Asian Prediction Markets Remain in a Gray Area, Lacking a Comprehensive Regulatory Framework

The West has established paths, while Asia neither recognizes derivatives nor gambling.

Written by: @ryanyoon_eth (Tiger Research)

Compiled by: AididiaoJP, Foresight News

Core Points

The Asian market lacks the regulatory framework necessary to classify prediction markets, forcing regulators to leave them in a gray area.

In contrast, Western jurisdictions have utilized existing frameworks—derivatives regulation in the U.S. and gambling laws in the U.K.—to create clear entry paths for operators and establish regulatory oversight.

The absence of a framework in Asia does not suppress market activity; offshore platforms have seen significant liquidity inflows, but they cannot be taxed, nor can consumer protection be discussed.

To establish a regulatory foundation, public discussions must first determine whether prediction markets should be classified as derivatives, gambling, or a new third category.

The Importance of Definition and Classification

Prediction markets hold value as information platforms, yet the law has never drawn a clear line between them and gambling.

This raises the question: how does the law define gambling, particularly betting?

Section 9 of the U.K. Gambling Act 2005 provides a broad definition of betting subjects, stating that any activity involving monetary value falls under gambling regulation:

• The outcome of a match, competition, or other event or process;
• The likelihood of something happening or not happening;
• Whether something is true or not.

According to this legal definition, prediction markets attach economic value to specific event outcomes or factual determinations, thus structurally overlapping with the core element of gambling—betting.

The core of the regulatory debate ultimately hinges on the definition issue: should prediction markets be 1) included in the traditional gambling regulatory framework, 2) reclassified under derivatives or other financial structures, or 3) established as an independent category through separate legislation?

The West: How Institutional Paths Lead to Different Outcomes

Compared to Asia, Western jurisdictions have a more lenient attitude towards prediction markets, but this is not due to cultural tolerance for gambling; rather, it is because there are institutional frameworks that can circumvent direct confrontation with gambling laws. The main paths are as follows:

• United States: Classifies prediction markets as derivatives under the Commodity Exchange Act (CEA), incorporating them into existing registration frameworks.
• United Kingdom: Accommodates them through a general "betting intermediary" licensing system.
• European Union: Once a contract is recognized as a financial instrument, it falls under the binary options prohibition; if it avoids this classification, it will encounter strict national gambling laws.

The consistent pattern is that only jurisdictions with alternative regulatory frameworks independent of gambling laws (derivatives laws or flexible licensing systems) can achieve institutional accommodation.

United States: Expanding the Definition of Derivatives

The U.S. does not accommodate prediction markets by recognizing a "gambling" framework but purposefully employs existing contract structures under the Commodity Exchange Act (CEA).

The Commodity Futures Modernization Act of 2000 (CFMA): Established a foundation through the open definition of "excluded commodities," allowing non-financial variables like election results and weather events to be classified alongside traditional commodities like crude oil.

The Dodd-Frank Act of 2010: Grants the CFTC two key powers:

• Exclusive federal jurisdiction over event contracts;
• Prohibits individual contracts related to terrorism, assassination, war, and gambling under Rule 40.11.

Neither of these laws was designed for prediction markets, but together they provide a legal basis for treating such contracts as financial agreements rather than gambling. They also establish the CFTC as a centralized regulatory counterparty, replacing the previously fragmented state-by-state lobbying process.

The long-accumulated legal framework ultimately formed a market order centered around licensed entities.

In November 2020, Kalshi obtained Designated Contract Market (DCM) status, allowing it to sell a wide range of event contracts to retail investors. Polymarket moved towards compliance after enforcement actions in 2022 by acquiring the licensed exchange QCEX by 2025.

United Kingdom: Accommodating Through a General Licensing Framework

The U.K. does not view prediction markets as an extension of derivatives but rather as a form of betting, incorporating them into the regulatory framework through the existing Gambling Act of 2005. Three clauses are particularly critical:

• Section 9: The definition of betting is broad enough to provide a flexible legal basis for prediction markets.
• Section 13 "Betting Intermediary": Accurately captures the structural characteristics of prediction markets—they match contracts between users rather than holding positions directly.
• Section 65(4): Allows for adjustments to licensing categories through ministerial orders, enabling the framework to absorb new market models without additional legislation.

