Forecast Market ETF initiates public consultation: SEC rarely promotes event-based contract products toward compliance

On May 21, 2026, the Chair of the U.S. Securities and Exchange Commission (SEC), Paul Atkins, issued an announcement to the public seeking feedback on new fund products such as “prediction market ETFs.” The decision follows the application timeline for several prediction market ETFs. In February, Bitwise submitted multiple ETF products under the PredictionShares brand that track outcomes of U.S. elections and other events. Roundhill Investments and GraniteShares also filed similar applications. Atkins said, “New products will bring new issues,” and that the SEC needs more time and public feedback to assess how such products operate and their potential impact; the relevant approvals have been postponed accordingly.

From the product logic perspective, prediction market ETFs are essentially structured products built from a basket of event contracts. Unlike traditional index ETFs that track the prices of stocks or bonds, the underlying assets of these ETFs are binary contracts tied to the outcomes of specific events—such as election results, the release of economic data, and sports competitions. For ordinary investors, this provides an indirect way to access prediction market exposure—exposure that previously required participation on specialized platforms—through a brokerage account, which is undoubtedly an attempt to democratize financial tools. However, it is precisely this approach of “packaging new asset types into traditional product frameworks” that makes regulators especially cautious in the approval path. It involves not only the boundary of the securities laws but also the division of jurisdiction and responsibilities with the Commodity Futures Trading Commission (CFTC).

Why Prediction Markets Are Moving from the Margins to Financial Infrastructure

Over the past year and a half, prediction markets have gradually grown from a fringe topic in the crypto community into one of the industry’s important use cases, with market growth far outpacing most analysts’ expectations. As of March 2026, the monthly total trading volume of prediction markets has reached $25.7 billion. Investment firm Bernstein projects that the total trading volume of prediction markets in all of 2026 will reach $240 billion—up 370% from 2025. Based on an estimated annual compound growth rate of about 80%, the market size could exceed $1 trillion by 2030.

Even more noteworthy is the structural shift. User behavior is moving away from one-time, large bets on major events and toward high-frequency, small-value trades centered on news, macro trends, and outcomes of crypto assets. Messari data shows that Polymarket’s daily active users increased from 48,611 on the 2024 U.S. election day to 78,909, while the share of non-political markets rose from 38% in 2024 to 80%. This trend toward diversification suggests that prediction markets are shedding a single election-driven narrative and embedding themselves into a broader financial information ecosystem.

In the Regulatory Tug-of-War, How Different Parties Define the Boundaries of Prediction Markets

The SEC’s public consultation announcement is not an isolated event, but a key node in U.S. regulators’ concentrated attention on prediction markets. In the same period, the CFTC’s regulatory intervention path has also become clearer. In May, Polymarket submitted a self-certification filing to the CFTC, planning to launch “composite outcome contracts” for sports event contracts in the U.S. (i.e., a parlay-style setup). It is expected to go live no earlier than May 21. This self-certification mechanism means the platform is not requesting permission from the CFTC; rather, it is notifying regulators that it will launch the product.

Meanwhile, insider trading risk has become one of the most sensitive issues for regulators. In March 2026, about 15 minutes before President Trump’s announcement about pausing hostile actions against Iran, the market saw abnormal trading of more than $500 million in crude oil futures. On the following day (March 24), the Office of Management and Budget sent an email to all employees, explicitly warning them not to place bets on prediction platforms such as Polymarket or Kalshi using non-public government information. This incident pushed the issue of insider trading in prediction markets into the spotlight. In response, on the same day, Kalshi and Polymarket announced that they would tighten platform rules related to insider trading.

At the level of federal and state jurisdiction, the contest is also intense. Minnesota became the first U.S. state to ban prediction markets, and the White House has filed a lawsuit to overturn the ban. At the same time, French Hill, Chair of the House Financial Services Committee, said clearly that the legislature will not rush to draft specialized regulations for prediction markets in the near term, because many lawmakers “lack a basic understanding” of the roles of the CFTC and SEC within the current regulatory framework. He argues for allowing the CFTC and SEC to exercise regulatory functions within their existing authority.

Why Capital Markets Are Throwing Heavy Money at the Event Contract Track

The intensity of capital flowing into prediction markets is the most direct reference point for measuring whether the sector is moving into the mainstream. In October 2025, Intercontinental Exchange (ICE) made a strategic investment of $2 billion in Polymarket, pushing its post-investment valuation to $9 billion. Only a few days later, Kalshi announced it had completed $300 million in funding, reaching a valuation of $5 billion. After that, the pace of valuation increases accelerated further. In November 2025, Kalshi completed a $1 billion funding round at a valuation of $11 billion, and in 2026, Polymarket began another fundraising round with a target valuation of about $15 billion.

