Singapore and Thailand recently moved to ban polymarket from their respective jurisdictions, arguing that the site was just another gaming platform.

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

After all, even the prediction market’s harshest critics acknowledge that there is some value in an investment mechanism to hedge against events like an election, but the outcome of a sporting match just doesn’t have the same material impact as an election or war.

But beneath the surface, the argument that the prediction markets are simply a web3 version of gaming is short, argues New York-based cryptobad attorney Aaron Brogan.

“If you are a state-licensed gaming product, you take one side of the bet. You’re essentially betting against your users,” Brogan said. You book the bet … and offer certain odds to the users. Whether you make money or not depends on the odds you have placed. “

Prediction markets like Polymarket and Kalshi, on the other hand, act as neutral intermediaries, matching trades without taking sides and making money via transaction fees.

“You’re not taking one side of the stake like the market in this case, which fundamentally changes the incentives involved and makes the product different in a holistic way,” Brogan said, pointing out that prediction market platforms don’t ban their best users. Similarly, casinos start card by card , as it kills the mathematical edge of the house.

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

Getting an online gaming license in the US was a herculean effort, and one wonders why the new players in the space, like the draft kings or incumbents like MGM who followed by opening up online sports betting, don’t go after state-level prediction markets , where gambling is regulated.

The most important legal distinction, says Brogan, lies in the legislative framework. In the United States, prediction markets registered as designated contract markets (DCMS) fall under federal regulation via the Commodity Exchange Act, which prevents state gambling laws.

“Federal law in the United States preempts state law,” explained Brogan. “The Commodity Exchange Act includes a specific provision that precludes state regulation of federally registered derivatives. If you are federally registered, the states cannot regulate you. “

Kalshi seems confident in that argument, as the prediction market platform that actively pursued registration with the Commodities Futures and Trading Commission—and fought its first attempts to block election-related prediction markets—recently launched Super Bowl Betting Markets.

But this may not work for its competitors.

“Polymarket, for example, is not registered in the United States, so arguably states can go to its founder and say, ‘You have facilitated sports betting, which is a crime in this state,’ and file lawsuits. However, registered exchanges do not face this issue because of their federal status,” Brogan said.

While Polymarket and Kalshi are the two most recognizable names in the space, there are plenty of other new entrants following in their footsteps.

One is Crypto Exchange Crypto.com, which recently launched Crypto.com Sports after filing to self-certify as a DCM with the CFTC.

The bottom line, Brogan explained, is that if the CFTC doesn’t act within 24 hours of the self-certification paperwork being filed, the applicant can treat it as a green light.

“If these are able to proliferate, and if the CFTC doesn’t step in, which they haven’t yet, they will end up eating these sportsbooks’ lunch. This is a $21 billion industry and this new product will be far better,” he concludes.