Singapore and Thailand recently decided to ban Polymarket in their territories, describing the site as a mere gambling platform.

On the surface this argument seems logical. Polymarket’s inclusion of sports prediction markets makes it seem like a rival to licensed sports betting platforms around the world.

After all, the harshest critics of prediction markets acknowledge that there is some value in an investment mechanism that provides risk management against events such as an election, but the outcome of a sporting event does not have the same material impact as events such as an election or war.

However, beneath the surface, the argument that prediction markets are just gambling in the Web3 version falls short, according to New York-based crypto lawyer Aaron Brogan.

“If you are a state-licensed gambling product, then you are taking one side of the bet. “You’re basically betting against your users,” Brogan said. “You accept bets and offer certain odds to users. “Whether you win or not depends on the odds you set.”

Prediction markets like Polymarket and Kalshi, on the other hand, operate as neutral brokerages that match trades without taking sides and use transaction fees to make money.

“You’re not taking one side of the bet as a market, which fundamentally changes the incentives involved and makes the product holistically different,” Brogan said, noting that prediction market platforms don’t ban their top users the way casinos exclude card-counting experts because that would kill the house’s mathematical advantage.

“Prediction markets are not gambling because they are not structured to be gambling,” Brogan said. “They are tools for understanding, managing risk, and creating public goods. “This is what makes them fundamentally different.”

Obtaining an online gambling license in the United States has been an arduous endeavor, and you may wonder why new players, such as Draft Kings, or existing players pursuing expansion into online sports betting, are not attacking the prediction markets at the state level where gambling is regulated.

According to Brogan, the main legal difference lies in the regulatory framework. In the US, prediction markets registered as Designated Contract Markets (DCMs) are subject to federal regulation through the Commodity Exchange Act, which overrides state gambling laws.

“In the United States, federal law overrides state law,” Brogan said. “The Commodity Exchange Act contains a specific provision that exempts federally registered derivatives from state regulations. If you are federally registered, states cannot regulate you.”

Kalshi appears to have faith in this argument because while the platform has actively pursued efforts to register with the Commodities Futures and Trading Commission (CFTC), it has also fought initial attempts to block election-related prediction markets and recently launched Super Bowl betting markets.

“Polymarket, for example, is not registered in the US, so states can tell its founder, ‘You are organizing sports betting, it is a crime in this state,’ and take legal action.

However, registered exchanges do not have this problem because they have federal status,” says Brogan, noting that Polymarket and Kalshi are the most well-known names in the space, but there are other new players following.

One of these is the Crypto.com sports platform that Crypto.com has recently launched. Crypto.com launched this platform after applying for self-certification as DCM with the CFTC.

What’s important, according to Brogan, is that if the CFTC doesn’t take action within 24 hours after the self-certification documents are issued, the applicant can take that as a green light.

“If these can proliferate and the CFTC doesn’t take action, which it hasn’t yet, it will eat into sports betting’s market share. “This is a $21 billion industry and this new product is going to be even better,” he says in conclusion.