The history of prediction markets goes back centuries, but the modern version began in 1988, when University of Iowa professors launched a small real-money market on the US presidential election. From there the idea passed through academic experiments, offshore websites like Intrade, a decade of court fights and, by 2025–2026, large regulated exchanges such as Kalshi and Polymarket US. This guide walks through each stage in plain language, with dates, the people involved and how US regulation shaped what exists today.
Key takeaways
- People have wagered on elections and other events for centuries; organized US election betting was common in New York between 1868 and 1940.
- The Iowa Electronic Markets (1988) are widely considered the first modern prediction market and still run under a CFTC no-action letter.
- Intrade showed there was commercial demand, but it shut down in 2013 after a CFTC lawsuit.
- Kalshi became the first CFTC-designated exchange for event contracts in 2020; Polymarket returned to the US in 2025 by acquiring a licensed exchange.
- As of October 2026, federal regulators and many states still disagree over who gets to regulate these markets.
Before the internet: betting on elections
Wagering on uncertain events is far older than any website. Records from 1503 about bets on who would become the next pope already describe the habit as an "old practice".
In the United States, that instinct became surprisingly organized. Between 1868 and 1940, markets for betting on presidential elections operated openly in New York, first around Wall Street and the Curb Exchange and later through so-called "betting commissioners". In some years the money changing hands rivaled the volume on the stock market.
Economists Paul Rhode and Koleman Strumpf later studied these markets in detail. They found that between 1884 and 1940 the candidate favored in mid-October went on to win 11 of 15 elections, about 73% of the time. The clearest miss was 1916, when Woodrow Wilson won despite trailing in the betting.
These markets faded for several reasons at once. Scientific polling arrived, with Gallup's work around the 1936 election giving the public a new way to gauge a race. Authorities cracked down harder on gambling. And other legal options appeared: New York, for example, legalized betting on horse races in 1939. By the 1940s, organized election betting in the US had largely disappeared.
1988: the Iowa Electronic Markets
The modern era starts in a university economics department. In 1988, University of Iowa professors George Neumann, Robert Forsythe and Forrest Nelson launched what was first called the Iowa Political Stock Market, built around that year's presidential election.
The design was deliberately small. Participants traded with real money, but each trader could put in no more than $500, and at first only members of the university community could take part. The goal was research, not profit: the professors wanted to see whether a market's prices could aggregate what many people knew and turn it into a useful forecast.
The project grew into the Iowa Electronic Markets (IEM), and it is widely considered the first modern prediction market. Its basic mechanics would look familiar to anyone who has used a platform today. Each contract pays out depending on what actually happens, so its price can be read as the crowd's estimate of how likely that outcome is. If you want a refresher on that idea, our guide to how prediction markets work explains it step by step.
The results drew attention. A 2008 study compared IEM prices with 964 polls across five presidential elections, from 1988 to 2004, and found that the market's forecast was closer to the final result about 74% of the time.
The no-action letter model (1992–1993)
A real-money market on elections raised an obvious question: was it legal? In the US, contracts whose payout depends on a future event can fall under the authority of the Commodity Futures Trading Commission (CFTC), the federal agency that oversees futures and similar derivatives.
Rather than forcing the Iowa project to register as a full exchange, CFTC staff took a lighter route. In February 1992 they issued a no-action letter for the Iowa presidential market, and in 1993 a second letter covered the broader Iowa Electronic Markets, which by then also listed contracts on corporate earnings and economic indicators. In plain terms, the agency said it would not recommend enforcement as long as the market stayed small, academic and within agreed limits.
That arrangement became a template. IEM still operates under it today, and two decades later another academic market would ask for the same kind of treatment. It also set up a tension that runs through the rest of this story: a no-action letter is a staff position, not a law, and what staff grant they can also take back.
Key terms
- Event contract: a contract that pays a fixed amount if a specific event happens (for example, "Candidate X wins") and nothing if it doesn't. Its price reflects the market's estimate of the probability. See our glossary entry on the event contract.
- No-action letter: a letter from CFTC staff saying they will not recommend enforcement against a specific activity if it follows stated conditions. It is not a license and can be withdrawn.
- Designated contract market (DCM): a fully registered US exchange approved by the CFTC to list futures and similar contracts, with rules on surveillance, customer protection and market integrity.
