Prediction markets have adopted the vocabulary of finance and the mechanics of gambling. That combination has proven very difficult to regulate, in part because it sits between two established regulatory frameworks.

Earlier today, it was reported that a journalist covering an Iranian missile strike received death threats from traders who had placed bets on prediction market platforms. Their contracts were structured to pay out based on how the incident was described in published news coverage. When the reporting did not match the wording they needed, some threatened the journalist’s life.

The episode illustrates something fundamental about prediction markets that is sometimes overlooked in discussions about these platforms. These are not passive forecasting tools. When financial contracts are tied to real-world information, the people holding those contracts can develop incentives tied to how that information is produced or framed. The distance between predicting an outcome and trying to influence one can become much smaller. That dynamic matters for markets as well, because these platforms increasingly resemble financial exchanges where prices respond directly to information flows.

Yet in every regulatory proceeding in which prediction markets have been examined, the industry has described itself in terms that have nothing to do with this dynamic. That rhetorical choice is not incidental. It is in many respects the industry's most consequential strategic decision.

Prediction Markets And The Language Strategy

In forthcoming research I conducted with colleagues examining hundreds of public comments submitted to the Commodity Futures Trading Commission (CFTC) during its 2024 rulemaking process on prediction markets, a pattern emerged that was difficult to ignore. Traders, platforms, and advocates reached consistently for a specific vocabulary: hedging, price discovery, risk transfer, liquidity. The terminology of derivatives markets, applied without qualification to contracts tied to Oscar nominations, which have shown to draw much attention, election results, and the precise wording of news stories about geopolitical events. Almost none of the commenters framed prediction markets primarily as gambling, even when the contracts under discussion bore no relationship to economic risk management in any conventional sense.

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This matters because regulatory classification in the United States is not determined by the nature of a product alone. It is shaped by the administrative record: the accumulated language of public filings, testimony, and agency correspondence. When an industry consistently describes its products as financial instruments, it builds a record that regulators must address on those terms. Over time, that record can influence how agencies interpret their authority and how courts evaluate regulatory decisions. In administrative law, the framing of a product can therefore become part of the argument about how it should be regulated.

Some prediction market platforms appear to have understood this dynamic early. Their interfaces are designed to resemble trading terminals, and their documentation often reads like a prospectus. The experience for users, however, looks somewhat different.

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Prediction Markets And Gamblification

The convergence of financial product design with gambling mechanics has a name in the academic literature: gamblification. The concept describes how digital platforms increasingly combine the formal structure of financial instruments with the engagement architecture of betting environments: real-time pricing, low minimum participation thresholds, rapid contract resolution, and social features that broadcast outcomes and amplify the experience of winning.

Prediction markets illustrate this dynamic particularly clearly. A contract on the Academy Award for Best Picture does not hedge any identifiable economic exposure. A contract whose resolution depends on a journalist's word choice does not transfer risk in any meaningful financial sense. These are speculative positions priced and settled like derivatives, offered through platforms that occupy a space somewhere between a brokerage interface and a sportsbook.

That positioning is commercially rational. Financial products benefit from more favorable regulatory treatment, broader access to banking infrastructure, and greater reputational legitimacy than gambling products. Platforms that present themselves as financial markets can therefore operate within a regulatory framework that was originally designed for risk-transfer instruments rather than entertainment speculation. This hybrid positioning can create opportunities for regulatory arbitrage, allowing platforms to draw on the legitimacy and infrastructure of financial markets while offering products that may resemble wagering.

The scale of the commercial opportunity is becoming increasingly visible. During this year’s Academy Awards, millions of dollars flowed into entertainment contracts on prediction market platforms. The CFTC has separately encouraged these platforms to pursue data partnerships with professional sports leagues, anticipating that sports and entertainment may become major growth categories for event-contract trading. Those are precisely the domains where the distinction between financial hedging and organized wagering becomes hardest to maintain.

Prediction Markets And The Regulatory Problem

Last week the CFTC opened a new public comment process on event contracts, asking whether new rules are needed and whether certain categories of contracts should be prohibited as contrary to the public interest. The agency withdrew its previous 2024 regulatory proposal last month following sustained industry opposition.

The CFTC's classification problem is genuine. Financial regulators see instruments that aggregate information through market prices, a function with legitimate economic value. State gaming regulators see online wagering with a new interface. Both descriptions can appear accurate depending on the lens applied. The fact that both interpretations coexist may not be entirely accidental. It reflects product design choices and communication strategies that position prediction markets between established regulatory categories.

The administrative record that regulators must now work through was built largely in the industry’s preferred vocabulary. That record does not make fair regulation impossible, but it does shape the terrain on which the regulatory debate occurs. In that sense, the language used to describe these markets can influence how financial regulators evaluate their risks, their legitimacy, and their place within existing market structures.

Prediction Markets And The Real Question

The CFTC is asking the public what prediction markets are. That is a reasonable starting point. It may not, however, be the most useful question.

If financial terminology confers legitimacy on products that function as gambling, then the question of what category a product belongs to is one that determined and well-resourced industry participants will often be better positioned to answer than regulators. The industry has spent years making its case in every available forum. Regulators are now asking the public to weigh in.

The more productive line of inquiry may be not definitional but consequential. What do these platforms do to the people who use them? Is there an impact to the information ecosystem when headlines, statistical outcomes and geopolitical events carry a shadow market that creates financial incentives tied to how they unfold? What does it mean that a journalist covering certain topics can receive threats from people whose contracts depend on their word choice?

Classification is a means to an end, not an end in itself. Prediction markets have been very effective at managing how they are classified. The harder and more important task for regulators is to be clear about what they are trying to prevent, and to design rules that address that directly, regardless of what the industry chooses to call its products. The task for regulators may therefore be less about classification and more about understanding what risks these markets could create for investors, information flows, and market integrity.

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