TL;DR — Kalshi is CFTC-regulated and fully legal for US residents, including election markets since 2024. Polymarket is not available to US persons. Automated trading is explicitly supported on both platforms via public APIs. The legal framework for AI agents is evolving — identity layer tools like Moltbook are building the compliance infrastructure.

The Short Answer

Kalshi → Legal in the US. CFTC-regulated. KYC required. Polymarket → Not available to US persons since 2022. Legal in most other jurisdictions. Automated trading → Legal on both platforms. Both provide public APIs for programmatic access.

Now the details.

How Prediction Markets Are Regulated

Prediction markets in the US are regulated as event contracts — a type of derivative — under the Commodity Exchange Act (CEA). The CFTC (Commodity Futures Trading Commission) is the primary federal regulator.

This is an important distinction from sports betting, which is regulated by individual states under gambling laws. Prediction markets don’t go through state gaming commissions. They go through the CFTC.

REGULATORY FRAMEWORK
─────────────────────────────────────────────────────
Sports Betting          │ Prediction Markets
─────────────────────────┼───────────────────────────
State gambling laws      │ Federal (CFTC)
State gaming commissions │ Commodity Exchange Act
License per state        │ DCM designation
Varies by state          │ National (one license)
─────────────────────────────────────────────────────

Kalshi: The Regulated Path

Kalshi received its Designated Contract Market (DCM) designation from the CFTC in 2020. This is the same classification held by CME Group, the world’s largest derivatives exchange. It means Kalshi operates under the same regulatory framework as futures exchanges.

What DCM status means in practice:

  • Legal for US residents — No state-by-state restrictions for event contracts (unlike sports betting)
  • KYC required — Every user must verify their identity
  • Deposit protection — Customer funds held in segregated accounts at regulated banks
  • Trade reporting — Activity reported to the CFTC
  • Tax reporting — Kalshi issues 1099 forms for US traders

The Election Betting Victory

The biggest regulatory moment in prediction market history happened in 2024. The CFTC tried to block Kalshi from listing election contracts, arguing they were “gaming” and “contrary to the public interest.” Kalshi sued.

A federal appeals court sided with Kalshi, ruling that election event contracts are legal derivatives under the CEA. This decision opened election betting to US traders for the first time through a regulated exchange.

The ruling had immediate consequences: Kalshi listed presidential, congressional, and state-level election markets, and trading volume surged. The 2024 election cycle saw unprecedented prediction market activity, with mainstream media citing Kalshi and Polymarket odds alongside traditional polls.

For the full story on how the 2024 election shaped the prediction market landscape, see our platform coverage.

Polymarket: The Offshore Path

Polymarket launched in 2020 and quickly became the largest prediction market by volume. In January 2022, the CFTC settled with Polymarket for $1.4 million for offering unregistered binary options to US traders.

As part of the settlement, Polymarket:

  • Paid $1.4 million in penalties
  • Agreed to wind down US-facing operations
  • Implemented geo-blocking for US IP addresses
  • Required non-US attestation from users

Since 2022, Polymarket has operated as a non-US platform. US persons are prohibited from trading.

For everyone else, Polymarket operates in a mostly permissive environment. There’s no single global regulator for crypto-native prediction markets. Local laws vary — some jurisdictions treat binary options as regulated financial products, others don’t address them specifically.

What This Means for Builders

The Polymarket/Kalshi divide creates two distinct agent architecture paths:

AspectKalshi AgentPolymarket Agent
IdentityKYC-verified account (human operator)Wallet-based (SIWE, ENS)
AuthenticationRSA-PSS API keysEIP-712 signatures
FundsUSD in segregated bank accountsUSDC on Polygon
ComplianceBuilt into platformAgent-side responsibility
JurisdictionUS legalNon-US only

For identity and compliance infrastructure, see the agent identity comparison guide and the Moltbook — Moltbook is building portable reputation specifically for agents that need to prove compliance across platforms.

