Not too long ago, prediction market apps were facing a hostile Washington. Now with Trump back in power, they're taking flight with the full blessing of the White House.
In the Biden years, regulators launched an aggressive clamp down on this nascent industry of online exchanges that allow people to place online bets on all manner of future events.
Regulators under Biden pursued legal actions to ban them from allowing people to place bets on election outcomes and sports. One of the biggest prediction market apps, Polymarket, was forced to cease its U.S. operations in 2022 and its chief executive had his home raided by the FBI last year.
The tune now is decidedly different.
Polymarket CEO, Shayne Coplan, recently posted a photo of a white cake with sprinkles to mark the year-anniversary of the FBI raid, just as the company is planning its return to the U.S. "Cheers to free markets," he wrote.
Kalshi, Polymarket's main competitor, is seeing its fortunes skyrocketing, in no small part because the Trump administration is rolling out the red carpet for them. Trump officials have dropped the Biden-era legal campaign to outlaw betting on elections.
Kalshi's newfound influence is further underscored by its deep ties to the administration: Donald Trump Jr., the president's eldest son, has joined Kalshi as a strategic adviser.
Even as experts warn that race-betting could undermine election integrity, November's midterms are set to be a big money-making opportunity on the apps, with millions already funneling into the balance of power in Washington.
"The long-term vision is to financialize everything and create a tradable asset out of any difference in opinion," said Kalshi CEO Tarek Mansour in December.
Investors are piling billions of dollars into Kalshi, which has seen its valuation double in a matter of months.
DraftKings, one of the biggest online sportsbooks, announced on Monday that it is unveiling a prediction market service, just as crypto platforms Coinbase and Robinhood did the same.
How prediction markets work
On Kalshi and Polymarket, people can place bets on the outcome of real-world events. The thinking is that the wisdom of the crowd can discern what conventional wisdom cannot, and, like with crypto trading, high-risk bets can translate into handsome returns.
Whether it's what word Kamala Harris will utter during her appearance on Jimmy Kimmel, or if Costco will raise its hot dog combo price. Or even the extent to which Gaza will experience famine. The apps transform any future scenario, regardless of how glib or disturbing, into a profitable wager, something financial experts say preys upon people susceptible to online gambling addiction.
"People are struggling financially, and they're looking for lottery ticket-like payouts, if they can win big on a bet that's going to help them to make it, and that's a sign of desperation in some ways and nihilism, frankly," said Karl Lockhart, a law professor at DePaul University who studies prediction markets.
At an event in July, Kalshi attorney Josh Sterling waved away the idea that prediction markets enable risky behavior.
"People are adults, and they're allowed to spend their money however they want it, and if they lose their shirt, that's on them," Sterling said.
However risky, more and more are joining in. Prediction markets are now processing billions of dollars worth of bets every week. They claim they're different from a sports gambling site or casino because there is no "house" betting against their customers. Instead, they argue, traders on the platforms are betting against each other, with Kalshi and Polymarket exacting a fee from every bet.
But Kalshi partners with hedge funds, like Susquehanna International Group, to serve a role known as a "market maker," meaning they provide funding so anyone can bet on either side of a wager at any time. A recent federal class-action lawsuit filed against Kalshi argues the market makers are no different than betting against the house.
"While consumers may bet on either side of the house baseline in any sportsbook, the house sets the betting line, and profits when consumers pick wrong," wrote lawyer David Stellings in the suit filed in Manhattan's federal court in November. "Kalshi coordinates directly with its market makers to set betting lines."
In a statement, Kalshi said it does not coordinate with Susquehanna. Rather, according to Kalshi, market makers price bids and asks. "Market making is completely different from being a house, because a house has monopoly pricing power, whereas market makers compete with thousands of other market makers to take bids. This creates a competitive environment that drives down prices for consumers," said Kalshi spokeswoman Elisabeth Diana.
But experts like Lockhart said that is a distinction without much difference. The arrangement, he argues, does resemble a traditional gambling scenario in which betters are up against the house.
