced at 6 cents. Now it's at 82. Put $10 on that contract in January, and it's worth about $137 today. The same correct call made through Fed funds futures, the tool professionals use to trade rate expectations, would have returned you pennies. That is incredibly meaningful for any business reliant on stable rates. (Check out the napkin math here)

Yet prediction markets are a Rorschach test. What you see in them often says more about you than them. A former derivatives regulator describes a 13x return as a hedging opportunity. A corporate treasurer might see a contract for insurance. And to a consumer with an app, it's a 13:1 punt like any other. All three of these people are looking at the same contract, market, and price.

There’s power in simplicity. A "yes/no" contract lets you trade the answer to almost any question. Will the Fed cut rates? Will the Knicks repeat this season? Is Fintech Nerdcon the best event in 2026? The "0 cuts" contract at 82 cents means the market gives that outcome an 82% chance, and pays $1 if it happens. The price is the probability.

Event contracts are an incredible business. In its Q2 earnings, Robinhood reported that prediction markets overtook crypto and stock trading for the first time. Event contracts did $156m of revenue, equities did $129m, and crypto did $100m. Of its transactional products, only options did more at $342m.

Robinhood is the master of using speculative products to capture consumer attention. If a speculative asset brings in users, that's great for acquisition. Ask yourself, would Robinhood really have 28.4m funded customers if it didn't offer speculative products? There is also at least some evidence that users who join for prediction markets eventually build long-term portfolios. Robinhood Gold hit 4.8m subscribers (up 39%), net deposits hit a record $21.7bn, and total assets under management reached $369bn.

Better hedging, better user acquisition, and for the rest of us, better data on likely outcomes than pollsters. That's a really strong steelman case.

There are, however, three problems with this picture.

If the legal picture won't become clear for a long time, the regulator could change in 2 years, and the consumer is the data input more than the customer, I can say for certain that things are uncertain.

Maybe prediction markets' regulatory fate needs its own event contract?

Sadly, the fate of prediction markets won't resolve with a single yes-no outcome. And the future of markets and consumer health may depend on it.

We need to understand the pros and cons better before we rush to judgment. So here's my attempt.

The growth numbers look like a product that is exploding in popularity.

Sports is driving the growth. 87% of Kalshi's June volume was sports. 97% of Robinhood's open interest that month was World Cup markets. The tournament alone traded $17bn ($20bn by some reports), and during it, prediction markets took 27% of all US sports betting, per Bloomberg via the Predicted report. In the first half of June, Kalshi and Polymarket took 73.5% of new sports betting app installs between them, against 13.7% for DraftKings and 8.9% for FanDuel. Kalshi added 3 million users during the tournament, and its trading fees passed $10m a day at the peak.

These apps might be distinct from sportsbooks in how they operate, but it's pretty clear they're competing for the same users.

And the data backs that up. During the World Cup, according to Apptopia, Kalshi and Polymarket outpaced DraftKings and FanDuel in daily active users.

So the category isn't creating new demand from nothing. It's going directly for the “punter” (that's British for the everyday bettor), and winning. Which raises the obvious question: is that all this is, sports betting with a federal license?

Not exactly.

A sportsbook is your counterparty. It sets the odds to guarantee its margin, and when you get too good at winning, it limits your account. When customers win, the book loses, which is why books need millions of customers who slowly lose.

An exchange doesn't care who wins. The market sets the price, another trader takes the other side, and the venue earns on activity. Betfair proved the exchange model in the UK 25 years ago. What's new is the license, the dollar rails, and the distribution.

The problem with not caring who wins is that in the end, the sharps and market makers often win instead of the house. A May 2026 Wall Street Journal analysis of 1.6 million Polymarket accounts found just 0.1% of accounts captured 67% of all profits, while more than 70% of accounts lost money. Those 0.1% of traders with an edge are "sharps," who prey on the everyman having a punt (a wild bet). Kalshi's own numbers show 2.9 unprofitable users for every profitable one, though co-founder Luana Lopes Lara pushed back that people still win more on prediction markets than on sportsbooks or day trading.

So prediction markets are growing on the backs of punters, who lose to sharps, with less consumer protection than any comparable market.

How can anyone reasonably say they're better markets?

The steelman goes something like this.

Brian Quintenz's Fed funds rate example is phenomenal, but remember where he sits. So let's test the claim without him. Look broader, and you can see plenty of other things that have economic value and odds attached.

