# How Prediction Markets Work and How to Build One Legally The business model and legal processes behind the success of platforms like Polymarket and Kalshi. - **Source:** [Bitcoin News](https://brifing.si/source/d8aeaf1e-9839-4dad-9d25-7a6bf3fbeef8) - **Published:** 2026-07-23 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/5535b51f-9fef-4ed0-b0df-9ccaccce571f ## What Are Prediction Markets? Prediction markets are platforms where users can bet on the probability of specific events through binary contracts. Users buy 'YES' or 'NO' contracts based on their predictions. ## How the Business Model Works Platforms match contracts between users and charge a commission on each transaction. The platforms themselves do not bet or take risks, distinguishing them from traditional sportsbooks. ## Revenue Sources Prediction markets generate revenue through transaction fees, data licensing, and API access. For example, Kalshi earned $263.5 million in fee revenue in 2025. ## Regulatory Landscape The legal status of prediction markets varies by country. In the US, they are regulated by the CFTC, while some states classify them as gambling. ## Legal Challenges in the US Kalshi faced gambling charges in states like Arizona. The CFTC intervened to block such lawsuits, highlighting the legal complexities. ## The Situation in the European Union In the EU, prediction markets can be classified as financial instruments or gambling services, with regulations varying by country. ## Successful Platforms Platforms like Polymarket and Kalshi have emerged as leaders in the fintech space, processing billions in trading volume and inspiring new entrants. ## Tips for New Entrepreneurs Those looking to build a prediction market must first understand the regulatory landscape and tailor their business model accordingly. ## Future Potential Prediction markets hold significant growth potential in high-volume areas like sports and politics, but legal uncertainties must be addressed. ## Risks for Users Users should be aware of the risks of contract value loss and investigate the legal status of platforms before participating. ## Conclusion Prediction markets offer an innovative business model in the fintech world, but navigating legal challenges and regulations is crucial for success. ## Sources covering this story - https://news.bitcoin.com/how-prediction-markets-actually-work-and-what-it-takes-to-build-one-legally/ — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._