The long-predicted U.S. boom in prediction markets may finally be arriving. Provided, of course, that the industry can navigate two treacherous shoals: U.S. financial regulation and the emerging problem of “crypto whales” that can sway outcomes.

Prediction markets, or platforms where traders buy and sell contracts tied to the outcome of future events, aren’t a new concept. But for much of the past two decades, U.S. access has been legally constrained. The Commodity Futures Trading Commission (CFTC) is the gatekeeper for any market in “event contracts” and has traditionally taken a cautious view, approving a handful of academic experiments and niche products while keeping commercial operators on a short leash.

Its caution stems from both political optics and legal ambiguity: the Commodity Exchange Act was written decades before internet-native prediction markets existed. But under the Trump administration, there are signs that this regulatory posture is beginning to change.

Polymarket, a blockchain-based events market that has been operating largely offshore but will soon offer legal access to American traders after buying derivatives exchange QCX and its CFTC license in a $112 million deal, is at the forefront of the U.S. prediction market beachhead. Kalshi, another leading platform and Polymarket competitor, is also CFTC regulated and legal for American users, though it’s facing an ongoing legal battle over its right to offer sports event contracts.

And on Monday (Aug. 11), American-based peer-to-peer sports prediction market startup Novig raised $18 million in a Series A round expected to finance licensing in multiple states and new categories of prediction contracts, especially in sports and politics. The company has pursued a U.S.-compliant route from the start.

These native platforms will need to fend off rising competition from other FinTech platforms like DraftKings, Coinbase, Robinhood and others, who stressed to investors during their most recent quarterly earnings calls that they were eyeing the category too.

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The Payments and Plumbing Behind the Predictions

Prediction markets are, at their core, exotic derivatives platforms. The financial mechanics hinge on efficient payments, fast settlement and enough liquidity to keep bid-ask spreads tight. That’s where the business models diverge.

Payment mechanics are more than a technical choice; they influence user growth, cost structure and, increasingly, regulatory posture. In the U.S., any system that touches retail money flows must meet anti-money laundering (AML) and know your customer (KYC) standards, adding both expense and friction.

Crypto-native platforms like Polymarket settle trades in stablecoins such as USDC. This allows near-instant settlement and global reach, but also exposes users to crypto-specific risks: wallet management, smart contract bugs and exposure to stablecoin depegging.

Regulated U.S. venues like Kalshi clear trades in dollars through established banking rails, giving them more direct oversight but less speed and more cost in payments. Bank partnerships, payment processors and compliance vendors are essential infrastructure.

Hybrid entrants like Novig aim to blend the two, using blockchain under the hood for efficiency but keeping the user-facing product in fiat terms, with ACH or debit card on-ramps.

See also: Multibillion-Dollar Crypto Scams Reveal Hard Lessons for Global Businesses 

The Emergence of the Crypto Whale Problem

Beyond regulatory friction, prediction markets, especially those powered by blockchain, may face a thornier challenge: the influence of “whales,” or large token holders who can move both prices and, in some cases, outcomes.

In traditional markets, insider trading is illegal, and large participants are often market makers providing liquidity. But in decentralized prediction markets, whales can have overlapping roles as traders, influencers, and even participants in the events themselves. The risk is especially acute in small markets with thin liquidity, where a single large bet can distort implied probabilities.

A recent Bloomberg report, for example, noted that Polymarket, which outsources disputed markets to holders of a digital token called UMA, can produce divisive results able to be determined by a majority vote.

Because most blockchain markets are pseudonymous, proving such manipulations is difficult. Even when suspected, enforcement is tricky: decentralized protocols often lack a legal entity to hold accountable.

With Novig’s funding, Polymarket’s U.S. pivot and Kalshi’s legal fight, the U.S. prediction market sector is at a potential inflection point. If one or more operators secures broad-based approval and demonstrates scalable, trusted operations, the path for FinTech heavyweights to follow will be clear.

Yet the whale problem, and the broader perception that markets can be “gamed,” may prove the harder nut to crack. Regulation can set boundaries, but the integrity of prediction markets ultimately rests on liquidity, transparency, and community trust.