The best hedging instrument ever? The finance sections of the major prediction markets include oil prices, stock price estimates, election outcomes, inflation rates, and even the highest-grossing movie of 2026. If your business depends on any of those, the economics that worked for the Fed funds rate in the open works here too.

And these odds are the best we have for estimating outcomes. The Federal Reserve's staff studied Kalshi's rate markets this year in a paper called "Kalshi and the Rise of Macro Markets" and found they matched or beat Fed funds futures and the big forecaster surveys, with a perfect record on the most likely Fed outcome ahead of every meeting since 2022. It's a staff paper, not official Fed policy, and the authors caution the prices aren't unbiased probability estimates. It's still a remarkable result.

To trade this kind of outcome today, you'd trade Fed funds futures or a Treasury bond ETF like TLT, both of which carry basis risk (the risk that the thing you traded moves for reasons unrelated to your view). Prediction markets are a much more precise instrument, as Stephen Sikes, COO of Public, said on the Tokenized podcast:

You can hedge indirect exposure too. The Jeffrey, a bar on the Upper East Side, wanted to run a free-drinks promotion if the Knicks won, so it spent $5,000 on "Knicks win" contracts and collected around $8,000 when they did, which covered the tab, per Predicted's analysis. The bar's exposure was real, and no insurer would write a policy that small, that binary, and that dated. Even on something as basic as currency risk, fewer than 10% of small businesses hedge, against 92% of the Fortune 500. Kalshi has now filed a formal hedging program with the CFTC.

An exchange can price things no sportsbook or other market will touch.

You can trade outcomes that resolve on private decisions. LeBron James' next team took more than $245m across Kalshi and Polymarket in July 2026, per Predicted. No regulated book offers that market at scale, because no trader can model a man's decision well enough to make a margin on it. The market just finds the price. (Even in this case, the market was wrong, and LeBron ended up in Philly)

Some hedging looks like insurance. Osasuna, the La Liga club, paid a €1.2m premium for roughly €6m of relegation cover. Relegation is where a soccer team finishes at the bottom of its league and drops to a lower division, losing TV revenue on the way down. The cover was structured by the insurance broker Howden and reportedly placed on Kalshi, with the quant firm Susquehanna taking the other side and making more than $1m when Osasuna stayed up. The hedge expired worthless, which is what insurance is supposed to do.

That trade also tells you something uncomfortable. Osasuna's hedge only cleared because a sophisticated firm sat on the other side, and that firm, Susquehanna, is only there because the punters are. The punter's volume is the hedger's liquidity. That tension is the core of the issue here, because we’ve found a way to create better markets on the back of unsophisticated consumers.

E-commerce companies can hedge inventory risk. An e-commerce company hedged World Cup inventory risk on a local Latin American team, a trade in the hundreds of millions placed through a broker on Polymarket, taking the other side of the outcome its inventory depended on. As Rob Hadick, GP at Dragonfly, told me on Tokenized:

You can even price compute in the future. In case you missed it, there's massive demand for GPUs for AI. Meta, Microsoft, Alphabet and Amazon plan hundreds of billions of dollars of AI capex, much of it debt-funded, and nobody can underwrite a loan against a GPU without a reference price for what a GPU earns. So on July 14, Kalshi went live with forward curves for GPU rental prices, the first public forward price for compute. H100 chips rented for over $8 an hour in 2023 and trade near $1.70 today, per Ornn's index. When your biggest input cost can fall 80% in three years, or spike back, you need a curve.

While CME builds compute futures and ICE partners with Ornn on cash-settled versions, both are waiting on regulatory review. Kalshi is live because event contracts on a licensed exchange can be "self-certified."

Today, lenders aren't writing their loans against the expected future price of GPUs, but when that changes, prediction markets will have quietly rewritten how debt capital markets are priced.

Of course, these are still very early use cases.

And there's a long way between being a more popular venue for sports punters and the future of capital markets. The path there is going to require a lot of legal and regulatory wrangling.

The same contract is currently three different things in three different buildings.

At the Chicago Board Options Exchange (Cboe), it's a binary option regulated by the SEC. At Kalshi, it's a swap regulated by the CFTC. In a state gaming commission's office, it's an unlicensed sports bet. Just about everyone is contesting this legal ambiguity.

The CFTC is adamant that event contracts are derivatives. As I covered a few weeks ago:

For its part, the CFTC has issued 500+ pages of new regulations in the past 4 months. It is working quickly to close any gaps. It also recently came out strongly against venues using “American-style gambling odds.” Which DraftKings and FanDuel absolutely did do. You have to wonder if they did that intentionally to get told off?

