EU Regulator Highlights Risks in Prediction Markets
- The European Securities and Markets Authority (ESMA) reported that prediction markets are “rife with inside trading,” highlighting several cases of insider trading and manipulation.
- Prediction markets have struggled to gain traction in the EU due to regulations that prevent selling event contracts to retail investors, unlike the U.S., where regulators debate which contracts to allow.
- ESMA noted a significant increase in prediction market volumes, with Kalshi and Polymarket reaching a combined monthly volume of $44.8 billion by June, driven largely by sports events.
- A Wall Street Journal analysis found that a small fraction (0.1%) of accounts on Polymarket earned the majority (67%) of gains, while most users experienced losses.
The ESMA’s report underscores the regulatory challenges faced by prediction markets in Europe compared to the more permissive stance in the U.S., where debates focus on contract types rather than outright bans. This highlights differing regulatory approaches between regions.
Despite regulatory hurdles, prediction market volumes have surged, indicating strong user interest even as most traders face financial losses due to concentrated gains among few accounts (Source).
