The U.S. prediction market sector is on pace to exceed $325 billion in combined trading volume for 2026, up from roughly $40 billion in 2025. Monthly volumes rose from under $5 billion in September 2025 to more than $50 billion in July 2026. Kalshi's annualized revenue run rate reached approximat...
"These products are commodity derivatives squarely within the CFTC's regulatory remit under the Commodity Exchange Act and are within the agency's exclusive jurisdiction." — Michael S. Selig, Chairman, Commodity Futures Trading Commission
The U.S. prediction market sector is on pace to exceed $325 billion in combined trading volume for 2026, up from roughly $40 billion in 2025. Monthly volumes rose from under $5 billion in September 2025 to more than $50 billion in July 2026. Kalshi's annualized revenue run rate reached approximately $4 billion as of August, up from $25 million in December 2024. Polymarket crossed $1 billion in annualized revenue in June.
The growth has triggered a jurisdictional conflict between federal and state regulators that intensified on October 9, when the Commodity Futures Trading Commission issued an interim final rule and a separate proposal to formally classify event contracts as swaps under the Commodity Exchange Act. The move comes as the CFTC fights active lawsuits against nine states — Arizona, Connecticut, Illinois, New York, New Mexico, Minnesota, Rhode Island, Wisconsin, and Kentucky — all of which have attempted to regulate or ban prediction markets under state gambling laws. On October 5, a federal judge in Illinois blocked the state's enforcement rules against Kalshi, delivering the latest win for federal preemption. Twelve companies have filed for designated contract market (DCM) licenses with the CFTC this year, with six approved. Blockchain.com submitted its application on October 9, the same day the CFTC issued its new rules.
Combined monthly trading volume across Kalshi and Polymarket rose from less than $5 billion in September 2025 to approximately $24 billion in April 2026, according to Pew Research Center data published in May 2026. By July, the combined figure exceeded $50 billion before easing to $45.33 billion in August.
Kalshi processed $37.17 billion in trading volume in August 2026. Polymarket's two venues contributed $8.16 billion in the same month. The two platforms together hold 98% of sector open interest, which stood at $1.11 billion combined as of May 1, 2026, according to DeFi Rate.
Sports contracts dominate. A September 2026 Pew Research Center analysis found that trading volume doubled between May and July, "largely driven by sports." Kalshi's 2026 FIFA World Cup markets alone generated at least $13.76 billion in tracked volume, setting a single-event record for the exchange.
Monthly active traders on Polymarket grew from approximately 4,000 in January 2024 to over 734,000 in March 2026 — an increase of more than 18,000% in 26 months.
Kalshi hit a $4 billion annualized revenue run rate in July 2026, according to Sacra, up from approximately $735 million in December 2025 and $25 million in December 2024. In May, the company raised $1 billion in a Series F at a $22 billion valuation led by Coatue, with Sequoia, Andreessen Horowitz, IVP, Paradigm, Morgan Stanley, and ARK Invest participating. The company is reportedly finalizing a subsequent round led by Sequoia Capital and Wellington Management at approximately $40 billion, ahead of a possible IPO in 2027 or 2028, according to CEO Tarek Mansour.
Polymarket reached $1 billion in annualized revenue in June 2026. The platform raised $600 million in March 2026 at a $15 billion valuation, followed by an additional $400 million raise in April. Polymarket settled $9.4 billion in cumulative notional through May 2026 across approximately 14,200 markets.
The combined valuations of the two leading platforms now total approximately $55 billion at last reported marks. For context, that exceeds the market capitalization of CBOE Global Markets ($34.5 billion as of October 2026) and approaches that of CME Group.
On October 9, the CFTC issued two measures that represent its most explicit jurisdictional claim over prediction markets to date.
Proposed Rule: The CFTC proposed to explicitly include event contracts linked to sports, politics, culture, and weather within the statutory definition of a swap. This would place prediction market contracts under the same regulatory framework that governs interest rate swaps and credit default swaps, subjecting them to federal reporting, clearing, and conduct requirements.
Interim Final Rule: Simultaneously, the Commission issued an interim final rule to exclude "casino-style gambling products" — conventional sportsbook wagers and slot machine outcomes — from the swap definition. The CFTC described this as "codifying its longstanding position" that retail gambling falls outside its jurisdiction.
The distinction matters. By classifying event contracts as swaps, the CFTC asserts exclusive federal jurisdiction under the Commodity Exchange Act, preempting state gambling regulators. By excluding traditional sportsbook products, it avoids a turf war with state gaming commissions over their core business.
The Commission opened a 30-day comment period following publication in the Federal Register.
The Trump administration has used the Department of Justice and the CFTC to sue nine states that have attempted to regulate or ban prediction markets: Arizona, Connecticut, Illinois, New York, New Mexico, Minnesota, Rhode Island, Wisconsin, and Kentucky.