The states disagree with this approach.

The States believe it's gambling. Kalshi and Polymarket face at least 20 actions from state regulators, tribes, and individuals. Last week, 44 state attorneys general wrote to the CFTC saying it has no authority over sports event contracts at all. And the biggest financial center in the world joined the fight days later, when New York's attorney general sued Kalshi in Manhattan state court for as much as $36bn, alleging among other things that 18-to 20-year-olds are wagering on the platform. In Letitia James's words, prediction markets like Kalshi are gambling platforms, "plain and simple."

The incumbent exchanges and the sports leagues want the line drawn tighter. CME's general counsel wrote to the CFTC calling its proposed definition of gaming "a striking overreach" that preempts state sports regulation, and the NFL urged Chair Selig to tighten the framework, arguing it doesn't do enough to protect game integrity or consumers.

Then there's insider trading. As I wrote in April 2026 in The Everywhere Insider: we built prediction markets to find the truth, and it turns out the highest yields go to the people leaking it. In April, federal prosecutors charged a US Army Special Forces sergeant with using classified intelligence about the Venezuela operation to make roughly $400,000 on Polymarket betting on Maduro's capture. In May, they charged a Google engineer with using internal data to make $1.2m betting on search trends. In July, Kalshi's own surveillance caught a White House teleprompter operator betting on whether Trump would say specific words in speeches he had prepared remarks for, and froze more than $90,000 in his account. Three political candidates have settled with Kalshi after betting on their own races. The venues are responding, with surveillance vendors, employment disclosures, and actual enforcement, but the incentive to leak scales with the liquidity.

On this issue at least, it appears the controls are starting to work, and there are very negative consequences for those who get caught.

So it's going to be left to the courts to decide.

As I covered last week, the scoreboard is a mess. In April, the Third Circuit handed Kalshi the first federal appellate win, ruling 2-1 that sports event contracts are swaps under exclusive CFTC jurisdiction. In the trial courts, Kalshi has lost on its CEA argument in New York, Maryland, Nevada, Michigan, Massachusetts, Utah, and Washington, while winning on that argument in Arizona and Tennessee, with several cases still awaiting decision. Minnesota made trading sports contracts a felony from August 1, though a federal judge has temporarily blocked the ban while the case plays out.

This one will almost certainly end up in the Supreme Court.

The States' motivation isn't entirely altruistic. State regulators and local governments collected a record $18.09 billion in direct gaming tax revenue from the US commercial gambling industry in 2025. Volume that moves to a federally regulated exchange pays none of that into state coffers.

Self-certification helps these companies get new contracts to market quickly but creates ambiguity. In practice, a venue like Kalshi or Polymarket can list a contract first and have the regulator review it after. That's how Kalshi shipped compute forwards while CME and ICE wait in line. All of those cases remain on appeal to higher courts. And they will likely continue to use it while waiting for any final outcome between the state and federal lawfare.

The Uber approach to risk appetite works. So here's the strategic position if you run a prediction market: the courts won't settle this for years, the regulator is friendly today and unknowable in two years' time, and every quarter of growth strengthens your negotiating hand. The rational move is to get on with it and keep fighting for market share.

So in this regulatory fog of war, who's fighting for the consumer?

Everyone says they are. But are they?

If all we do with prediction markets is build a better way for people with a gambling problem to lose money, then we've failed miserably. Because the data on problem gambling is not good.

And the venues advertise this product exactly like "bet-in-play." Parlays, for god's sake.

Nobody parlays to discover a price or hedge a risk. A parlay is a lottery ticket with better graphics, and it's the sportsbook industry's highest-margin product for a reason: bettors lose 19 cents of every dollar wagered on parlays, against 6 cents on straight bets, per state data.

Then there’s the inescapable advertising. The WSJ and Politico caught Polymarket building a near-identical clone site (a capital I standing in for a lowercase l in the URL) and handing it to college-age creators to record videos of wildly successful simulated bets. More than half of those trades would have lost money in real life.

To its credit, Kalshi has shipped self-exclusion, deposit limits, and mental health support. But those are product choices, not requirements. A sportsbook operating in New Jersey has all of them because the state enforces it, at 21, with advertising standards attached. A prediction market operating everywhere has whichever protections it volunteers, because the CFTC's rulebook was written for wheat farmers and swap desks, not for Craig parlaying the World Cup at 2am.