Intrade and the first commercial wave (1999–2013)
Once the internet made trading easy, it did not take long for the idea to go commercial. In 1999, John Delaney founded TradeSports in Ireland, which later became Intrade. It grew into the best-known commercial prediction market of its time, listing contracts on politics, finance, entertainment and current events.
During the 2000s, Intrade prices were quoted in newspapers and on television, especially around US elections. For many people it was their first contact with the notion that a market price could be read as a probability.
The trouble was that Intrade served American customers without being registered in the US. On November 26, 2012, the CFTC sued Intrade, alleging that it had offered unregistered options to US residents. The company closed American accounts in December 2012. Then, on March 10, 2013, it suspended all trading worldwide, citing "financial irregularities". The first big commercial wave ended not with a gradual decline but with a sudden stop.
Sidebar: Hollywood Stock Exchange. The same idea reached entertainment through the Hollywood Stock Exchange (HSX), a web-based game in which players used simulated money to buy and sell "shares" in actors, directors and films. It was co-created by Max Keiser and Michael Burns, who received a US patent for it in 1999, and it was later acquired by units of Cantor Fitzgerald. Because nobody traded real money, HSX sat outside the regulatory debate, but it showed how naturally people take to pricing future outcomes.
Sidebar: the "terrorism futures" episode. In July 2003, news broke about the Policy Analysis Market, a research project funded by the Pentagon's DARPA and developed by economist Robin Hanson and colleagues. It aimed to use market prices to forecast geopolitical developments in the Middle East. Critics labeled it "terrorism futures", and the project was cancelled within about a day, on July 29, 2003. The episode is still cited as an example of how strongly the public can react to markets on sensitive topics.
PredictIt, Kalshi and Polymarket: a new generation (2014–2022)
After Intrade's collapse, the next US-facing market came from academia again. In October 2014, CFTC staff granted a no-action letter to PredictIt, a political market run by Victoria University of Wellington in New Zealand. Its limits were modeled on IEM, though somewhat larger: up to $850 per trader in each market and no more than 5,000 traders per market. Our PredictIt review covers how the platform works for users.
Meanwhile, two startups took very different paths. Kalshi, founded in 2018, chose to seek full approval as a regulated exchange. On November 4, 2020, the CFTC designated Kalshi as a designated contract market, making it the first exchange dedicated to event contracts. It opened to the public in 2021.
Polymarket launched publicly in June 2020 as a crypto-based platform, settling trades in digital dollars on a blockchain. It grew quickly but did not register with US regulators. In January 2022 it settled with the CFTC, paying a $1.4 million penalty over unregistered event contracts, and it blocked US users. Our guide to what Polymarket is explains how the platform works today.
PredictIt's position also became shaky. On August 4, 2022, the CFTC withdrew its no-action letter and ordered it to wind down by February 15, 2023. PredictIt and its supporters sued. In January 2023, and again in July 2023, the Fifth Circuit Court of Appeals, in Clarke v. CFTC, sided with them on preliminary relief, treating the withdrawal as agency action that courts can review. PredictIt kept operating.
Kalshi's Founders: Tarek Mansour and Luana Lopes Lara
Kalshi was founded in 2018 by Tarek Mansour and Luana Lopes Lara. Both studied at MIT, and they set out to build a regulated US exchange where people could trade directly on the outcome of events.
According to the company's own account, Mansour had previously worked at Goldman Sachs and Citadel, while Lopes Lara had worked at Bridgewater and Citadel. In those jobs they saw that large institutions often wanted exposure to specific events but had no direct way to get it, so they relied on complex proxies built from other financial products.
Their answer was to ask for permission first rather than forgiveness later. Instead of launching offshore, they pursued CFTC designation, a slower route that paid off in 2020 and later gave Kalshi standing to challenge the regulator in court. If you want a closer look at the platform itself, see our Kalshi review.
Polymarket's founder
Polymarket was founded by Shayne Coplan, who remains the company's founder and CEO. He launched the platform in 2020 with a crypto-first design, which explains both its fast early growth and its 2022 settlement with the CFTC. Polymarket is a private company backed by outside investors, including Intercontinental Exchange.
Courts, elections and the 2024 turning point
The question of whether Americans could trade on elections came to a head with Kalshi. On September 22, 2023, the CFTC barred Kalshi from listing contracts on which party would control Congress. Kalshi sued in November 2023.
