Blockchain Betting's Legal Challenge: Is It Considered Gambling or a Derivative?

Tristan Thompson, once an NBA standout and now a blockchain innovator, has become a prominent supporter of sports prediction markets, using his influence to showcase how decentralized finance (DeFi) could transform the sports betting landscape. His recent remarks and financial backing reflect a wider movement within the industry, as firms such as Kalshi and Ideosphere work through regulatory and legal complexities to broaden the reach of prediction markets. Still, the future remains uncertain, especially as courts deliberate on whether these platforms comply with current U.S. commodity trading regulations.

The regulatory environment for sports prediction markets shifted significantly in late November when a federal judge in Nevada expressed doubts about Kalshi's argument that its offerings should be considered derivatives instead of gambling products. In a legal dispute over the company's compliance with the Commodity Exchange Act, Judge David C. Borman questioned if Kalshi's event contracts—which are essentially bets on sports results—could be categorized as swaps or futures. "Your definition seems so expansive that almost anything could be labeled a swap," Borman commented,

unless regulatory definitions are updated. Should this decision stand, it may hinder progress in the field, particularly as prediction markets attract more attention from both investors and bettors.

Despite these obstacles, blockchain remains the foundation for innovative prediction market models. Ideosphere, a decentralized science venture, is investigating how prediction markets can finance early research, viewing them as mechanisms for collective intelligence rather than mere gambling. At the same time, organizations like Portage Biotech and Predictive Oncology are illustrating how blockchain-powered treasuries can both diversify funding sources and support scientific breakthroughs. in September, directing staking profits toward cancer research and experimenting with tokenized real-world assets (RWAs) to broaden access to funding. These cases highlight a rising pattern: leveraging crypto treasuries to align financial incentives with societal benefits—a method that could also apply to sports prediction markets by creating open, trustless betting platforms.

The larger economic backdrop also supports the growth of prediction markets. While AI-related stocks have experienced instability amid doubts about their long-term prospects, blockchain-driven platforms are becoming popular alternatives to traditional betting. For instance,

has increased hopes for looser monetary policy, fostering a favorable climate for speculative markets. Likewise, the European Central Bank's findings on income disparity point to a need for financial instruments that empower individuals—prediction markets provide an accessible way for everyday investors to hedge or speculate on future events.

Thompson's support fits within these developments, as he champions blockchain-based solutions that emphasize openness and user autonomy. Nonetheless, the industry's expansion depends on clarifying regulatory uncertainties. The outcome of the Kalshi case, in particular, could establish a benchmark that either validates or restricts the evolution of prediction markets.

, the distinction between derivatives and gambling is "absurdly broad," yet it remains a crucial legal dividing line. Without definitive guidance, companies may find themselves in a legal gray zone that could discourage major investors and slow mainstream acceptance.