Key Takeaways
Asian markets lack the regulatory architecture needed to classify prediction markets, forcing regulators to leave them in a gray area.
Western jurisdictions leverage existing frameworks like derivatives regulation in the US or betting laws in the UK, which create clear entry paths for operators and establish regulatory oversight.
The absence of a framework in Asia does not suppress market activity, as evidenced by significant liquidity flowing into offshore platforms, but it prevents tax collection and consumer protection.
Building a regulatory foundation requires a public deliberative process to determine whether prediction markets should be treated as derivatives, gambling, or a new third category.
1. Definition and the Importance of Classification
As that earlier report established, prediction markets have value as information platforms, but the law has never drawn a clean line between them and gambling.
That raises the question of how the law defines gambling, and in particular betting.
Section 9 of the UK’s Gambling Act 2005 broadly defines the subject matter of betting as follows, and brings any such activity within the scope of gambling regulation once monetary value attaches to it.
the outcome of a race, competition or other event or process,
the likelihood of anything occurring or not occurring, or
whether anything is or is not true.
Under this legal definition, prediction markets attach economic value to the outcome of a specific event or the determination of a fact, which means they share much of their structural core with betting, the central element of gambling.
The core of the regulatory debate ultimately comes down to a question of definition: whether to 1) bring prediction markets within the traditional gambling regulatory framework, 2) reclassify them under a financial architecture such as derivatives, or 3) establish them as an independent category through separate legislation.
2. The West: How Institutional Pathways Produced Different Outcomes
Compared to Asia, Western jurisdictions have a more permissive stance toward prediction markets, but not because of a cultural tolerance for gambling. It reflects the availability of institutional architecture that allows them to bypass a direct confrontation with gambling law. The main pathways were as follows.
United States: Prediction markets were classified as derivatives (swaps) under the Commodity Exchange Act and brought within the existing registration framework.
United Kingdom: The market was accommodated within a general-purpose “betting intermediary” licensing regime.
European Union: Where contracts are classified as financial instruments, a binary options ban applies; where that classification is avoided, strict national gambling laws present a second barrier.
The consistent pattern is that institutional incorporation was only possible in jurisdictions that possessed an alternative regulatory framework, derivatives law or a flexible licensing regime, independent of gambling statutes.
2.1. United States: Extending the Definition of Derivatives
The United States accommodated prediction markets not by endorsing the gambling framing but by applying the existing contract structure of the Commodity Exchange Act (CEA) in a purposeful way.
Commodity Futures Modernization Act of 2000 (CFMA): Established the foundation through an open-ended definition of “excluded commodity,” which allowed non-financial variables such as election outcomes and weather events to be classified alongside conventional commodities such as crude oil.
Dodd-Frank Act of 2010: Gave the CFTC two critical powers:
Exclusive federal jurisdiction over event contracts.
The authority under Rule 40.11 to prohibit individual contracts related to terrorism, assassination, war, and gaming.
Neither statute was designed with prediction markets in mind, but together they created the legal basis for treating such contracts as financial agreements rather than gambling. They also established a centralized regulatory counterparty in the CFTC, replacing what would otherwise have been a fragmented process of state-by-state lobbying.
The legal architecture that accumulated over time produced a market ordered around licensed entities.
In November 2020, Kalshi secured Designated Contract Market (DCM) status, allowing it to sell a broad range of event contracts to retail investors. Polymarket, after a 2022 enforcement action, moved toward regulatory compliance through its 2025 acquisition of licensed exchange QCEX.
2.2. United Kingdom: Incorporation Through a General Licensing Framework
Rather than treating prediction markets as an extension of derivatives, the UK approached them as a form of betting and used the existing Gambling Act 2005 to accommodate them within the regulatory perimeter. Three provisions were particularly important.
Section 9: Defines betting broadly enough to provide a flexible legal foundation for prediction markets.
Section 13, “betting intermediary”: Captures the structural feature of prediction markets precisely, as they match contracts between users rather than taking direct positions themselves.
Section 65(4): Allows the licensing categories to be adjusted by ministerial order, giving the framework the capacity to absorb new market models without separate legislation.
In February 2026, the Gambling Commission clarified that prediction market platforms fall within the “betting intermediary” category and must obtain the corresponding license. ,. Rather than a blanket prohibition, this constituted a clearly defined entry path, with strict penalties for unlicensed operation on one side and an open registration window on the other.
Despite this established framework, the major global platforms have been cautious about entering the UK market, for reasons rooted in their US litigation strategy.
Both Kalshi and Polymarket have staked considerable legal argument on the position that prediction contracts are financial derivatives rather than gambling. Obtaining a UK “betting intermediary” license would formally designate them as gambling operators, which would undermine their legal position in ongoing US proceedings.
