Ultimatum! The prediction market giants are fully committed to entering perpetual contracts. Is this about triggering a "nuclear war" in crypto derivatives, or being wiped out by regulators?

Kalshi and Polymarket, two platforms known for predicting the outcomes of real-world events, are accelerating their deployment of high-leverage crypto derivatives. Their goal is perpetual contracts, a complex instrument without an expiration date that allows traders to amplify their exposure using borrowed funds. This blurs the line between prediction markets and full-featured crypto exchanges and also significantly increases legal risks.

Perpetual contracts are reshaping the business model of prediction markets. In the past, trading volume on such platforms fluctuated sharply around major events like presidential debates and sports competitions, then quickly declined after the event ended. Users bought and sold simple “yes/no” contracts, settled at expiration. Perpetual contracts are different; as long as margin is maintained, positions can be held indefinitely, often with up to 50x leverage, attracting aggressive speculators seeking quick returns from small price movements.

By launching these products, Polymarket and Kalshi are shifting from single-event contract businesses to directly competing with centralized exchanges. The core strategy is to convert occasional event bettors into daily high-frequency traders. Kalshi has publicly announced its entry into perpetual contracts, while Polymarket’s specific roadmap, including asset types and restrictions for U.S. users, remains undisclosed.

The fundamental driver behind the shift to perpetual contracts is market structure. Last year, global spot trading volume was about $18.6 trillion, while perpetual contract trading volume reached $61.7 trillion, more than three times the former. The huge gap in trading volume determines corporate strategy. Platforms realize that to keep users engaged during low volatility periods, they must offer tools for shorting, hedging, and leveraging. Although the nominal total trading volume of prediction markets has exceeded $150 billion, their intermittent nature cannot compare to the fee income generated by derivatives markets operating around the clock.

The boundaries of the fintech industry are rapidly dissolving. Centralized platforms like Robinhood, Coinbase, and Gemini have begun offering event-based contracts. Aptos co-founder Mo Shaikh pointed out that financial applications tend to integrate, but warned that forcing groups with very different needs—traders, gamblers, long-term investors—into a single app rarely succeeds. The real value lies in controlling the underlying infrastructure, such as clearing, liquidity, identity, and settlement.

The transformation of prediction platforms also has a defensive aspect. Hyperliquid, a leading decentralized exchange for perpetual contracts, recently announced plans to launch its own event contracts, making a reverse entry into the prediction market. There is disagreement about who holds the strategic advantage. Jiani Chen, head of growth at the Solana Foundation, believes that adding prediction market functions to decentralized derivatives exchanges is much easier than building complex futures trading engines. However, Kyle Samani, chairman of Forward Industries, downplays technical barriers, arguing that customer acquisition is the real bottleneck, and predicts Kalshi’s perpetual contracts will dominate.

Aggressive product expansion coincides with severe legal threats. State regulators are working together to classify prediction platforms as unlicensed gambling operations. On April 21, New York Attorney General Letitia James sued Coinbase and Gemini, seeking a combined $34 billion in fines and damages, accusing them of offering prediction markets to retail investors to avoid state taxes and consumer protection laws. State officials cited research linking early mobile betting to increased anxiety and financial hardship risks. James stated that renaming gambling still makes it gambling.

The industry strongly opposes the “gambling” label, arguing that these contracts are important tools for hedging geopolitical and economic risks. The U.S. Commodity Futures Trading Commission (CFTC) supports this stance, asserting exclusive federal regulatory authority and has sued regulators in Arizona, Connecticut, and other states to prevent state interference. A federal appeals court in Philadelphia earlier this year ruled that the CFTC has sole jurisdiction over Kalshi’s election and sports-related contracts.

Moving into perpetual contracts will embed prediction markets more deeply into mainstream financial infrastructure rather than keep them as niche online speculation. This shift has attracted attention from traditional finance: Intercontinental Exchange (ICE), parent company of the New York Stock Exchange, recently invested $20 billion in Polymarket, indicating that large institutions see the commercial value of event pricing platforms.

In high-liquidity markets, the Blair score, which measures probability accuracy, can be as low as 0.0247 before settlement, meaning that as capital and participation increase, pricing errors will significantly narrow. Industry estimates suggest that about 10% of proprietary trading firms are active in the event contract market, some using it to hedge macro and policy risks. The combination of data value and trading activity explains the commercial logic behind platforms’ eagerness to expand their product matrix.

But not everyone sees perpetual contracts as the natural next step. Some argue that the current trend is more a response to tightening regulatory pressure than a sustainable product strategy. Regulatory agencies in some jurisdictions are cracking down on prediction markets, so operators seem to be moving toward models that are more clearly regulated and less likely to be classified as gambling.

A deeper issue is liquidity. Without sufficient depth—including the ability to hedge real-world event risks—scaling promising use cases becomes difficult. A more robust long-term path might involve index products, market aggregation, and cross-event liquidity pools, bringing prediction markets closer to traditional derivatives or synthetic exposure.

Internal industry conflicts exist: one camp views perpetual contracts as the fastest way to boost trading volume and retain users between major events; another sees this as merely tactical, with the real challenge being building deeper, more resilient liquidity.

In any case, legal risks are rising. The integration of prediction and derivatives markets is likely to attract stricter regulatory scrutiny. If this trend continues, regulators will no longer see prediction markets as harmless forecasting tools but as illegal derivative platforms. The lawsuit in New York is destined to make jurisdictional disputes a core issue for the industry’s future, potentially escalating to the Supreme Court or prompting Congress to establish clearer legal frameworks. Until then, platform operators seem willing to continue expanding amid uncertainty, betting that the commercial gains from perpetual futures justify accepting certain legal risks.