Tiger Research: The $43 Million Gray Area of Asia's Prediction Markets

This article was written by Tiger Research. The West has already opened the door for prediction markets through derivatives legislation or gambling licenses, but Asian regulators lack both a universal licensing framework and an open-ended definition of financial products. As a result, tens of millions of dollars flow to offshore platforms, governments collect no taxes, and investors receive no protection. The regulatory gap is not a cultural issue—it is a failure of institutional design.

Key Takeaways

• Asian markets lack a regulatory framework for classifying prediction markets, leaving them in a gray area
• Western jurisdictions leverage existing frameworks—derivatives regulation in the US or gambling laws in the UK—to create clear entry paths for operators and establish oversight mechanisms
• The lack of a framework in Asia has not suppressed market activity, as evidenced by significant liquidity flowing to offshore platforms, but it has prevented tax collection and consumer protection
• Building a regulatory foundation requires public debate: should prediction markets be treated as derivatives, gambling, or an entirely new third category

The Importance of Definition and Classification

As noted in previous reports, prediction markets have value as information platforms, but the law has never drawn a clear line between them and gambling.

This raises the question: how does the law define gambling, particularly betting?

Section 9 of the UK Gambling Act 2005 provides a broad definition of what can be bet on. Once monetary value is attached, it falls within the scope of gambling regulation:

The outcome of a race, competition, or other event or process

The likelihood of something happening or not happening

Whether something is true or not

Under this legal definition, prediction markets attach economic value to the outcome of specific events or determinations of fact, meaning they are structurally highly similar to betting—a core element of gambling.

The regulatory debate ultimately comes down to a question of definition: whether to place prediction markets within traditional gambling regulatory frameworks, reclassify them under financial structures such as derivatives, or establish them as an independent category through separate legislation.

The West: How Institutional Paths Produce Different Outcomes

Compared to Asia, Western jurisdictions take a more permissive stance toward prediction markets, but this does not stem from cultural tolerance of gambling. Rather, it reflects that existing institutional architectures allow them to avoid direct confrontation with gambling laws. The main paths are as follows:

United States: Prediction markets are classified as derivatives (swaps) under the Commodity Exchange Act and brought into the existing registration framework

United Kingdom: Markets are accommodated within the general "betting intermediary" licensing regime

European Union: If contracts are classified as financial instruments, the binary options ban applies; if they escape this classification, they face strict national gambling laws as a second barrier

The consistent pattern is this: institutional acceptance is only possible in jurisdictions with alternative regulatory frameworks independent of gambling regulation, such as derivatives laws or flexible licensing systems.

United States: Expanding the Derivatives Definition

The US has not accommodated prediction markets by recognizing a gambling framework, but rather through the purposeful application of existing contract structures under the Commodity Exchange Act (CEA).

Commodity Futures Modernization Act of 2000 (CFMA): Laid the foundation through an open-ended definition of "excluded commodities," allowing non-financial variables such as election outcomes and weather events to be classified alongside traditional commodities like crude oil

Dodd-Frank Act of 2010: Granted the CFTC two key powers: exclusive federal jurisdiction over event contracts; and the authority under Rule 40.11 to prohibit certain contracts related to terrorism, assassination, war, and gaming

Neither law was designed for prediction markets, but together they created the legal basis for treating such contracts as financial agreements rather than gambling, establishing a centralized regulatory counterpart in the CFTC that replaced what would otherwise have been a fragmented state-by-state lobbying process.

The legal architecture accumulated over time gave rise to markets operating around licensed entities.

In November 2020, Kalshi obtained Designated Contract Market (DCM) status, allowing it to sell a wide range of event contracts to retail investors. Polymarket, after an enforcement action in 2022, moved toward compliance by acquiring licensed exchange QCEX in 2025.

United Kingdom: Incorporation Through a General Licensing Framework

The UK does not treat prediction markets as an extension of derivatives, but rather as a form of betting, bringing them within the scope of regulation through the existing Gambling Act 2005. Three provisions are particularly important:

Section 9: The definition of betting is broad enough to provide a flexible legal basis for prediction markets

Section 13 "Betting intermediary": Precisely captures the structural characteristics of prediction markets, as they facilitate contracts between users rather than holding positions directly

Section 65(4): Allows license categories to be adjusted through ministerial orders, enabling the framework to absorb new market models without requiring separate legislation

In February 2026, the Gambling Commission clarified that prediction market platforms fall under the "betting intermediary" category and must obtain the corresponding license. This was not a blanket prohibition, but rather a clearly defined path to entry: severe penalties for unlicensed operation on one hand, and an open registration window on the other.