In February 2026, the Gambling Commission explicitly stated that prediction market platforms fall under the "betting intermediary" category and must obtain the corresponding license. This is not a blanket prohibition but a clear entry path: on one side, severe penalties for unlicensed operations, and on the other, an open registration window.

Despite the established framework, major global platforms remain cautious about entering the U.K. market due to their litigation strategies in the U.S.

Both Kalshi and Polymarket have placed significant legal arguments on the stance that "prediction contracts are financial derivatives rather than gambling." Obtaining a "betting intermediary" license in the U.K. would equate to being formally recognized as a gambling operator, which would weaken their legal position in ongoing litigation in the U.S.

This has created a market environment in the U.K. that differs from global standards, effectively creating ideal conditions for local operators. The existing betting exchange Matchbook utilized its betting intermediary license to launch "Matchbook Predictions" in January 2026; new entrant Versus obtained a general betting license from the UKGC to launch its own prediction market.

Europe: Dual Lockdown of Financial and Gambling Regulation

The regulatory landscape in continental Europe combines financial regulation under MiFID II with national gambling laws, creating dual barriers.

Any contract deemed a financial instrument immediately collides with the binary options prohibition.

Any contract escaping this classification faces strict national gambling definitions.

In July 2026, the European Securities and Markets Authority (ESMA) clarified the financial regulatory dimension in an official statement, indicating that the binary payout structure of event contracts falls entirely within the scope of the binary options prohibition. This effectively closes the path for entering the European market in the form of financial products.

Under gambling laws, prediction markets also face difficulties. France is the clearest example: the National Gaming Authority (ANJ) has implemented a phased enforcement upgrade, ultimately classifying prediction market operations as illegal gambling.

The only exception is Gibraltar. In July 2026, Gibraltar designed a dedicated legislative framework—the "Prediction Markets Regulations," defining prediction markets as an independent "third category." This is a strategy to create new paths rather than operate within existing frameworks, but Gibraltar is not an EU member, so it cannot gain mutual recognition within Europe.

The closed structure in Europe is not necessarily permanent. The European Commission has currently included the legal treatment of prediction markets as a formal topic in the review process of the Markets in Crypto-Assets Regulation (MiCA). Depending on the conclusions of the report due in June 2027, there remains the possibility of shifting towards a new institutional framework to accommodate prediction markets.

Asia: The Current State of Institutional Absence

Asian jurisdictions face two structural barriers that do not exist in Western markets.

State-controlled gambling licenses: There is no general licensing framework like the U.K. "betting intermediary" that can accommodate private sector innovation. Licensing rights are distributed through a state monopoly structure.

Constraints of financial product classification: Financial laws in South Korea and Japan adopt a closed positive list definition for underlying assets, making the broad reclassification achieved in the U.S. through the concept of "non-financial or event" legally unavailable.

Western examples show that whether prediction markets can take root depends on which path defines them—existing financial product frameworks or gambling regulation. The fundamental constraint faced by Asian markets is that neither classification system can provide an institutional foundation for this new business model.

Asia already has legal gambling markets (Japan, South Korea, Singapore, Hong Kong), so any argument denying the market on emotional or cultural grounds is far removed from reality.

The core issue is not whether the market is socially accepted, but how to design a regulatory foundation to accommodate this new market model.

South Korea: Absence of Structure, Criminal Enforcement as Default

Discussions about prediction markets in South Korea have yet to enter the stage of debating their legal status or social value. The existing regulatory framework defaults to viewing them as speculative products, and substantive discussions have been cut off before they even begin.

Relevant legal provisions conflict with the operational methods of prediction markets. The "Special Act on the Regulation and Punishment of Speculative Behavior" covers "prize businesses," defined as businesses that distribute money or property through correctly predicting specific event outcomes. This is structurally similar to prediction markets.

Legal issues have not been fully resolved. The prize business law presupposes a casino-like structure, where operators directly control the funds pool. In contrast, modern platforms like Polymarket adopt a matching structure, where operators merely facilitate contracts between users without directly holding funds. Currently, there is no judicial interpretation explaining how this structural difference is handled under existing legal provisions.

The financial regulatory path is also closed. The Capital Markets Act adopts a positive list for underlying assets. Financial indicators are covered, but there is no clear basis for classifying non-financial variables like election results as derivatives.

Moreover, the right to operate gambling businesses is reserved for state monopoly entities, and private platforms cannot enter the market through this channel.

