Author: Zhou, ChainCatcher
The prediction market continued to boom in 2025, with Kalshi and Polymarket achieving a combined $1.44 billion in trading volume in September, a record high. Both platforms recently announced new funding rounds: Polymarket raised $2 billion from ICE, the parent company of the New York Stock Exchange, bringing its valuation to $9 billion; and Kalshi raised $300 million at a $5 billion valuation.
However, as the prediction market continues to boom, three major questions about it have surfaced on social media: Will it foster widespread insider trading? What is the regulatory stance of major governments toward prediction markets? And why is there a general lack of narrative prediction stories in Chinese? This article addresses these questions.
Insider trading harvests retail investors?
The magic of the prediction market lies in leveraging knowledge to profit. However, due to the nature of the predicted events themselves, some types of prediction market transactions can easily slide into insider trading, especially information such as award winners and economic data that is made public to a small number of people before the results of an event are announced.
On October 10, 2025, the day the Nobel Peace Prize was announced, an "insider trading" controversy that attracted global attention was staged.
Back in July, Polymarket launched a "2025 Nobel Peace Prize Laureate" market, which saw over $21.4 million in trading volume. Top candidates included Yulia Navalnaya, the widow of Russian opposition leader Alexi Navalny; former US President Trump (credited with the controversial Hamas-Israel ceasefire); environmental activist Greta Thunberg; and WikiLeaks founder Julian Assange.
Maria Corina Machado's odds had previously been only 3-5%, making her a near-favorite. However, approximately 11 hours before the results were announced, her odds suddenly skyrocketed from 3.6% to over 70%, triggering a surge in trading volume and total bets exceeding $210,000. At least three accounts placed heavy bets on Machado's victory, ultimately generating a combined profit of approximately $90,000.
This incident directly triggered a major debate about insider trading.
One side argues that allowing insider trading would increase market accuracy to 92% because it accelerates information aggregation. Robin Hanson, an economist at George Mason University and one of the earliest proponents of prediction markets, has stated that allowing insider trading can improve the accuracy of odds. If the purpose of a prediction market is to obtain accurate information, then you definitely want to allow insider trading.
The other side emphasized that this was an obvious leak of insider information and a fraudulent act, which would undoubtedly dampen the enthusiasm of ordinary investors to participate.
This has also sparked discussions about regulation. A Forbes employee wrote that prediction markets fall somewhere between futures exchanges and gambling websites, and regulators treat them more like the latter. Insider trading laws enforced by the US Securities and Exchange Commission (SEC) do not apply to prediction markets; these contracts are regulated by the Commodity Futures Trading Commission (CFTC). KPMG's 2025 report warned that using material non-public information to bet on event contracts can severely distort market integrity and easily trigger a cascading collapse in a regulatory vacuum.
In the prediction market, the amount of information possessed by internal personnel, experts with in-depth research in the field, and speculative retail investors is completely different, and the information asymmetry has already determined who the winner is.
What is the regulatory attitude of major countries/regions towards prediction markets?
The second major potential problem with prediction markets is their unclear legal status around the world. Combining characteristics of both gambling and financial derivatives, they often fall into gray areas or are even directly restricted in different jurisdictions, posing certain regulatory risks.
Currently, the United States is the only country that explicitly mentions and regulates prediction markets. The Commodity Futures Trading Commission (CFTC) classifies them as event contracts, requiring platforms to register as designated contract markets and strictly comply with the Commodity Exchange Act. In February 2025, the CFTC held a roundtable to discuss the regulatory framework for sports and event contracts, striving to strike a balance between innovation and retail customer protection. In May 2025, the CFTC dropped its appeal against Kalshi's political contracts, affirming their legality but imposing transparency and anti-manipulation requirements. Kalshi, under CFTC supervision, has obtained compliance licenses in all 50 states. Polymarket, through its acquisition of Florida-based derivatives exchange QCX, has transformed itself into a regulated entity and is gradually expanding into the US market.
Europe's attitude is more cautious. The European Securities and Markets Authority (ESMA) mentioned prediction markets in its 2025 Markets in Financial Instruments Directive (MiFID II) rules, requiring investment firms to optimize their order execution policies. The Markets in Crypto-Assets Regulation (MiCA) further incorporates prediction markets into the licensing framework for crypto-asset service providers, placing particular emphasis on anti-money laundering compliance, demonstrating a regulatory stance that is both open and cautious.