This gave the UK a market environment shaped differently from the global standard, one that in practice created ideal conditions for UK-local operators to build their business. Matchbook, an existing betting exchange, drew on its betting intermediary license to launch “Matchbook Predictions” in January 2026, and Versus, a newer entrant, obtained a UKGC general betting license and launched its own prediction market.
2.3. Europe: Dual Closure Under Financial and Gambling Regulation
The regulatory landscape on the European continent combines financial regulation under MiFID II with individual national gambling laws to form a two-layer barrier.
Any contract classified as a financial instrument immediately encounters the binary options prohibition.
Any contract that escapes that classification then faces strict national gambling definitions.
In July 2026, the European Securities and Markets Authority (ESMA) made the financial regulation dimension explicit in an official statement, which stated that the binary payout structure of event contracts falls squarely within the scope of the binary options ban. This effectively closed the financial product route into the European market.
Prediction markets face equally difficult conditions under gambling law. France is the clearest illustration: the Autorité Nationale des Jeux (ANJ) implemented a phased enforcement escalation that concluded by classifying prediction market operations as illegal gambling.
The one exception is Gibraltar. In July 2026, Gibraltar designed a dedicated legislative framework, the Prediction Market Regulations, that defines prediction markets as a distinct “third category.” This is a strategy of creating a new pathway rather than working within the existing frameworks, but as Gibraltar is not an EU member state, the approach has the limitation of not being subject to mutual recognition within Europe.
The closed structure in Europe is not necessarily permanent, however. The European Commission has currently made the legal treatment of prediction markets a formal item under review as part of its Markets in Crypto-Assets Regulation (MiCA) review process. Depending on the conclusions of the report due in June 2027, the door remains open to a shift toward a new institutional framework for accommodating prediction markets.
3. Asia: The Present State of Institutional Absence
Asian jurisdictions have two structural obstacles that do not exist in the same form in Western markets.
State-controlled gambling licensing: There is no general-purpose licensing framework capable of accommodating private sector innovation in the manner of the UK’s “betting intermediary” category. Licensing authority is allocated through state-controlled monopoly structures.
Constraints on financial product classification: The financial laws of South Korea and Japan use closed, positive-list definitions of underlying assets, which makes the kind of broad reclassification the US achieved through the concept of “non-financial contingent events”, legally unavailable.
As the Western cases demonstrate, whether a prediction market takes hold depends on which path defines it, either existing financial product architecture or gambling regulation. The fundamental constraint facing Asian markets, however, is that neither classification system offers an institutional foundation capable of accommodating this new business model.
Legal betting markets already exist across Asia, in Japan, South Korea, Singapore, and Hong Kong, so any view that denies the market on grounds of emotional resistance or cultural specificity diverges considerably from the actual situation.
The central question, then, is not whether the market is socially accepted, but how a regulatory foundation could be designed to accommodate this new market model.
3.1. South Korea: Absent Architecture and Criminal Enforcement as the Default
Domestic discussion of prediction markets has not reached the stage of debating their legal status or social value. The existing regulatory framework treats them as speculative products by default, which cuts off substantive deliberation before it can begin.
The relevant statutory provisions are already in conflict with how prediction markets operate. The Act on Special Cases Concerning Regulation and Punishment of Speculative Acts covers “prize businesses,” defined as businesses that distribute money or property in exchange for correctly predicting the outcome of a specific event. This is structurally similar to what prediction markets do.
The legal question is not fully resolved, however. Prize business law presupposes a casino-style structure in which the operator directly controls the stake pool. Modern platforms such as Polymarket use a matching architecture in which the operator facilitates contracts between users rather than holding funds directly. No judicial interpretation has yet addressed how this structural difference would be treated under existing statutes.
The financial regulatory route is also closed. The Capital Markets Act uses a positive-list approach to defining underlying assets. While financial indicators are covered, there is no explicit basis for classifying non-financial variables such as election outcomes as derivatives.
Because the right to operate betting businesses is in any case reserved for state-monopoly entities, private platforms cannot enter the market through this channel either.
3.2. Japan: Sophisticated Workarounds and the Limits of an Informal Practice
Prediction markets in Japan have followed a pattern of regulatory workaround rather than institutional incorporation.
The method local platforms have adopted resembles the three-shop system, a mechanism that originated in the pachinko industry, in that it physically severs the direct cash flow within the operating process.
Platform operator: The platform blocks direct cash deposits and instead runs a free reward model based on activities such as watching advertisements. It also eliminates any cash exchange function within the platform itself, which removes “gain or loss through property” as a defining element of gambling.
Reward issuer: A third party independent of the platform issues the reward, such as a gift certificate, for a successful prediction. Separating the platform operator from the issuing entity removes the legal risk of the operator becoming a direct party to the exchange of rewards for cash.
