Onshore Prediction Markets: Kraken and Polymarket Deals

Two deals, one signal

On October 16, 2025, Kraken announced it is acquiring The Small Exchange, a U.S. Designated Contract Market registered with the Commodity Futures Trading Commission, in a move the company detailed in its Kraken acquires Small Exchange announcement. On July 21, 2025, Polymarket revealed it had acquired QCEX in a press release titled Polymarket acquires QCEX for $112 million. Read together, these moves signal a single directional shift. Crypto-native prediction markets that once lived offshore or in gray zones are moving into the regulated United States under direct oversight of the Commodity Futures Trading Commission.

Why now, and why does it matter? Because the market is converging on a simple idea. If you can trade the price of oil and the level of the S&P 500 on regulated venues, you should also be able to trade the likelihood of events, from interest rate decisions to weather milestones, using the same protections, the same collateral, and the same market integrity rules. The route there runs through the Commodity Exchange Act, a clearinghouse, a rulebook, and a new generation of venue design that connects on-chain user experiences with off-chain regulatory obligations.

This is the start of everything markets. Not everything all at once, but a credible plan to list, margin, settle, and distribute event risk in a way that both crypto users and U.S. regulators can live with.

The mechanics of moving onshore

To understand why Kraken’s and Polymarket’s deals matter, it helps to translate the alphabet soup.

• A Designated Contract Market (DCM) is an exchange that lists futures or options under the Commodity Exchange Act. It must meet core principles that cover market integrity, surveillance, fair access, and prevention of manipulation.
• A Derivatives Clearing Organization (DCO) stands between buyers and sellers and manages margin, default waterfalls, and settlement. Many products listed on a DCM are cleared by a DCO.
• Event contracts are derivatives whose payoff depends on whether an event happens. The Commodity Futures Trading Commission allows some, restricts others, and has specific rules for contracts that involve gaming, war, terrorism, or certain political outcomes. That line drawing matters.

Kraken’s purchase of a DCM gives it a regulated front door. It can list products, including event contracts that fit within permitted categories, and send them to a clearing partner or an affiliated clearinghouse. Polymarket’s acquisition of QCEX positions it to connect a crypto-native interface and on-chain liquidity with a U.S. rulebook, know your customer controls, and reporting. Together they sketch a compliant path from wallets and oracles to margin calls and settlement files.

For broader context on U.S. market plumbing and the shift to always-on rails, see how CME goes crypto native and why ETF decisions can reshape infrastructure in rails that could reshape crypto.

What this unlocks

Innovations in crypto markets are often about speed or throughput. The innovation here is about scope. Bringing event markets onshore under a U.S. regime unlocks three things at once.

1. Around the clock event derivatives

Traditional futures have calendars. They are listed on business days, they roll on set schedules, and they stop for holidays. A crypto front end, connected to a U.S. DCM, can present a seven day schedule for event trading that matches how the internet actually behaves. That means new categories that make sense to a retail user and a professional desk. Will a named storm make landfall within a specified radius by a certain time. Will an earnings release include a metric above or below a threshold. Will a network upgrade activate by a block height within a window. Each is a clear binary outcome with a timestamp and an authoritative settlement source.

2. On chain odds feeds that are legally clean

Offshore prediction markets already publish prices that DeFi protocols consume. The catch has been regulatory uncertainty for U.S. use. If quotes originate from a regulated U.S. exchange and are disseminated under a market data policy, those odds can become a canonical price signal for wallets, dashboards, and protocols that choose to read them on chain. That means a dashboard can show a live probability of a rate cut next month, pulled from a U.S. regulated feed, and a hedging contract can reference that feed for settlement. It marries the credibility of a regulated market with the composability of a blockchain.

3. Unified collateral with spot and futures

A major friction in prediction markets has been trapped collateral. Users fund one venue for event markets and another for spot or futures. With a DCM inside a broader exchange group, there is a credible path to unified collateral and risk across products, subject to the risk policies of the clearinghouse. That could look like cross margin between Bitcoin futures, dollar cash, and a basket of event positions. The promise is not just convenience. It is capital efficiency for professionals and intuitiveness for consumers. Deposit once, trade across categories, see a single risk view. For more on compliant rails for collateral, see compliant digital dollar rails.

