The CFTC and the birth of an asset class

The earlier parts of this series treated the prediction market as a machine: a price is a probability, liquidity is the product, an oracle decides what's true. All of that is mechanism — and the mechanism worked decades before anyone could legally run it at scale in the United States. What was missing wasn't math. It was a regulator willing to say what these things are.

For most of its history, an event contract sat in a legal grey zone. Was it a derivative, supervised like a futures contract? Was it gambling, the province of state law and the casinos? Was it nothing at all — an unregulated wager a court might void? Nobody could answer cleanly, and the ambiguity was fatal. You cannot build serious financial infrastructure on top of a question mark.

The grey-zone era

Two stories define the years before the line was drawn, and they point in opposite directions.

The first is Intrade, the Dublin-based exchange that, through the 2000s, became the place to trade on US elections and political events. Americans loved it; political scientists cited its prices; it looked, for a while, like the future. Then in late 2012 the U.S. Commodity Futures Trading Commission — the federal regulator for derivatives — sued, alleging Intrade had offered off-exchange commodity options to U.S. customers in violation of the rules. Intrade barred American users almost immediately and wound down soon after.¹ The lesson the market took away was blunt: run an event exchange for Americans without a license, and the CFTC will end you.

The second is the Iowa Electronic Markets, run by the University of Iowa's business school since 1988. The IEM traded real money on elections and economic indicators and produced forecasts that routinely beat the polls — and it survived not because it was licensed, but because regulators agreed to leave it alone. It operated under a pair of no-action letters: a posture in which the CFTC says, in effect, we will not pursue enforcement, provided the operator stays inside narrow limits — small stakes, an academic-research purpose, no advertising.² A no-action letter is not a license. It is forbearance. It kept a single university experiment alive; it could never underwrite an industry.

Put those side by side and you have the whole problem. The one venue Americans actually used got shut down. The one that survived did so on an exemption so narrow it could only ever be a research project. There was no path in between — no way to be both real and legal at scale. The asset class did not exist, because no regulator had agreed it should.

The line, drawn in 2020

The turn was administrative, not technological. Over the years the CFTC built out a framework for what it calls event contracts — binary contracts that settle on a yes/no outcome — and treated them as a category of derivative within its jurisdiction under the Commodity Exchange Act. By 2020 the through-line was clear: an event contract is a regulated financial instrument, and a venue that wants to list one to the public can apply to do so as a federally supervised exchange.³

That is the moment a grey-zone product became an asset class. Not because the contracts changed — a binary on an election is the same object it was on Intrade — but because a regulator finally answered the question. These are derivatives. Here is the door. Walk through it and you are legitimate; walk around it and you are Intrade.

One company walked through. Kalshi obtained registration as a Designated Contract Market — a DCM, the same category of license a futures exchange like CME holds — and became the first federally regulated venue built specifically for event contracts.⁴ The significance is not the company; it is the category. For the first time, an American could trade an event contract on a venue operating inside the rules rather than around them.

What "regulated" actually buys

"Regulated" is a word people skim past, so it's worth saying what it concretely changes. A license is not a stamp; it is a set of obligations, and the obligations are the point.

A federally regulated exchange has to segregate customer funds — your money is held apart from the company's, so a venue's failure is not automatically your loss. It has to run market surveillance — watching for manipulation and reporting it, the same machinery a securities exchange runs. It owes consumer protections — disclosures, dispute processes, eligibility rules — that an offshore site simply does not. And, less obviously but most consequentially, it becomes a venue that institutions are allowed to touch. A pension fund or a bank cannot route flow to an unlicensed wager in Dublin; it can interact with a CFTC-registered exchange. Legitimacy is not a vibe. It is the precondition for the largest pools of capital to show up at all.

The fight over elections

None of this was smooth, and the sharpest fight was over the contracts the public cares about most: elections. Letting people trade on who wins an election is exactly the use case that makes a regulator nervous — it looks like political gambling, it raises questions about integrity, and it sat unresolved for years. The dispute went to litigation over whether a licensed exchange could list election contracts at all. It resolved in favor of listing them, and the category took the win and ran.⁵

How far it ran is the part that still surprises people. Monthly trading volume across the leading venues went from under 100 million dollars in early 2024 to more than 13 billion by the end of 2025. The institutions arrived to match: in October 2025 the Intercontinental Exchange — the owner of the New York Stock Exchange — committed up to 2 billion dollars to Polymarket, structured around distributing its event data, not placing bets. By December, CNN and CNBC were reading market-implied odds on air next to the polls.⁶ And just this month, Kalshi raised 1 billion dollars at a 22 billion dollar valuation, a round led by Coatue.⁷ A grey-zone curiosity became, in roughly five years, something Wall Street pays for and cable news quotes.

Be honest about what most of that volume is, though. Since sports contracts launched in mid-2024, sports have made up roughly 80% of the trading on the largest regulated venue.⁸ The license did not turn the category into pure forecasting infrastructure overnight; a lot of the flow is people who want action on a game. What the license did do is make the venue real enough that the forecasting and data layer — the part ICE actually bought — could be built on top of regulated rails rather than offshore ones. The mechanism was always sound. Legitimacy is what let the serious money treat it that way.

The pattern, and the catch

Step back and the shape is familiar, because crypto exchanges walked it a decade ago. Once the United States legitimizes an asset class, the rest of the world does not follow all at once — it regulates the thing one jurisdiction at a time, each market opening its own licensed door. And in venue businesses, liquidity compounds: traders go where the volume is, volume attracts more traders, and the first licensed exchange in a market tends to run away with most of it. Legitimacy plus network effects is how a single venue ends up holding the lion's share of a national market.

This is the bet behind what I work on at Seeker — that prediction markets run the crypto-exchange playbook again, and that the venue people trust in each market is the one that showed up early and won the license to operate inside the rules. To be exact about status: that license is the goal, not a thing already in hand. The interesting work is earning it.

And here is the catch worth ending on, because the optimism above is only half the picture. A license is granted per jurisdiction and does not transfer — a CFTC registration buys you nothing in Tokyo or São Paulo; each market is its own fight, its own regulator, its own rulebook. The rules themselves are still evolving; what is permitted today, like election contracts, was contested yesterday and could be re-litigated tomorrow. And the very thing that makes a license valuable makes it double-edged: it is a moat and a constraint. The same obligations that keep competitors out — surveillance, segregation, eligibility — are obligations you now carry, forever, in every market you enter. The asset class is real. Staying inside the lines is the whole job.