In the fourth quarter of 2025, Kalshi recorded 3.76 million mobile app downloads, surpassing both DraftKings and FanDuel, two of the largest traditional sportsbook apps. If you haven't heard of Kalshi yet, you likely will soon. It is the #1 prediction market in the United States and the first federally regulated exchange in the U.S. dedicated to trading on the outcomes of future events.

Kalshi enables users to trade on the outcomes of nearly anything, including New York City's mayoral race, a potential government shutdown, award winners, the weather, and, of course, sporting events. As prediction markets continue to grow in popularity, Kalshi has quickly become one of the most recognizable names in the industry. Its rapid rise has sparked debate over whether it represents an innovative financial market or simply a new form of online gambling.

Sportsbook vs. Prediction Market

Despite allowing users to trade on the outcomes of sporting events, Kalshi is not a sportsbook. With a traditional sportsbook, you place a bet against the sportsbook itself. If your prediction is correct, the sportsbook pays your winnings. If you're wrong, you lose the money you wagered.

Kalshi, by contrast, is a prediction market, which is a type of Designated Contract Market. This designation allows users to trade event contracts that are structured as swaps—financial contracts that derive their value from an underlying asset, which, in this case, is the outcome of an event.

Each contract is priced between $0.01 and $0.99, with the price representing the market's estimated probability of an outcome occurring. For example, if a contract is trading at $0.30, the market is estimating a 30% chance that the event will occur. As more people buy contracts predicting that the outcome will happen, the contract price increases accordingly.

Kalshi markets itself as a peer-to-peer exchange, meaning users are not betting against Kalshi itself but rather against other traders willing to take the opposite side of the contract. So, how does Kalshi make money? Primarily by charging transaction fees.

History of Futures

Kalshi is not the first Designated Contract Market, and event contracts are not what futures trading was originally designed for. A futures contract is a standardized agreement to buy or sell an asset at a predetermined price on a specified future date.

The origins of futures trading date back to 1848, when grain farmers and merchants established the Chicago Board of Trade. Grain buyers wanted assurance that they would receive a consistent quality and quantity of grain regardless of what happened during the growing and harvesting season. Farmers, meanwhile, wanted to lock in a stable price and guaranteed demand, even if there was an overabundance of crops or a competing product became less expensive. Futures contracts allowed both parties to hedge against uncertainty.

For futures markets to function efficiently, contracts needed to be fungible, meaning interchangeable. Traders knew that every grain contract represented the same quantity and quality, making contracts easy to buy and sell while reducing uncertainty. Over time, additional laws were enacted to prevent market manipulation, leading to the creation of the Commodity Futures Trading Commission (CFTC). As financial markets evolved, futures trading expanded beyond agriculture to include commodities such as oil, natural gas, precious metals, and other assets.

How Kalshi Is a Futures Exchange & Why It Is Regulated by the CFTC

Traditionally, futures trading involved standardized, fungible contracts tied to the future delivery of a physical commodity. That changed in 2004 when the CFTC approved HedgeStreet Inc. as the first Designated Contract Market authorized to offer yes-or-no event contracts, also known as binary contracts.

Rather than speculating on the future price of a commodity, traders could now speculate on the outcome of an event. Like traditional futures contracts, event contracts are transparent, fungible, and fluctuate in price as the resolution date approaches. Instead of ending with the delivery of a commodity, however, these contracts simply resolve based on whether the event occurs.

Like traditional futures, event contracts can be bought and sold at any time before they resolve, with the market determining their price. The CFTC has designated Kalshi as a prediction market, giving the agency federal regulatory authority over its event contracts. As a result, despite the legal restrictions surrounding sports betting in many states, Kalshi argues that it operates under federal commodities law rather than state gambling law, allowing it to offer sports-related event contracts nationwide.

Legal Challenges Facing Kalshi

As a Designated Contract Market, Kalshi faces federal lawsuits in 18 states. Gaming is prohibited under federal law for event contracts, and many of these lawsuits argue that buying sports-related event contracts on Kalshi constitutes gambling.

Because approximately 90% of Kalshi's activity is sports-related, plaintiffs argue that the platform should be classified as a sports betting company. If that classification were accepted, existing state gambling laws and regulations would apply. Kalshi, however, argues that its event contracts do not constitute gaming. Because they are federally regulated financial products, the company maintains that state gambling laws do not apply.

States are not the only parties challenging Kalshi's legal classification. On November 26, 2025, a class action lawsuit was filed against the company, alleging that it operates an illegal sports betting platform in states where sports betting is prohibited or heavily regulated. The lawsuit also alleges that Kalshi has marketed itself as a legal way to bet on sports and has even used the phrase "sports betting" in several advertisements.

In addition, the lawsuit claims that, despite marketing itself as a peer-to-peer prediction market, Kalshi uses subsidiaries to trade against its own customers. If these allegations are true, Kalshi would effectively be operating as a traditional sportsbook by using affiliated entities to purchase contracts and potentially influence market prices in its favor. This would mean traders are not simply taking positions against other market participants, but potentially against Kalshi itself.