Crypto influencer @Phyrex_Ni pointed out that prediction markets and binary options are structurally very similar. Traditionally, binary options are derivative contracts where investors make a bet on a specific underlying asset or event. If the prediction is correct, they receive a predetermined payout; if the prediction is wrong, they lose their investment. Prediction markets employ a similar mechanism.
Currently, most countries that haven't explicitly regulated prediction markets tend to equate them with binary options, adopting a generally conservative approach. For example, the UK's Financial Conduct Authority (FCA) directly prohibits retail binary options trading; the European Securities and Markets Authority (ESMA) of the European Union prohibits binary options-related marketing; and many Asian countries even consider them gambling. This is one of the reasons why prediction markets haven't yet taken off in the Chinese-speaking world.
Overall, regulatory fragmentation exacerbates the risks of the prediction market. Most countries or regions focus on anti-money laundering and consumer protection, either directly banning such derivatives contracts or adopting strict entry licensing.
Why is there a lack of narrative market in the Chinese-speaking region?
Overseas, Polymarket has evolved from a trading product into an information-based social game. Users bet on events not only for profit, but also for a sense of participation, the right to express themselves, and their stance, and even use their positions to "bet on the future."
Crypto KOL @MrRyanChi quipped, "American college students have already started playing with Kalshi and Polymarket, but there are very few people in the Chinese-speaking region discussing prediction markets."
The current prediction market lacks a narrative in the Chinese-speaking world. In addition to regulatory issues, crypto KOL @hoidya_ pointed out that the root cause is a severe lack of liquidity.
The core reason for insufficient liquidity is that market makers and dealers struggle to calculate this profit. In the traditional perpetual futures market, the expected return (EV) of retail investors is negative over the long term.
Market makers leverage their statistical advantages to generate profits through hedging and funding rate arbitrage, thus forming a reliable source of liquidity. However, market makers dominated by Europe and the United States may lack sufficient statistical expertise, resource advantages, and cultural background for Chinese-language narratives. They themselves are uncertain about whether they can achieve positive expected returns in the long term. Without a quantifiable win rate, they cannot allocate risk exposure, and therefore will not proactively inject liquidity.
KOL @Ru7Longcrypto pointed out that the Chinese community is still viewing prediction markets through the lens of DeFi, focusing on TVL pools and payout mechanisms, completely missing the point. She emphasized that the key to breaking through the circle lies in creating content, not pools.
However, the regulatory environment in Chinese-speaking regions is strict, limiting the selection of topics related to public events. This is particularly true in places like mainland China, Hong Kong, and Singapore, where political and election topics are considered sensitive and subject to strict legal constraints. In contrast, in Europe and the United States, where the US presidential election is legally recognized under the framework of the Commodity Futures Trading Commission (CFTC), platforms have greater scope for topic selection.
Therefore, another key to mainstreaming prediction markets in the Chinese-speaking world lies in building a localized database of everyday questions. For example, topics like CZ's mention market, predictions for the winner of the food delivery war, Xiaomi's new car pricing, Spring Festival travel rush numbers, purchase restrictions, and the Nezha movie box office are all highly popular in the Chinese-speaking world and have clear lottery criteria, making them more likely to attract interest and participation from Chinese investors.
As this sector rapidly gains popularity, many users are turning their attention to BNB CHAIN, which boasts a dense Chinese user base and a more mature Asian content ecosystem. He Yi also publicly expressed his welcome for professional teams to launch prediction products on the BNB chain, and expressed his support for YZi Labs. Recently, several Chinese-led prediction market projects based on the BNB chain have seen significant marketing and promotional momentum on Twitter.
Conclusion
Overall, while this wave of prediction market enthusiasm may not be a bubble, it has spread too quickly, and the market needs some calming voices and reflection. While prediction markets have become mainstream, they still face controversy over compliance and insider trading. The Chinese-speaking world lacks a localized narrative, urgently needing to address liquidity issues and explore content more suitable for the Chinese community.
For ordinary investors, prediction markets are a completely new way to play, with immense potential and compelling narratives. For this reason, retail investors should focus on familiar areas rather than simply placing bets.