What still stands in the way

There is real friction between the enthusiasm of crypto users and the constraints of U.S. market structure. The next twelve months will test how much of the vision survives contact with rulemaking, market surveillance, and legal risk.

• Product approvals

In the United States, a DCM can list many new products through self certification. That means the exchange certifies that the product complies with the law and the Commodity Futures Trading Commission has a limited window to object. Event contracts are different when they touch sensitive categories. The agency has asserted that some event types violate the public interest or the statute. Any venue that wants to list politically flavored contracts or things that resemble gaming must navigate additional review or face a challenge. Expect a staged approach. Start with events that are clearly permitted and have clean data sources. Add complexity over time as the dialogue matures and precedent builds.

• Potential shutdown delays

Even the best engineered rulebook can be slowed by the calendar in Washington. Budget standoffs can limit agency resources. Litigation can add pauses. None of this changes the end state, but it changes the tempo. Operators need to plan product roadmaps that can flex around administrative lags. That means launching a healthy basket of plainly permissible contracts first, so that the market can turn over and prove its risk controls while other categories queue for review.

• Know your customer and venue design

A U.S. exchange cannot look like a permissionless protocol. Accounts require identity checks, sanctions screening, and surveillance. That does not mean the experience must feel like a bank website. A well designed onboarding that supports wallets as sign in, treats addresses as payment methods rather than identities, and connects to a compliant customer profile can keep the crypto feel without skipping the rules. The golden path is a layered setup. A user signs in with a wallet, connects a verified identity record, and funds with either dollars or approved stablecoins. The venue then manages position limits and market integrity without breaking the relationship to wallets and on chain tools.

• Clearing and settlement plumbing

The romance of a prediction market is the odds. The reality is margin schedules and settlement files. For event contracts to scale, clearinghouses need margin models that handle binary payoffs, correlated shocks across related events, and potential crowding in one sided positions. That is not exotic, but it is specific. Risk teams will need to tune models so that margin is sufficient but not punitive. On settlement day, the clearinghouse must reference a public and unambiguous result source, apply it at the scheduled timestamp, and complete cash flows on time.

How a regulated event market would actually work

Imagine a Monday in February. A venue lists a set of weekly event contracts. Each contract is tied to a timestamp and a source of truth. For example, a contract on whether a Federal Reserve rate decision includes a cut of 25 basis points, settled by the official release at a known time. A contract on whether a specific network upgrade activates by a certain block height, settled by a prescribed blockchain explorer at the cutoff height.

A user funds the account with dollars or an approved stablecoin. The venue allows Bitcoin and Ether as collateral within concentration limits. A trader buys five yes contracts at 0.42 on the rate cut, meaning a 42 percent implied probability. Another trader sells those yes contracts, posting margin according to the clearinghouse schedule that reflects the possibility of a sharp repricing if a pre announcement leak occurs. The exchange publishes a live order book and a consolidated tape style feed. An oracle service writes those prices to a public blockchain where wallets and protocols can read them, with a clear label that they originate from a regulated U.S. exchange.

On decision day, the official release posts. The settlement rulebook specifies the determinative text and time. The contract is marked as a yes outcome. The clearinghouse credits 1.00 per contract to yes holders and debits no holders, less fees. Positions close, margin releases, and the tape records the final settlement. The market data feed includes the settlement price and time, which the oracle reflects on chain so that any dependent DeFi contracts can settle consistently.

This is not science fiction. It is the daily routine of a modern exchange with a few extra wrinkles for event contracts.

Why this accelerates the shift to everything markets

Everything markets are the idea that any measurable state of the world can be hedged or expressed in a tradable claim. Bringing crypto front ends into a U.S. regulated stack accelerates this shift because it aligns incentives across four groups that rarely line up.

• Consumers get familiar guardrails

U.S. investors understand the protections that come with exchange trading, surveillance, and clearing. When event contracts live inside that perimeter, the pitch becomes ordinary. This is a regulated market with clear disclosures, position limits, and recourse. You are not wiring money to an offshore website. You are trading on a U.S. exchange with a U.S. rulebook.

• Institutions get capital efficiency

Hedge funds, market makers, and liquidity providers already have workflows for U.S. exchanges. If event contracts can be cross margined against futures and spot under a unified collateral program, the operational cost drops. Data lines, risk systems, and compliance programs can reuse existing tooling. That brings size and depth to markets that previously looked like side projects.

