Should prediction markets be in the same regulatory category as betting exchanges?
In recent months, debates have multiplied seeking to differentiate prediction market platforms from traditional betting operations. The central and most recurring argument maintains that, in prediction markets , there is no central counterparty—like a bookmaker—but rather direct negotiation between users of contracts linked to future and uncertain events, with the platform functioning as a mere intermediary infrastructure. This criterion, although relevant, proves insufficient to automatically separate this activity from the betting sector.
This is because this feature has existed in the betting market for years, within the context of betting exchanges , where users directly trade bets on sporting events, including setting the odds that reflect the probability of a particular outcome occurring.
Given this scenario, it is necessary to go beyond the simple absence of a central counterparty. The question this article aims to answer is objective: are prediction markets merely a new generation of betting exchanges , allowing the trading of bets on any type of event, or do they present functional and socioeconomic differences that justify their own legal treatment?
The answer to this question is crucial because, if prediction markets perform the same function as betting exchanges , they would be subject to authorization from the Secretariat of Prizes and Betting of the Ministry of Finance (SPA/MF) and limited to trading contracts exclusively linked to sporting events, which would significantly reduce their potential for scale, diversification, and innovation in Brazil.
In this sense, to understand whether or not prediction markets are the same as betting exchanges , it is necessary to first observe the role these markets actually play, as well as their respective operational dynamics. And, at this point, the central difference emerges: prediction markets are not organized solely to enable bets between users, but to generate valuable informational signals about the probability of future events occurring.
In prediction markets , probability is not predetermined nor does it stem solely from the recreational interest of participants. It arises from the continuous trading of contracts linked to a specific event, whose price reflects the collective assessment of users regarding the likelihood of that event occurring. As new information emerges—economic data, regulatory changes, political events, or technological advancements—this information is incorporated into buying and selling decisions, adjusting the contract price and, consequently, the probability assigned to the event.
This dynamic is distinct from that observed in betting exchanges . Although direct negotiation between bettors ( peer-to-peer ) and odds definition by the market itself also exist in these exchanges, the main objective remains linked to sports betting and entertainment. Furthermore, odds are centrally determined by each bettor, while in predictive markets, probabilities (contract prices) vary according to supply and demand, thus constituted collectively and in a more decentralized manner – a dynamic similar to that of the financial market. In this way, pricing functions as a mechanism for aggregating information, capable of synthesizing dispersed knowledge into a single indicator accessible to the public.
Furthermore, prediction markets can act as hedges by allowing agents to protect themselves against specific future risks. Imagine, for example, a predictive market about the occurrence of a tornado in Florida during a particular season. Companies in the insurance, logistics, tourism, or energy sectors can use the probabilities of this market as a reference to adjust prices, purchase additional coverage, relocate operations, or mitigate potential losses. In this context, the contract is not only used as a speculative instrument but also as a practical risk management tool.
This combination of producing qualified information and protecting against uncertain future events—absent in betting exchanges —demonstrates that prediction markets are not just a new guise for betting exchanges , but an instrument with its own logic and broader economic relevance, whose impacts extend far beyond entertainment or sports betting.
A recent example clearly illustrates the risks arising from this functional difference between the models. On January 03, 2026, a newly created account on the Polymarket predictive markets platform bet approximately US$34 on the contract “ Maduro would be removed from power by January 31, 2026 ,” when the probability of the event occurring was only 7%. When Maduro's capture by US military forces was officially announced, the position appreciated abruptly, and that user made a profit of over US$436 from the operation¹.
The episode gained prominence not only for its extraordinary return, but also because it publicly raised concerns about the possible use of insider information. The bet was placed just hours before the official announcement, at a time when predictive markets considered Maduro's departure statistically improbable; the timing and magnitude of the profit led analysts and lawmakers to question whether someone with early access to non-public information—for example, within the context of government or military operations—could have positioned themselves before the market absorbed the news.
It is observed that this type of informational risk is not common in betting exchanges . Although these betting operations carry the risk of match-fixing—such as when an athlete, referee, or other agent deliberately interferes with the outcome of a match—this is a phenomenon distinct from the use of insider information . Manipulation involves fraudulently altering the event itself. Insider trading, on the other hand , presupposes the trading of an asset through the use of privileged information to obtain an unfair advantage (usually the realization of profits), and thus anticipating a relevant fact that is not yet public, capable of reasonably influencing market behavior in relation to the security that is the object of the irregular transaction.
Starting from the premise that it is the function performed by the activity that should attract the applicable legal regime, and that all regulation aims to mitigate the risks inherent in the regulated activity, it is insufficient to classify prediction markets in the same regulatory category as betting exchanges , given that they have operational aspects and relevant socioeconomic purposes that are substantially similar to those found in the financial market.
Therefore, in our view, it is necessary to construct a specific legal framework for this market, capable of recognizing its conceptual peculiarities, preserving its potential for innovation and, proportionally, addressing the risks specific to it, without artificially reducing them to the regulatory regime of sports betting or the traditional financial market.
(*) Udo Seckelmann is a lawyer and head of the Gambling & Crypto department at the law firm Bichara e Motta Advogados and holds a master's degree in international sports law from the Instituto Superior de Derecho y Economía, in Madrid (Spain).
Pedro Heitor is a lawyer in the Gambling & Crypto department of the Bichara e Motta Advogados law firm, where he has worked since 2022. He holds certifications in Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs) from the University of Nicosia. He is a speaker and author of articles, academic research, and papers on cryptoeconomics, gaming, and betting. He also contributed directly to Public Consultation No. 97/2023 of the Central Bank of Brazil, which dealt with the regulation of Virtual Asset Service Providers.
Raphael Cvaigman is a lawyer at the firm Bichara e Motta Advogados, holding a law degree from PUC-Rio. He specializes in Business Law and has experience in contracts, corporate structuring, corporate litigation, and regulatory matters related to betting, crypto-assets, and capital markets.
¹ YAHOO! Finance. Polymarket traders' $400K bet on Maduro's ousting spotlights prediction market risks . January 05, 2026. Available at: https://finance.yahoo.com/news/polymarket-traders-400k-bet-maduros-210940728.html. Accessed on: January 18, 2026