On September 6, 2024, Judge Jia Cobb of the US District Court for the District of Columbia ruled in Kalshi's favor. The CFTC appealed and asked the D.C. Circuit to block trading in the meantime, but on October 2, 2024, the appeals court declined. Kalshi's election markets went live weeks before the presidential vote. On May 7, 2025, the CFTC dropped its appeal, leaving the ruling in place.
Outside the US, the 2024 election became Polymarket's breakout moment. Its presidential market drew roughly $3.7 billion in trading volume, offered to users outside the United States.
The attention brought scrutiny too. On November 13, 2024, the FBI searched Shayne Coplan's New York apartment; Polymarket described the action as politically motivated. In July 2025, the Department of Justice and the CFTC closed their investigations into Polymarket without taking further action.
2025: sports, big money and Polymarket's return to the US
In January 2025, Kalshi launched sports contracts. They quickly became the large majority of its trading volume.
Polymarket, meanwhile, found a route back into the US. In July 2025 it acquired QCEX, a CFTC-licensed exchange and clearinghouse, for $112 million, creating QCX LLC, which operates as Polymarket US. In September 2025, CFTC staff issued a no-action letter regarding its event contracts, and in November 2025 the CFTC issued an amended order of designation that allowed intermediated trading. On December 2, 2025, the Polymarket US launch began with an app rolled out gradually from a waitlist, starting with sports. Our Polymarket US app guide explains how it works and who can use it.
Polymarket and Kalshi Valuations: How Much Are They Worth?
Based on press reports, Kalshi was valued at about $22 billion after a funding round in May 2026, and Polymarket at roughly $9 billion after Intercontinental Exchange's investment announced in October 2025. Both are private companies, so these figures are reported estimates from funding rounds, not prices anyone can trade.
The Kalshi valuation rose very quickly. It was reported at about $2 billion after a $185 million round in mid-2025, then $11 billion in a round in December 2025. On May 7, 2026, Forbes reported a $1 billion round led by Coatue at about $22 billion, with investors including Sequoia, Andreessen Horowitz, Morgan Stanley and ARK Invest.
The Polymarket valuation story centers on Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange. ICE announced an investment of up to $2 billion in October 2025, reportedly valuing Polymarket at about $9 billion post-money. The commitment was completed in stages through March 2026, and ICE also gained rights to distribute Polymarket's event data.
| Date | Company | Reported valuation | Event |
|---|---|---|---|
| Mid-2025 | Kalshi | About $2 billion | $185 million funding round |
| October 2025 | Polymarket | About $9 billion (post-money) | ICE announces investment of up to $2 billion |
| December 2025 | Kalshi | About $11 billion | Funding round |
| May 2026 | Kalshi | About $22 billion | $1 billion round led by Coatue |
Private valuations change fast and are set by a small group of investors at a single moment. Treat them as a snapshot and check recent news for anything newer.
2026: federal vs. state regulation
As of October 2026, the biggest open question is who regulates these markets: the federal government or the states. This area changes quickly, so read what follows as a summary of where things stood, not as legal advice.
Early in 2026 the CFTC withdrew a 2024 proposal that would have restricted political and sports event contracts. On March 16, 2026, it published an advance notice of proposed rulemaking, and on June 10, 2026, it issued a new proposed rule on event contracts, with the comment period closing on July 27, 2026.
At the same time, the fight moved to the courts. On April 2, 2026, the CFTC and the Department of Justice sued Arizona, Connecticut and Illinois, arguing that federal law preempts state efforts to regulate these exchanges. On April 6, 2026, the Third Circuit, in Kalshi v. New Jersey, upheld an injunction that stops New Jersey from enforcing its gambling laws against Kalshi's sports contracts. It was the first federal appeals court to hold that the Commodity Exchange Act preempts state gambling law for these contracts.
States pushed back. In late July 2026, attorneys general from 44 states sent a joint letter disputing the CFTC's authority over sports event contracts. Other courts have sided with states, so the issue remains unresolved and is widely expected to reach the Supreme Court. For what this means for individual users today, see our guide on whether Polymarket is legal in the US.