Despite the established framework, major global platforms remain cautious about entering the UK market, for reasons rooted in their US litigation strategies.

Both Kalshi and Polymarket have heavily emphasized in their legal arguments that prediction contracts are financial derivatives rather than gambling. Obtaining a UK "betting intermediary" license would formally classify them as gambling operators, which would weaken their legal positions in US litigation.

This has created a market environment in the UK that differs from global standards, effectively creating ideal conditions for UK-based operators to establish businesses. Existing betting exchange Matchbook leveraged its betting intermediary license to launch "Matchbook Predictions" in January 2026, and new entrant Versus obtained a UKGC general gambling license and launched its own prediction market.

Europe: The Double Closure of Financial and Gambling Regulation

The regulatory landscape in continental Europe combines financial regulation under MiFID II with national gambling laws, creating a two-tier barrier:

Any contract classified as a financial instrument immediately encounters the binary options ban

Any contract that escapes this classification then faces strict national gambling definitions

In July 2026, the European Securities and Markets Authority (ESMA) clarified the financial regulatory dimension in an official statement, noting that the binary payout structure of event contracts falls squarely within the scope of the binary options ban. This effectively closed the path to entering European markets as financial products.

Prediction markets face equally difficult conditions under gambling laws. France is the clearest example: the National Gambling Authority (ANJ) implemented a phased escalation of enforcement, ultimately classifying prediction market operations as illegal gambling.

The only exception is Gibraltar. In July 2026, Gibraltar designed a dedicated legislative framework—the Prediction Market Regulations—defining prediction markets as a distinct "third category." This is a strategy of creating new paths rather than operating within existing frameworks, but since Gibraltar is not an EU member state, the limitation is that this approach is not subject to intra-European mutual recognition.

However, Europe's closed structure may not be permanent. The European Commission has formally included the legal treatment of prediction markets in the review process under the Markets in Crypto-Assets Regulation (MiCA). Depending on the conclusions of the report due in June 2027, the door remains open for a shift toward a new institutional framework accommodating prediction markets.

Asia: The Current State of Institutional Gaps

Asian jurisdictions face two structural barriers that do not exist in the same form in Western markets:

State-controlled gambling licenses: No general licensing framework exists that can accommodate private-sector innovation in the way the UK's "betting intermediary" category does. Licensing rights are distributed through state-controlled monopoly structures

Financial product classification constraints: Financial laws in South Korea and Japan use closed positive lists to define underlying assets, making the broad reclassification achieved in the US through the concept of "non-financial contingent events" legally unfeasible

As the Western cases demonstrate, whether prediction markets can gain a foothold depends on which path defines them: the existing financial product architecture or gambling regulation. However, the fundamental constraint facing Asian markets is that neither classification system provides the institutional basis to accommodate this new business model.

Legal gambling markets already exist across Asia—in Japan, South Korea, Singapore, and Hong Kong—so any view that dismisses these markets on grounds of emotional aversion or cultural particularity is far removed from reality.

The core issue, then, is not whether markets are socially accepted, but how to design the regulatory foundation to accommodate this new market model.

South Korea: Missing Architecture and Criminal Enforcement as the Default

Domestic discussion of prediction markets has not yet reached the stage of debating their legal status or social value. The existing regulatory framework defaults to treating them as speculative products, which cuts off the conversation before substantive discussion can begin.

The relevant legal provisions already conflict with how prediction markets operate. The Special Act on Regulation and Punishment of Speculative Acts covers "prize businesses," defined as businesses that distribute money or property by correctly predicting the outcome of specific events. This is structurally similar to how prediction markets operate.

However, the legal issues are not fully resolved. The prize business law presupposes a casino-style structure in which the operator directly controls the prize pool. Modern platforms like Polymarket use a matching architecture where the operator facilitates contracts between users rather than holding funds directly. There is currently no judicial interpretation addressing how this structural difference would be handled under existing regulations.

