European and U.S. regulators are intensifying their focus on prediction markets and event contracts, warning that rapid growth at the intersection of crypto and traditional finance could introduce systemic risks and regulatory blind spots.
The European Securities and Markets Authority (ESMA) issued a broad warning that growing ties between crypto markets and traditional finance could amplify risks to the broader financial system. In its assessment, the EU securities regulator specifically flagged tokenized equities, DeFi exploits, and prediction markets as areas of concern Cointelegraph. The warning comes as prediction platforms expand their presence in institutional trading infrastructure.
ESMA has also directly questioned how platforms like Polymarket and Kalshi operate within the European Union, warning of significant authorization gaps. According to the regulator, event contracts offered by these platforms may fall under existing EU binary-options bans, could be subject to crypto-asset frameworks like MiCA, or might instead fall under national gambling laws—creating a complex and potentially conflicting regulatory landscape CoinDesk.
Across the Atlantic, traditional finance heavyweights are pushing for clearer jurisdictional boundaries. Citadel Securities has urged the U.S. Securities and Exchange Commission to assert oversight of event contracts tied to public companies, directly challenging the Commodity Futures Trading Commission's authority through its self-certification process The Block. The move highlights growing tension between regulators over which agency has primary authority over increasingly popular prediction instruments.
The regulatory scrutiny coincides with expanding institutional adoption of prediction market data. DoubleZero, a market data delivery platform, has added Kalshi's election and political markets to its service ahead of the November U.S. midterms, giving institutional and automated traders real-time access to political betting activity Cointelegraph, The Block. This integration of prediction market data into institutional trading infrastructure underscores why regulators are increasingly concerned about potential spillover effects into traditional financial markets.
The convergence of these developments—EU warnings about systemic risk, questions about authorization frameworks, jurisdictional disputes between U.S. agencies, and growing institutional participation—suggests prediction markets are transitioning from niche crypto experiments to regulated financial instruments facing multi-jurisdictional oversight challenges.