what are the tactics used by prediction markets to position themselves as prediction markets?

Prediction markets employ a multifaceted strategy centered on regulatory arbitrage, positioning themselves as financial instruments or news sources to circumvent state-level gambling laws [1, 2]. The core tactic involves arguing that their products are derivatives properly regulated by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act, which preempts state authority . This has created a jurisdictional conflict, with the CFTC asserting federal control and threatening to sue any state that attempts independent regulation [7, 21, 22, 30]. Meanwhile, states like New Jersey, Utah, and Nevada are prepared to litigate for the right to apply their own gambling laws, which are threatened by the markets' existence [7, 13]. This legal maneuvering, highlighted by Kalshi's successful lawsuit against the CFTC [3, 18, 19], is setting the stage for a significant regulatory showdown anticipated **around 2026** [1, 24].

To bolster their claim as information platforms, firms strategically cultivate a narrative that their primary utility is data consumption rather than active trading. Kalshi's CEO, for instance, claims that **98-99%** of users are observers who use market odds as a source of "probabilistic truth," competing with traditional polls and pundits [9, 14]. This framing justifies major distribution partnerships with media companies like CNN, CNBC, and Substack, as well as brokerages like Robinhood and Webull, which serve to educate and onboard a mainstream audience [1, 3, 14]. The goal is to create a "ChatGPT moment" for the industry, where prediction markets become a go-to source for understanding future events . However, this media integration raises ethical concerns about corrupting journalism by creating financial incentives for sources to trade on information rather than disclose it [1, 12].

Beyond the retail user, a key tactic is the push for institutionalization to establish prediction markets as **a legitimate asset class** . Proponents like Thomas Peterffy of Interactive Brokers argue these markets offer a purer instrument for institutional investors to express views on macroeconomic and geopolitical events compared to traditional proxies like stocks or bonds [5, 15]. To capture this opportunity, firms are building vertically integrated financial ecosystems, including their own clearinghouses, to compete with established exchanges like CME . Interactive Brokers is pursuing a strategy of operating its Forecast Trader platform as a loss leader, focusing on economically significant contracts to attract its existing institutional client base and build liquidity . This deliberate move upmarket contrasts sharply with critics who dismiss the platforms as illiquid, "glorified penny stocks" .

A controversial and defining tactic is the industry's deeply ambivalent and at times **permissive attitude towards insider trading** . The positioning of markets as "the news, faster" creates a paradox where their value proposition relies on participants trading on non-public information [2, 27]. While some platforms have taken token enforcement actions, others like Polymarket openly embrace the practice, refusing to ban trading on sensitive events like armed conflicts or assassinations based on inside knowledge [1, 23, 29]. This normalization of insider trading, evidenced by trading patterns around military actions and even public acknowledgements by corporate CEOs , challenges the integrity of the markets and creates perverse incentives that could pollute the information ecosystem with monetized rumors [1, 27].