The financial regulatory path is also closed. The Capital Markets Act uses a positive list approach to define underlying assets. While financial indicators are covered, there is no clear basis for classifying non-financial variables such as election outcomes as derivatives.

Since the right to operate gambling businesses is in any case reserved for state monopoly entities, private platforms also cannot enter the market through this channel.

Japan: Complex Workarounds and the Limits of Informal Practice

Japan's prediction markets follow a pattern of regulatory circumvention rather than institutional integration.

Local platforms employ an approach similar to the three-store system, a mechanism originating in the pachinko industry that physically severs the direct cash flow in its operation.

Platform operator: The platform blocks direct cash deposits, instead running a free reward model based on activities such as watching advertisements. It also removes any cash redemption function within the platform, thereby eliminating the "gain or loss of property" element that defines gambling.

Reward issuer: A third party independent of the platform issues rewards, such as gift vouchers, for successful predictions. Separating the platform operator from the issuing entity removes the legal risk of the operator becoming a direct participant in converting rewards to cash.

External redemption market: Peer-to-peer transfer markets and affiliated merchants outside the platform form an ecosystem where rewards are actually consumed or converted to cash. Since the operating platform does not participate in this distribution process, the structure remains independent and avoids satisfying the legal elements of gambling.

This ultimately amounts to an informal business practice emerging in a regulatory gray area, rather than a structure built on a solid legal foundation. Global platforms are either prevented from entering the Japanese market or operate under strict restrictions through cryptocurrency exchanges. The substantive level of Japan's policy discussion is not materially different from that of South Korea.

What Asian Markets Are Giving Up

The lack of institutional architecture in Asia does not mean markets do not exist. More than $52 million (approximately KRW 72.8 billion) in liquidity flowed into prediction markets related to South Korea's June 2026 local elections, demonstrating that user participation on offshore platforms has already crossed a meaningful threshold even without a domestic regulatory framework. These transactions occur outside the tax system, lack consumer protection mechanisms, and make market integrity oversight impossible.

Regulators face three available responses:

Expanding existing criminal statutes to impose sanctions (South Korea's current approach).

Using technical means to completely block platform access (the Singapore model).

Bringing prediction markets within the scope of regulation, thereby gaining tax revenue and regulatory authority in the process.

Only the third option can precisely achieve practical regulatory goals such as tax collection, consumer protection, and market transparency.

Global annual trading volume in prediction markets is projected to exceed $200 billion in 2026. Under a conservative assumption that South Korean domestic users account for 1% of this volume, the attributable volume for any given Asian market would reach $2 billion. Depending on the tax model adopted, this would generate an estimated $4 million to $43.2 million in new annual tax revenue.

The more important point is not the scale of these figures. Without regulatory adaptation, these transactions will not disappear; they will continue in an unregulated environment. Regulators will forfeit tax revenue and regulatory authority while continuing to bear the costs of administrative and criminal enforcement.

Reconstructing the Regulatory Approach to Prediction Markets

As discussed above, the institutional adaptation of prediction markets depends on which existing regulatory architecture—gambling or financial products—is used to define them.

Gambling regulatory framework: This path adapts existing Asian models for state-approved speculative activities, such as sports betting pools or integrated resort casinos. It aligns with state monopoly structures and can be justified on public funding grounds, but has inherent limitations in accommodating the business models of private platforms.

Derivatives regulatory framework: This represents the path of least friction and is the most operationally viable. It involves fine-tuning the definition of financial products, drawing on precedents such as Japan's Financial Instruments and Exchange Act accepting non-financial variables or the "economic risk" language in South Korea's Capital Markets Act. This approach avoids direct conflict with existing state gambling monopolies while preempting concerns about speculation and market manipulation by restricting eligible underlying assets to publicly verifiable statistical variables.

Creating an independent third category: This involves designing a dedicated legislative framework, as Gibraltar has done. It allows for the most precise regulatory calibration but carries the highest legislative and political costs given the lack of precedent.

It is worth noting that this is a long-term institutional undertaking, not a near-term outcome. In many Asian jurisdictions, even the basic public discussion about the legal identity of prediction markets has not yet taken shape. Securing the legislative momentum required for any of these paths