Japan: Limitations of Ingenious Workarounds and Informal Practices

Japan's prediction markets have taken a path of regulatory workaround rather than institutional accommodation.

Local platforms employ methods similar to the "three-store system" originating from the pachinko industry—physically severing direct cash flow during operations.

Platform operators: The platform prohibits direct cash deposits, instead adopting a free reward model based on activities like watching advertisements. At the same time, any cash exchange functions within the platform are eliminated, thereby removing the element of "profit or loss through property" from the definition of gambling.

Reward issuers: Independent third parties issue rewards (such as gift vouchers) for successful predictions, separating the platform operators from the issuers, thus eliminating the legal risks of operators becoming direct parties to the reward and cash exchange.

External redemption markets: Peer-to-peer transfer markets and associated merchants outside the platform constitute an ecosystem for actual consumption or cash redemption of rewards. Since the operating platform does not participate in this distribution process, the structure remains independent, avoiding touching the legal elements of gambling offenses.

Ultimately, this is an informal business practice emerging in a regulatory gray area rather than a structure built on a solid legal foundation. Global platforms are either blocked from the Japanese market or operate under strict restrictions through cryptocurrency exchanges. The substantive level of policy discussions in Japan is not much different from that in South Korea.

What Asia is Abandoning

The absence of institutional frameworks in Asia does not mean that markets do not exist. The prediction market related to the local elections in South Korea in June 2026 has already seen liquidity inflows exceeding $52 million (approximately 72.8 billion KRW), indicating that even without a domestic regulatory framework, the scale of participation in offshore platforms has crossed a meaningful threshold. These transactions fall outside the tax system, lack consumer protection mechanisms, and cannot ensure market integrity oversight.

Regulators have three possible responses:

• Extend existing criminal legal provisions to impose sanctions (current practice in South Korea).
• Use technical means to completely block platform access (Singapore model).
• Incorporate prediction markets into the regulatory framework while capturing tax and oversight rights.

Only the third option can accurately achieve practical regulatory goals such as taxation, consumer protection, and market transparency.

The global prediction market's annual trading volume is expected to exceed $200 billion by 2026. Assuming conservatively that domestic users in South Korea account for 1% of this, any Asian market could attribute a trading volume of $2 billion. Depending on the adopted tax model, this could generate approximately $4 million to $43.2 million in new tax revenue annually.

More importantly, the size of these numbers is not the core issue. Without regulatory accommodation, these transactions will not disappear; they will continue to occur in an unregulated environment. Regulators will forfeit tax and oversight rights while still bearing administrative and criminal enforcement costs.

Reframing the Regulatory Approach to Prediction Markets

As previously mentioned, the institutional accommodation of prediction markets depends on which existing regulatory framework (gambling or financial products) is used to define them.

Gambling regulatory framework: This path adapts to the existing state-approved speculative activity model in Asia, such as sports betting pools or integrated resort casinos. It aligns with the state monopoly structure and can be justified through public funding reasons, but it has inherent limitations in accommodating private platform business models.

Derivatives regulatory framework: This is the most operationally feasible path with minimal legal friction. It requires fine-tuning the definition of financial products, drawing on the precedent of Japan's Financial Instruments and Exchange Act (FIEA) accepting non-financial variables, or the expression of "economic risk" in South Korea's Capital Markets Act. This approach avoids direct conflict with existing state gambling monopolies while preemptively addressing concerns about speculation and market manipulation by limiting eligible underlying assets to publicly verifiable statistical variables.

Creating an independent third category: Designing a dedicated legislative framework like Gibraltar. This allows for the most precise regulatory calibration but comes with the highest legislative and political costs due to the lack of precedent.

It is important to note that this is a long-term institutional project rather than a short-term result. In many Asian jurisdictions, the basic public discussion regarding the legal identity of prediction markets has yet to form. To gain legislative momentum for any path, a public discussion process must first be established, and a broad social consensus on the value of prediction markets must be formed.

Notably, prediction markets remain a foreign concept in Asia, and there are no entities leading the discourse around prediction markets. As a result, even the most basic issues have yet to be discussed.

To accurately analyze the overall function of prediction markets, formal public forums are needed, such as public-private roundtable discussions around the core issues mentioned above; establishing such a forum is an urgent task.

Prediction markets have clear benefits and risks, but reaching institutional conclusions before the debate has begun would be a hasty approach that overlooks core issues. What is needed now is constructive discussion that has yet to occur.