Governments spent years ignoring prediction markets. Now they’re placing their own bets — against them. Kalshi and Polymarket built multibillion-dollar empires on near-anonymous, open wagering on virtually anything. After years of exploiting regulatory gray areas, that permissive, ambiguous era has cracked, and the dominoes are falling fast.

• Minnesota became the first state to outright ban prediction markets, making it a felony to host or advertise one — with 14 others drafting similar bans.
• Federally, Congress opened an insider trading probe into both platforms — and Spain ordered their sites blocked, joining the Netherlands and others in threatening penalties.

The regulatory rift: Even as some fight back, the Trump administration sided firmly with the industry and sued five states to block their bans. That federal air cover helps, but Polymarket’s problems run deeper than any state law. Facing sanctions exposure and congressional scrutiny, it began cracking down on VPN access and rolled out optional identity verification tied to faster trading speeds. Conversely, Kalshi took the compliance road early and is now pulling ahead with a $22B valuation vs. Polymarket’s $15B. Sometimes, playing by the rules pays off.