Behind the accelerated inflow of capital is the institutional re-positioning of prediction markets as a new type of financial data infrastructure. As analysts pointed out in reports, clearer federal regulatory rules are one of the three core structural factors driving industry growth. When regulators position prediction markets as “federally governed” rather than “state-level gambling,” the infrastructure attribute of this field gains institutional recognition.

As of May 21, 2026, the token price quotes for ecosystem projects related to the prediction market sector on the Gate platform are as follows:

| Token | Price (USD) | 24h Change | | --- | --- | --- | | To be confirmed | To be confirmed | To be confirmed |

How Far Is the ETF Approval Path After the SEC Seeks Public Input?

When the SEC seeks public comments on prediction market ETFs, it is essentially replicating the cautious path it previously used to handle spot crypto ETFs. Bloomberg ETF senior analyst Eric Balchunas believes the SEC is clearly still “struggling” with how to deal with this new asset class. The SEC will only formally open the approval gate once it feels “comfortable” with the product.

For applications such as Bitwise’s PredictionShares series, the main difficulty is not the ETF product structure itself. As registered funds regulated under the 1940 Investment Company Act, these products already have mature legal foundations in areas such as disclosure frameworks, asset custody, and liquidity management. The challenge lies in how the underlying event contracts are defined. If event contracts are determined to be “futures contracts” or “swap contracts,” the product issuers may need to face additional compliance requirements from the CFTC. Regulatory coordination across institutions will be a key variable determining the approval timeline. SEC Commissioner Hester Peirce has shown a relatively friendly attitude toward prediction market business models in a public statement in early May, but she also made clear that no final rules have been announced.

The Compliance Road to Mainstreaming Event Contracts: How It Reshapes Asset Classes

From a broader perspective, advancing prediction market ETFs signals that event contracts, as an emerging asset class, are entering an institutionalized track. This aligns with the wider backdrop of ongoing innovation in ETF product structures in recent years—ranging from the approval of spot Bitcoin ETFs, to the popularization of actively managed ETFs, and now to prediction market ETFs. The boundaries of the U.S. ETF market are extending toward more complex structured products.

For investors, prediction market ETFs transform event contract exposure that previously required specialized knowledge and separate accounts into standardized products that can be allocated through ordinary brokerage accounts. This not only lowers participation barriers, but more importantly, it brings event contracts’ market pricing information—namely the collective judgment of the probability of future events—into the information flow of traditional finance.

Of course, this process also involves risks that cannot be ignored. Prediction markets rely on reliable event settlement mechanisms, and the SEC will inevitably set higher compliance standards in areas such as dispute resolution processes, the authority for recognizing outcomes, and the development of anti-manipulation measures. In addition, if the products are approved, they may face ongoing tension between state gambling regulatory laws and federal commodity trading laws—Kalshi’s legal challenges in multiple states have already demonstrated the complexity of this issue.

Summary

The SEC’s public consultation on prediction market ETFs marks a shift of this emerging asset class from the “wild growth” phase on native platforms such as Polymarket toward an institutionalized track under the traditional ETF framework. What regulators need to address is not only how to incorporate event contracts into the existing securities law framework, but also how to clearly delineate jurisdictional boundaries among different regulatory bodies, and how to build effective investor protection mechanisms while introducing innovative products. Over the next six months, the end of the public feedback period, the publication of SEC guidance, and any potential approval decisions will become key milestones for evaluating whether this sector can truly make the leap “from the margins to the mainstream.”

Frequently Asked Questions

What is a prediction market ETF?

A prediction market ETF is an exchange-traded fund whose underlying assets are event contracts. Investors can indirectly hold contract exposure linked to specific events—such as election results, economic data, sports events, and more—by buying the ETF, without needing to open accounts or participate directly on prediction market platforms.

What is the specific background of the SEC’s current public consultation?

On May 21, 2026, SEC Chair Paul Atkins announced that the SEC would seek public input on new fund products such as prediction market ETFs. Prior to this, Bitwise, Roundhill, and GraniteShares had submitted related ETF applications, and the SEC has simultaneously postponed the approval process.

What role does Polymarket play in the current regulatory environment?

Polymarket is the world’s largest decentralized prediction market platform. As of May 2026, its valuation target is approximately $15 to $20 billion, and its monthly trading volume reached $25.7 billion in March. Polymarket is moving toward compliance by submitting a self-certification filing to the CFTC, and its growth trajectory is considered an important reference for the overall valuation and industry development of prediction markets.