Kalshi's marketing as a peer-to-peer marketplace creates the impression that the company profits only from transaction fees rather than customer losses. However, if the allegations in the class action lawsuit prove to be true, Kalshi's business model would more closely resemble that of a traditional sportsbook. If that were the case, the company could lose its ability to operate in states where sports betting remains illegal.

The Commodity Futures Trading Commission (CFTC) has also entered the legal debate by challenging a Minnesota law that would criminalize prediction markets, making Minnesota the first state to attempt such legislation. Because Kalshi operates as a federally regulated Designated Contract Market, both the CFTC and Kalshi argue that Minnesota's law violates the Supremacy Clause of the U.S. Constitution, which establishes that federal law prevails when it directly conflicts with state law.

Minnesota is the third state in which Kalshi has sought to block enforcement of restrictions on its business, following similar legal battles in New Jersey and Arizona. The CFTC has also filed lawsuits against several other states challenging their efforts to restrict prediction markets. In a public statement, the agency emphasized that Congress granted the CFTC exclusive jurisdiction over derivative products—including event contracts—decades ago. CFTC Chairman Michael S. Selig stated that the agency's legal action serves as a message to Wisconsin and other states attempting to regulate prediction markets, making clear that the CFTC will defend its exclusive authority over federally regulated financial markets.

Addiction Concerns

According to one survey, 85% of Americans believe prediction markets involving sports constitute gambling. With Kalshi available in all 50 states and accessible to users ages 18 and older, concerns have emerged about gambling addiction, particularly among high school seniors and college students who would otherwise be unable to legally place sports bets in many states.

From a neurological standpoint, these concerns are especially relevant for younger users. The prefrontal cortex, which is responsible for impulse control and decision-making, is not fully developed until approximately age 25. As a result, young adults may be more susceptible to developing gambling-related problems.

Kalshi also makes participating remarkably simple. A user can download the app, create an account, and place a trade within minutes. As one individual told The Guardian, "You can just be in your boxers, laying in bed, betting your rent away." The ease of placing trades on virtually any event raises legitimate concerns about impulsive gambling behavior.

Lia Nower, Director of Rutgers University's Center for Gambling Studies, argues that "the more people gamble, the more activities they gamble on, and the more ways they gamble, the more likely they are to develop a problem." Like traditional sportsbooks, prediction markets produce more losers than winners. According to Kalshi's Head of Communications, Elisabeth Diana, losing traders outnumber winning traders by approximately 2.9 to 1.

Kalshi as a Tool

Kalshi is expanding beyond simply generating revenue through transaction fees. Both CNN and Fox News have partnered with the platform to display real-time Kalshi tickers during their broadcasts. These partnerships also allow journalists and news anchors to reference Kalshi probabilities as part of their election and current events coverage.

Because thousands of participants are continuously buying and selling contracts based on new information, Kalshi has also become a forecasting tool. During the New York City mayoral race, Kalshi effectively predicted Zohran Mamdani's victory almost immediately after polls closed—hours before major news organizations officially called the race.

Institutional Investors

Kalshi's rapid growth has also attracted institutional investors. An institutional investor is an organization that invests money on behalf of its clients, such as banks, insurance companies, pension funds, or mutual funds.

As prediction markets have grown, institutional trading volume on Kalshi has increased by 800% over the past six months. Many of these investors purchase contracts tied to scheduled economic events, such as payroll reports and other macroeconomic data releases.

According to Devin Ryan, Head of Financial Technology Research at Citizens JMP, one of prediction markets' biggest advantages is "the ability to isolate a specific risk factor in real time with greater precision and without the noise of any other investment product."

Despite this growing interest, prediction markets still have limitations that discourage larger institutional participation. Large trades can move market prices significantly because overall liquidity remains relatively limited. For example, some of Polymarket's largest markets—the world's largest prediction market and the second largest in the United States—contain only about $30 million in total liquidity. If an institutional investor places several million dollars into a single market, that transaction alone can substantially distort prices and reduce the market's usefulness as a forecasting tool.

The Future of Prediction Markets

Whether Americans support or oppose prediction markets, there is no denying that activity on Kalshi continues to accelerate. Celebrity endorsements and investments from high-profile shareholders, including Milwaukee Bucks superstar Giannis Antetokounmpo, have increased the platform's visibility, while partnerships with major news organizations, live television tickers, and aggressive advertising campaigns continue to fuel its growth.

The ability to hedge risk—or speculate on the outcome of nearly any event—makes prediction markets both appealing and highly accessible. Even if ongoing lawsuits ultimately result in sports event contracts being classified as gambling, countless other event markets would remain available on Kalshi. With continued backing from the CFTC, prediction markets appear poised to remain a lasting part of the American financial landscape.