External cash-out market: A peer-to-peer transfer market and affiliated merchants outside the platform form the ecosystem where the reward is actually spent or converted into cash. Because the operating platform does not participate in this distribution process, the structure remains independent and avoids meeting the legal elements of the offense of gambling.
This is ultimately an informal commercial practice that emerged in a regulatory grey zone rather than a structure built on firm legal footing. Global platforms are either blocked from the Japanese market or operating under strict constraints through cryptocurrency exchanges. The substantive level of policy discussion in Japan is not materially different from that in South Korea.
4. What Asian Markets Are Forgoing
The absence of institutional architecture in Asia does not mean that the market does not exist. More than $52 million (approximately ₩72.8 billion) in liquidity flowed into prediction markets tied to South Korea’s June 2026 local elections, demonstrating that user participation in offshore platforms has already crossed a meaningful threshold even without a domestic regulatory framework. These transactions fall outside the tax system, consumer protection mechanisms are absent, and market integrity oversight is impossible.
Regulators face three available responses:
Extend existing criminal statutes to impose sanctions (the current South Korean approach).
Use technical means to block platform access entirely (the Singapore model).
Bring prediction markets within the regulatory perimeter, capturing tax revenue and supervisory authority in the process.
Only the third option can precisely achieve the practical regulatory objectives of tax collection, consumer protection, and market transparency.
Global annual transaction volume in prediction markets is projected to exceed $200 billion in 2026. Assuming conservatively that South Korean domestic users account for 1% of that volume, transaction volume attributable to any given Asian market would reach $2 billion. Depending on the tax model adopted, that would generate estimated new annual tax revenue of between $4 million and $43.2 million.
The more important point is not the size of these figures in isolation. Without regulatory accommodation, these transactions will not disappear; they will continue in an unregulated environment. Regulators will forgo both tax and supervisory authority while continuing to bear administrative and criminal enforcement costs.
5. Reframing the Regulatory Approach to Prediction Markets
As noted above, the institutional accommodation of prediction markets depends on which existing regulatory architecture, gambling or financial product, is used to define them.
Gambling regulatory framework: This path adapts existing Asian models for state-approved speculative activities, such as sports betting pools or integrated resort casinos. It is consistent with the state monopoly structure and can be justified through the public fund rationale, but it has inherent limitations in accommodating the business models of private platforms.
Derivatives regulatory framework: This represents the most operationally viable path with the least legal friction. It would involve fine-tuning the definition of financial products, drawing on precedents such as the acceptance of non-financial variables under Japan’s Financial Instruments and Exchange Act (FIEA) or on the language of “economic risk” in Korea’s Capital Markets Act. This approach avoids direct conflict with existing state gambling monopolies while pre-empting concerns about speculation and market manipulation by limiting eligible underlying assets to publicly verifiable statistical variables.
Creation of a standalone third category: This involves designing a dedicated legislative framework, as Gibraltar has done. It allows for the most precise regulatory calibration but carries the highest legislative and political costs, given the absence of precedent.
It is worth noting that this is a long-term institutional undertaking rather than a near-term outcome. In many Asian jurisdictions, basic public discourse on the legal identity of prediction markets has not yet formed. Securing the legislative momentum necessary for any of these paths requires first establishing a public deliberative process and building broad social consensus on the value of prediction markets.
One point worth noting is that prediction markets remain an unfamiliar concept across Asia, and no entity has taken the lead in shaping discourse around the prediction market. As a result, even the most basic agenda items have yet to be discussed.
Precisely analyzing how prediction markets function overall requires a formal public forum, such as a public-private roundtable, built around the core issues raised above, and establishing one is now an urgent priority.
Even once that level of discussion is set, an entity capable of carrying it onto the actual policy table is essential. Specialized research organizations such as Limitless Research demonstrate data-driven forecasting models in practice, and in doing so play a central role in establishing the market’s value system and shaping public discourse.
The process by which organizations with specialized analytical capacity, beginning with Limitless Research, demonstrate the reliability and public value of their data will be the decisive catalyst that elevates the fragmented discourse on prediction markets into a core agenda item within the institutional system.
Prediction markets carry distinct benefits and risks, though reaching an institutional conclusion before that debate has even taken place would be a hasty approach that overlooks the core issue. What is needed now is the constructive discourse that has not yet occurred.
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This report was partially funded by Limitless. It was independently produced by our researchers using credible sources. The findings, recommendations, and opinions are based on information available at publication time and may change without notice. We disclaim liability for any losses from using this report or its contents and do not warrant its accuracy or completeness. The information may differ from others’ views. This report is for informational purposes only and is not legal, business, investment, or tax advice. References to securities or digital assets are for illustration only, not investment advice or offers. This material is not intended for investors.
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