Timeline: the history of prediction markets
| Year | What happened |
|---|---|
| 1503 | Records of wagers on papal successions call the habit an "old practice" |
| 1868–1940 | Organized presidential election betting operates in New York |
| 1988 | University of Iowa launches the Iowa Political Stock Market |
| 1992–1993 | CFTC staff issue no-action letters for the Iowa markets |
| 1999 | TradeSports, later Intrade, is founded in Ireland |
| 2003 | DARPA's Policy Analysis Market is cancelled after public criticism |
| 2012–2013 | CFTC sues Intrade; it closes US accounts and then halts all trading |
| 2014 | PredictIt receives a CFTC no-action letter |
| 2018 | Kalshi is founded |
| 2020 | Polymarket launches; Kalshi becomes a designated contract market |
| 2022 | Polymarket settles with the CFTC; CFTC moves to wind down PredictIt |
| 2023 | Fifth Circuit sides with PredictIt; CFTC bars Kalshi's Congress contracts |
| 2024 | Court rules for Kalshi; election markets go live; Polymarket election volume reaches about $3.7 billion |
| 2025 | Kalshi adds sports; Polymarket buys QCEX and starts rolling out Polymarket US |
| 2026 | CFTC proposes new rules; federal–state legal fight escalates |
What this history teaches us
Regulation decides who survives. Intrade had users and attention but no US registration, and it disappeared. Kalshi took the slower regulated route and became a major exchange. Polymarket only returned to the US after buying a licensed one.
The same debate keeps coming back. Whether these contracts are financial tools or gambling was argued in 1940s New York, in 2003 over the Pentagon project, and again in today's courtrooms. The arguments change less than the technology does.
Accuracy is real but limited. Studies of historical election betting and of IEM show that market prices often carry useful information, but favorites still lose, as in 1916. A price is an estimate, not a guarantee; our guide to reading odds and prices explains how to interpret them.
Growth brings scrutiny. Each time prediction markets have become popular, from Intrade in the 2000s to the 2024 election, regulators and lawmakers have paid closer attention.
Want to see a modern prediction market in action?
If you're curious how today's platforms present prices and probabilities, you can browse Polymarket's markets without trading anything. Before putting money at risk, read our beginner guide on how to trade on Polymarket.
Related reading
- How prediction markets work
- What is Polymarket?
- Is Polymarket legal in the US?
- Kalshi review
- Polymarket vs Kalshi compared
- Best prediction market platforms compared
Sources
- Rhode & Strumpf, "Historical Presidential Betting Markets", Journal of Economic Perspectives (2004) — https://doi.org/10.1257/0895330041371277
- Iowa Electronic Markets — https://iem.uiowa.edu
- Robin Hanson, Policy Analysis Market archive — https://mason.gmu.edu/~rhanson/policyanalysismarket.html
- Wikipedia, Hollywood Stock Exchange — https://en.wikipedia.org/wiki/Hollywood_Stock_Exchange
- Time, Intrade shuts down (2013) — https://business.time.com/2013/03/11/online-predictions-market-intrade-shuts-down-months-after-federal-lawsuit/
- US Court of Appeals for the Fifth Circuit, opinion No. 22-51124 — https://www.ca5.uscourts.gov/opinions/pub/22/22-51124-CV0.pdf
- Kalshi, About — https://kalshi.com/about
- Kalshi, DCM designation announcement (Nov 2020) — https://news.kalshi.com/p/kalshi-designation
- Forbes on Kalshi's May 2026 round — https://www.forbes.com/sites/aliciapark/2026/05/07/kalshi-billionaire-cofounders-double-their-net-worths-with-another-funding-round/
- Legal Sports Report on Kalshi's 2025 round — https://www.legalsportsreport.com/236579/kalshi-hits-2b-valuation-on-back-of-sports-contract-boom/
- crypto.news on ICE and Polymarket — https://crypto.news/ice-polymarket-kalshi-exchanges-prediction-markets/
- Congressional Research Service on the 2026 CFTC proposed rule — https://www.congress.gov/crs-product/LSB11441
- Holland & Knight on the Third Circuit decision — https://www.hklaw.com/en/insights/publications/2026/04/federal-appeals-court-cftc-jurisdiction-over-sports-event-contracts
- CNBC on the 44-state letter — https://www.cnbc.com/2026/07/28/44-states-say-cftc-has-no-authority-over-sports-prediction-markets.html