Asia's prediction markets operate in a regulatory vacuum that the US and UK have already solved, leaving an estimated $43 million gap in potential oversight and tax collection across the region. While Western jurisdictions have successfully classified prediction markets as derivatives or betting activities within existing legal frameworks, most Asian regulators have yet to establish any comparable pathway, according to a report by Tiger Research and Limitless.

Why Does Asia's Regulatory Gap Matter?

The absence of clear rules in Asia doesn't suppress market activity. Instead, it pushes significant liquidity into offshore platforms that operate without tax collection or consumer protection oversight. This creates a paradox: prediction markets are thriving in Asia, but regulators have no mechanism to supervise them or collect revenue from them.

The core challenge is definitional. Prediction markets attach economic value to the outcome of specific events or facts, which structurally resembles betting. However, they also function as information platforms with genuine forecasting value. This overlap creates a regulatory puzzle that Asian policymakers have largely avoided confronting, unlike their Western counterparts who have already made deliberate choices about how to classify these instruments.

How Have Western Regulators Solved This Problem?

The United States, United Kingdom, and European Union have each taken distinct approaches that demonstrate how institutional architecture shapes market outcomes.

• United States: Prediction markets were classified as derivatives under the Commodity Exchange Act, allowing them to be regulated through existing financial frameworks rather than gambling statutes. The Commodity Futures Modernization Act of 2000 established an open-ended definition of "excluded commodity" that encompassed non-financial variables like election outcomes and weather events. The Dodd-Frank Act of 2010 then gave the Commodity Futures Trading Commission (CFTC) exclusive federal jurisdiction over event contracts and the authority to prohibit specific categories like terrorism or assassination contracts.
• United Kingdom: Rather than treating prediction markets as derivatives, the UK incorporated them into the Gambling Act 2005 as a form of betting. The law's broad definition of betting, combined with a flexible "betting intermediary" licensing category, created a clear entry path for operators. In February 2026, the UK Gambling Commission formally clarified that prediction market platforms must obtain betting intermediary licenses, establishing both penalties for unlicensed operation and an open registration window for compliant platforms.
• European Union: The EU faces a dual barrier. Any contract classified as a financial instrument encounters a binary options prohibition under MiFID II. Any contract that avoids that classification then faces strict national gambling laws. In July 2026, the European Securities and Markets Authority (ESMA) made this explicit, stating that the binary payout structure of event contracts falls within the binary options ban, effectively closing the financial product route into the European market.

The consistent pattern across Western jurisdictions is that institutional incorporation was only possible where regulators possessed an alternative framework independent of gambling statutes. Asia lacks these alternatives, leaving prediction markets in legal limbo.

What Would Building an Asian Regulatory Framework Require?

Creating a regulatory foundation for prediction markets in Asia would require policymakers to make a deliberate choice about classification. The options are straightforward but consequential: treat prediction markets as derivatives, as gambling, or establish them as an independent category through separate legislation.

Each approach carries different implications. Classifying them as derivatives would align Asia with the US model and create a pathway for institutional participation. Incorporating them into gambling frameworks would follow the UK approach but might discourage mainstream financial institutions from entering the market. Creating a third category would require new legislation but could tailor rules specifically to prediction markets' unique characteristics as information platforms.

The absence of this deliberative process has real consequences. Billions in trading volume flows to offshore platforms, tax revenue remains uncollected, and consumers lack the protections that regulated markets provide. Yet the regulatory gap also reflects a deeper institutional reality: Asia's financial regulators have not yet developed the legal infrastructure that would allow them to accommodate prediction markets without directly confronting gambling law.

The contrast with Western markets is striking. In the US, Kalshi secured Designated Contract Market status in November 2020, allowing it to sell a broad range of event contracts to retail investors. Polymarket, after a 2022 enforcement action, moved toward regulatory compliance through its 2025 acquisition of licensed exchange QCEX. In the UK, Matchbook launched "Matchbook Predictions" in January 2026 by leveraging its existing betting intermediary license, and Versus obtained a general betting license to launch its own prediction market.

These developments demonstrate that regulatory clarity, once established, enables market growth and institutional participation. Asia's continued regulatory silence suggests that prediction markets will continue to operate offshore until policymakers make an explicit choice about how to classify them. The $43 million gap represents not just lost tax revenue, but also the cost of regulatory inaction in a market that has already proven its value as both a financial instrument and an information platform.