Can You Bet on Elections?

Yes — on Kalshi, legally, for US residents.

After the 2024 appeals court ruling, election betting is available on a CFTC-regulated exchange. Kalshi lists markets on:

  • Presidential elections
  • Congressional races
  • Gubernatorial elections
  • State ballot measures
  • Cabinet appointments
  • Policy decisions (these existed before the ruling)

Polymarket also lists extensive election markets — but not for US persons.

The combination of Kalshi’s legal election markets and robust API makes it possible to build automated election trading agents. The Kalshi API supports programmatic access to all election markets, including real-time price streaming and order execution.

State-Level Considerations

Prediction market event contracts regulated by the CFTC are a federal matter. Unlike sports betting — which requires a license in each state — CFTC-regulated exchanges operate nationally.

However, some nuances exist:

  • A few states have broad gambling prohibitions that could theoretically conflict with federal derivative trading. In practice, this hasn’t been tested in court for CFTC-regulated event contracts.
  • Some states require additional disclosures or have specific consumer protection rules.
  • Tax treatment may vary by state.

For sports betting legality by state, the landscape is much more complex. See our regulated sportsbook guides for state-specific coverage.

Automated Trading and Agent Legality

Both Kalshi and Polymarket explicitly support automated trading through their public APIs.

Kalshi: Provides REST API, WebSocket streaming, and FIX protocol. The API documentation is public. Automated trading is a supported use case. The agent operator must hold a verified (KYC’d) Kalshi account — the agent trades on behalf of the verified human.

Polymarket: Provides the CLOB API and CLI with 50+ endpoints. No KYC required — wallet-based authentication. Agents can operate with more autonomy, though the human controlling the wallet bears legal responsibility.

The legal question isn’t whether agents can trade — they clearly can and do. The open questions are around:

  1. Agent identity: When an agent trades autonomously, who is legally responsible? The developer? The wallet owner? The agent itself? Tools like Moltbook and EAS attestations are building the identity infrastructure to answer this.

  2. Market manipulation: An agent that intentionally manipulates prediction market prices could violate the Commodity Exchange Act. The same rules that apply to humans manipulating futures markets apply to agents.

  3. Cross-border compliance: An agent operating from a US server that trades on Polymarket is problematic. Jurisdiction is tied to the operator, not the server.

For the full technical architecture of compliant agent trading, see the agent betting stack guide.

Tax Implications

Prediction market profits are taxable. Here’s what’s clear:

  • Kalshi: Issues 1099 forms. Profits are reported to the IRS. Treatment depends on whether the IRS classifies your trading as investment activity (capital gains) or business activity (ordinary income).
  • Polymarket: No automatic tax reporting (crypto-native platform). You’re still legally required to report gains. Blockchain transactions are public and increasingly tracked by tax authorities.

What’s less clear: the specific tax treatment of event contracts. The IRS hasn’t issued definitive guidance on whether prediction market gains are short-term capital gains, Section 1256 contracts (60/40 long-term/short-term split like regulated futures), or ordinary income.

This guide does not constitute tax or legal advice. Consult a qualified professional for your specific situation.

The Regulatory Trajectory

The trend is toward more regulation and more legitimacy:

  • Kalshi’s election victory normalized political prediction markets
  • CFTC interest in the space is increasing (more oversight, not less)
  • Institutional capital is entering through regulated channels
  • Congress has introduced bills addressing prediction market regulation
  • Polymarket’s massive volume during the 2024 election proved demand

For agent builders, the regulatory trajectory matters. Building on CFTC-regulated infrastructure (Kalshi) provides the clearest legal footing. Building on Polymarket offers more flexibility but less legal certainty — especially for US-connected operations.

The agent identity layer is the piece of infrastructure most affected by regulation. As compliance requirements grow, agents that can prove identity, track audit trails, and demonstrate responsible behavior will have access to markets that unidentified agents won’t.

What’s Next