"It may not be Kalshi on the other side of all those trades, but Susquehanna is on the other side by being a market maker there, so it ends up being a similar setup," Lockhart said.
Kalshi: it's not gambling, but an "event contract"
After the Supreme Court struck down a federal ban on sports betting in 2018, states took varied approaches.
While most states allow some form of online sports betting, gambling apps, like FanDuel and DraftKings, are banned in nearly 20 states, including California, Texas and New Mexico.
But prediction markets circumvent these prohibitions by positioning themselves as selling future event contracts, a type of derivative regulated by the Commodity Futures Trading Commission, an agency that has about one-eighth of the staff of the Security and Exchange Commission.
Biden's CFTC endeavored to put an end to prediction market apps allowing sports betting. Much was at stake, since around 80 percent of bets on the apps are tied to a sporting event.
Trump's second term took the heat off Kalshi. Days after Trump's inauguration, Donald Trump Jr. became an adviser to the company. The administration backed away from efforts to dial in the industry. Now, it is quite the opposite. In November, Trump's TruthSocial social media site announced its own foray into the prediction markets world with a wager service it's calling TruthPredicts.
States, however, are on the attack. Massachusetts has sued to push Kalshi out of the state, and eight other states, including New York, New Jersey and Maryland, have sent the company cease and desist letters alleging that it is operating as an illegal and unlicensed sports gambling site.
Kalshi has fought back against the state efforts to shut them down. "The product Kalshi offers is very different from what state-regulated sportsbooks and casinos offer their customers. We are confident in our legal arguments," spokeswoman Diana said.
Another big concern has been something similar to insider trading.
One anonymous Polymarket user made $1 million in 24 hours after correctly predicting 22 out of 23 of Google's most-searched terms for 2025, leading other prediction market traders on X to wonder if the trader had access to internal information at the company before it was made public.
Kalshi says it has internal policies to root out any possible insider trading, including trading surveillance tools. "Our compliance and legal teams investigate these issues when pursuing disciplinary and enforcement actions against traders," Diana said.
Betting on elections raises concerns about election integrity
Donald Trump Jr. has long had faith in prediction markets.
He said in a January post on X that he and other family members and close friends monitored Kalshi ahead of the November election, which had predicted Trump's victory before pollsters and the news media.
The Biden administration banned Kalshi from allowing people to place bets on what party would win control of the House and the Senate, arguing that commodifying elections is "contrary to the public interest" and could invite bad actors to try to manipulate election outcomes.
Kalshi, however, filed a lawsuit challenging the regulation and won, with a three-judge federal appeals panel ruling that the regulators failed to show what precisely the harm would be to the public.
Biden officials were appealing the decision. The Trump administration dropped the fight. As a result, multi-million dollar wagers on midterm races on the apps are already underway.
Critics of the apps worry that turning election results into casino-like wagers could encourage wealthy donors to make bets that could artificially inflate one candidate's odds on the apps. That, in turn, could fuel the candidate's momentum, lead to a bump in news coverage, and even influence voter behavior.
CNN and CNBC have both announced partnerships with Kalshi that will incorporate the app's voting markets on things like elections into the networks' news coverage.
Kalshi told NPR that election laws concerning foreign influence do not apply to Kalshi, just as they would not apply to any other financial market. "Data show that Kalshi markets are moved by informed traders. It's not easy to manipulate markets when most traders trade on facts, strategy, and real-life odds," spokeswoman Diana said.
The Yale School of Management's Jeffrey Sonnenfeld does not buy it. He has warned that prediction markets can be hijacked by foreign actors bent on lifting or sinking a particular candidate.
In October 2024, for instance, Trump's chance of winning the election surged on Polymarket after $30 million in bets of mysterious origin pumped into Trump's chances of victory.
"One shudders to think which foreign entity might be behind this naked market manipulation," Sonnenfeld wrote at the time.
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