Kalshi and Polymarket, leading prediction market platforms, are swiftly introducing highly leveraged crypto derivatives as state and federal authorities dispute whether these services constitute illegal gambling or legitimate financial instruments.
Over the last year, these companies have come to prominence by enabling wagers on specific real-world events, such as political elections and economic data releases. By planning to launch perpetual futures—contracts that never expire and allow traders to leverage market exposure using borrowed funds—the platforms are shifting from niche forecasting services to comprehensive digital asset exchanges.
This transformation could broaden their customer base while heightening legal risks. Traditionally, platforms like Kalshi operated on a cyclical basis, peaking around major events and waning post-resolution. Perpetual futures change this model by allowing indefinite market positions subject to margin requirements, often with leverage up to 50 times the initial capital.
As Polymarket and Kalshi explore these derivatives, they aim to transform occasional political bettors into daily traders, competing with centralized exchanges like Robinhood and Coinbase that are also entering event-based markets. Mo Shaikh of Aptos suggests that while financial applications trend toward consolidation, integrating diverse user bases often fails smoothly.
The shift is partially defensive, as Hyperliquid’s entry into prediction contracts puts pressure on existing platforms. Technical disparities exist, with decentralized exchanges finding it easier to incorporate prediction markets than vice versa. However, Kyle Samani of Forward Industries believes customer acquisition remains the primary hurdle.
Legal challenges arise as state regulators classify these platforms as unlicensed casinos. New York Attorney General Letitia James filed lawsuits against Coinbase and Gemini on April 21, demanding $3.4 billion in penalties for allegedly evading state laws and exposing minors to betting risks. The industry disputes this, citing the CFTC’s assertion of federal jurisdiction.
The judiciary is currently sorting through these claims, with a federal court ruling favoring Kalshi against New Jersey regulators. As prediction markets expand into perpetual futures, they become integral to mainstream finance, attracting investments like the $2 billion from the Intercontinental Exchange in Polymarket.
While some view this as a strategic response to legal pressures, others see it as a move that might not address liquidity challenges essential for scaling hedging and insurance uses. The debate continues between those seeing perpetual futures as a way to increase trading volume and those advocating for index-style products and pooled liquidity.
Regulatory scrutiny is intensifying, with Dyma Budorin of CORE3 warning of potential consequences if prediction markets continue without adequate risk controls. The New York litigation underscores the ongoing jurisdictional battle, which may require Supreme Court intervention or new legislation.
Despite these challenges, prediction-market operators are expanding through legal uncertainties, believing the benefits of perpetual futures outweigh potential risks.