Stephen Sikes at Public told me they get the better markets thesis completely. They're launching prediction markets, but they won't touch sports:

I respect that a lot. I also know what it costs them. Speculative transactional products like crypto, and now prediction markets are the top of the funnel for a company like Robinhood, which has 28.4m funded customers. Public last reported over 3 million members, roughly a tenth the size. Users often come for speculation, but some also stay and use the longer horizon focussed products too.

If doing the “right” thing means conceding the growth engine to competitors who won't, how many boards choose right? It's hard to expect the businesses to self-police here. The most rational thing they can do is keep pushing.

While everyone's fighting, the little guy loses.

Prediction markets are better markets, but not yet better at consumer protection.

I don't think the fix is banning any of this. There's too much value in the data, too much genuine hedging utility, and prohibition just moves the punter offshore to venues with even fewer protections. But here are three ideas:

1. Protections in the markets. Cool-down periods, position limits tied to verified income, affordability checks before high-stakes participation, and rewarding prediction quality over bet size. I first proposed these in October, and none of it kills the market. Games figured out years ago that friction can feel like a feature. But sadly, implementing these kinds of protections starts to make a "market" look more like gambling. Still, this would be a positive step.

2. Warnings that match the product's behavior. If the National Council on Problem Gambling says the minimum age should be 21 and the helpline should be on the screen, then the disclosures, the age gate, and the advertising standards should look like sports betting's, not like a brokerage's. At least for the parlays and sports outcomes. Oh, and can we kill the parlay ads, or at least add some more disclosures there too?

3. A path from punter to portfolio. Robinhood has all the right products, like its subscription Gold at 4.8m subscribers, retirement matches, and record net deposits. The machine that acquires customers with speculation could be the machine that graduates them into saving. The evidence that some prediction market users build long-term portfolios is real but thin. Make it thick. Measure it. Report it next to the parlay revenue.

4. Carve out all sports contracts with consumer protections. The hedging use case in sports is genuine, but it’s also quite niche. Overwhelmingly this is a product that competes with gambling, so why not create a sports tax and align limits and consumer protections in a way thats’s more than voluntary.

And if you think channeling the gambling itch into financial wellbeing is naive, consider that Britain did it 70 years ago, at national scale, on purpose.

In April 1956, Britain had an inflation problem and a savings problem.

Harold Macmillan, then Chancellor, needed people to pull money out of circulation, and interest rates alone weren't tempting anyone. So on Budget Day he announced Premium Bonds: your principal is never at risk, and instead of paying you interest, the state pools the interest and pays it out as monthly tax-free prizes, drawn by a machine called ERNIE that a Bletchley Park codebreaker built.

The opposition called it a "squalid raffle." (I’m British, but even I enjoyed that phrasing). The public bought £5m of bonds on day one anyway. Seventy years later, Premium Bonds are Britain's most popular savings product, with over 22 million holders, and a single monthly draw now pays out around £447m ($590m) in tax-free prizes.

If we in the West are destined to spiral into degenerate gambling, let's do so in a way that doesn't ruin lives.

America even legalized its own version, prize-linked savings, back in 2014, and almost nobody built on it. In a year when US inflation touched 4.2%, and every household feels it, the idea of converting speculative appetite into savings isn't nostalgia. It's sitting right there.

The contract that opened this piece, the one that paid 13x, was pricing that same inflation in real time. The market Quintenz calls a hedging opportunity was watching the number Macmillan spent 1956 fighting.

I can't help but see potential in things.

Crypto is slowly growing up with its stablecoins and its tokenization, but now I have a new gifted but challenging problem child.

Prediction markets have the most potential of anything I've seen in markets, including digital assets, in my career. But the logjam between the states, the CFTC, and the markets themselves isn't solving the thing we all care about. Consumer harm.

In October, I wrote we had 18 to 24 months to get the protections built before the backlash forces heavy-handed regulation that breaks what's valuable about these markets. Ten months in, New York wants $36bn and 44 attorneys general want the CFTC's rule torn up.

The backlash is running early, and we haven’t had the midterms yet.

Prediction markets are better markets. But they're no better for most people than gambling.

I genuinely believe that will change.

Companies that can build towards the better outcomes, and succeed anyway, are building for the future that arrives after something blows up, and the court cases finally rule.

I guess I’m just hopeful that the exchanges, states, and regulators wake up and decide to do better. Tomorrow is a new day after all.

ST.

Several parts of the research and data by Petrit Berisha, publisher of Predicted.

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