The first three suits — against Arizona, Connecticut, and Illinois — were filed on April 2, 2026. The CFTC argued that the Commodity Exchange Act constitutes a "comprehensive federal regulatory scheme" that preempts state law. The pace accelerated. By late May, the CFTC had sued Minnesota within one day of Governor Walz signing a law that made hosting or advertising a prediction market a felony — the first state law of its kind.
Key Court Rulings:
New Jersey (April 2026): The U.S. Court of Appeals for the Third Circuit ruled 2-1 to uphold a preliminary injunction in favor of Kalshi. This remains the only federal appellate ruling on prediction market preemption.
Minnesota (July 27, 2026): Judge Katherine Menendez blocked the state's felony ban before its August 1 effective date.
Illinois (October 5, 2026): U.S. District Judge Martha Pacold granted preliminary injunctions in cases involving KalshiEX, Coinbase, and the CFTC. Pacold found that Illinois laws are "likely preempted" by the federal Commodity Exchange Act, writing: "Many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act — they just happen to be swaps that people find entertaining and fun." The ruling did not cover Polymarket, and the judge left the state's transaction fee tax unresolved.
The federal government's position has been consistent: prediction market event contracts are financial instruments subject to CFTC jurisdiction, not gambling products subject to state gaming boards. Every court ruling to date has sided with this interpretation at the preliminary injunction stage.
Twelve companies have filed for designated contract market licenses with the CFTC in 2026. Six have been approved, including Polymarket's U.S. re-entry license and Gemini's first crypto-native prediction market DCM.
Blockchain.com filed for both a DCM license and a futures commission merchant (FCM) registration on October 9, the same day the CFTC published its new rules. CEO Peter Smith stated that approval would let customers "manage digital assets, trade derivatives, and take positions on real-world events conveniently without needing to switch between separate applications." The filing comes ahead of Blockchain.com's planned IPO.
Other applicants include ProphetX, which received approval for both DCM and derivatives clearing organization (DCO) registration, and Sporttrade, Ludlow Exchange (Novig's proposed DCM entity), and Smarkets, each pursuing sports-focused event trading platforms.
Robinhood has taken a different approach, routing prediction market orders to existing DCMs — Kalshi, ForecastEx, and Rothera — rather than applying for its own license. This positions Robinhood as a distribution layer rather than an exchange operator, though the company's Robinhood Derivatives LLC subsidiary was among those receiving cease-and-desist letters from the Illinois Gaming Board.
The prediction market sector presents a clear case study in on-chain versus off-chain value capture — a framework central to understanding where economic activity actually settles in Web3.
Polymarket operates on Polygon PoS, settling all positions in USDC. Through May 2026, on-chain prediction markets as a category processed approximately $390 million in monthly volume, of which Polymarket held more than 96%, according to data aggregated by DeFi Rate. The platform's cumulative on-chain settlement reached $9.4 billion through May across roughly 14,200 markets.
Kalshi, by contrast, operates as a centralized exchange registered with the CFTC. Its settlement infrastructure is off-chain, processed through traditional financial rails. Despite Kalshi's significantly larger volume ($37.17 billion in August alone versus Polymarket's $8.16 billion), none of that value flows through public blockchains.
The implication: the vast majority of prediction market value — approximately 82% by August 2026 volume — settles off-chain. Polymarket's on-chain presence drives protocol revenue for Polygon and USDC utilization for Circle, but the sector's economic center of gravity sits firmly within the regulated, centralized exchange model.
This mirrors broader patterns across Web3. On-chain settlement provides transparency and composability. Off-chain settlement provides speed, regulatory compliance, and — as Kalshi's volume demonstrates — greater market acceptance among institutional capital allocators.
The prediction market sector has grown from a niche financial curiosity to a $325 billion annualized market in under two years. The CFTC's October 9 rulemaking represents the clearest federal signal yet that event contracts will be treated as financial instruments, not gambling products. If the proposed swap classification survives the comment period and legal challenges, it will establish a durable regulatory framework that state gambling commissions cannot override.
The economic stakes are substantial. Kalshi and Polymarket have a combined valuation of approximately $55 billion at last reported marks. Twelve DCM license applications this year suggest that incumbent exchanges and crypto-native firms alike view the regulatory path as settled enough to invest nine-figure sums in compliance infrastructure.
The unresolved question is not whether prediction markets will operate under federal financial regulation — the court rulings and CFTC actions indicate that outcome is likely — but how much of the sector's value will flow on-chain. Polymarket has proven that decentralized settlement works at scale, but Kalshi's four-to-one volume advantage demonstrates that regulated, centralized infrastructure currently captures the larger share of economic activity. As DCM licenses multiply and institutional capital enters, the distribution of value between on-chain and off-chain rails will determine which infrastructure layers — blockchains, stablecoin issuers, or traditional clearinghouses — extract the most durable revenue.