• Builders get composable, lawful signals

Developers can build around regulated odds feeds without fearing that a key input will be taken down or blocked for U.S. users. Wallets can surface probabilities next to prices. Treasurers can hedge operational risks that were previously difficult to insure. A content creator could hedge the risk of a live event cancellation. A merchant could hedge a shipping delay index tied to public data.

• Regulators get visibility and levers

When a venue is in the perimeter, supervisors get the logs, the surveillance reports, and the authority to intervene. That is better than watching activity move to darker corners. If event types prove problematic, they can be narrowed. If the market behaves, limits can expand. The dial can turn instead of the switch flipping from allowed to banned.

The practical playbook from here

Because approvals vary by contract type, expect a crawl, walk, run sequence.

Crawl: start with operational events and measurable milestones that are comfortably inside existing policy. Weather thresholds, protocol activations, public data releases. Focus on settlement sources that are authoritative, timestamped, and widely accessible. Keep contract sizes small to encourage participation and to gather clean surveillance data.

Walk: introduce more complex categories with bounded risk. Earnings thresholds, economic prints, and product launches with clear public definitions. Launch market maker programs that require strong quoting obligations so the book does not thin out when news hits. Publish open specification for the odds feed so wallets and analytics tools can integrate without chaos.

Run: pursue categories that require deeper review. Some elections related products may eventually pass muster, others may not. Where legal risk is highest, consider formats that reduce pathologies. For example, contracts that pay based on turnout ranges rather than winner take all, or contracts that limit position size per account to reduce the incentive to manipulate.

Through each phase, keep a sharp line between U.S. and non U.S. flows. The same front end can serve both, but the compliance stack must route users to the right venue with the right limits. That is a software problem and a governance problem. Solve it early.

Design choices that will decide the winners

• Product granularity

Contracts should be specific and intuitively named. Users do not want to parse legalese to understand what they are trading. They want a clear statement of the event, the source of truth, the cutoff time, and the payout.

• Data governance

On chain mirrors of odds and settlements should be published with signed messages, clear versioning, and a commitment to immutability. If a venue revises a settlement, it must publish the revision and the reason. Ambiguity is the enemy of adoption.

• Risk culture

The fastest way to kill onshore event markets is a preventable blowup. Clearing and surveillance must treat event clusters as correlated. Position limits should reflect public schedule risk. Circuit breakers and pause rules should be tuned for non price events, like a delayed data release.

• User experience

People should feel like they are trading on the internet, not filling out a mortgage form. Wallet sign in, instant funding with approved payment rails, clear disclosure pages with examples, and a single portfolio view across spot, futures, and events will set the bar. Make the compliance layer invisible until it needs to be visible.

What if it goes wrong

There are real risks.

Liquidity could fragment between onshore and offshore venues. If offshore books offer categories that the U.S. forbids, price discovery may still happen elsewhere. The fix is not to copy everything offshore. It is to make the allowed categories deep, cheap, and reliable so that the center of gravity shifts over time.

Oracles and settlement sources can fail. A bad data print or a hacked website can confuse outcomes. Venues should pre commit to backup sources and a tie breaking rule. Build a review committee with independent members and publish decisions promptly.

Stablecoin and custody risk can creep in through the collateral stack. If a venue accepts stablecoins, it must make reserves disclosure and redemption mechanics clear. If it supports crypto collateral, it must apply concentration and haircuts that reflect market stress, not bull market dreams.

The bottom line

Kraken’s Designated Contract Market purchase and Polymarket’s QCEX deal do not flip a switch. They open a door. Walk through that door and you find a plausible pathway to regulated event markets that run every day, settle on objective data, live inside U.S. market protections, and still speak the language of wallets and on chain composability.

The projects that win will be the ones that make complexity disappear. Traders should see a simple order book, a clear rulebook, and a fair match. Builders should see a clean feed and a public specification. Regulators should see a venue that meets the law, publishes the data, and fixes problems before they metastasize.

If that happens, the idea of an everything market stops being a slogan. It becomes a set of venues where a musician hedges a tour date, a miner hedges a difficulty change, a startup hedges a product launch, and a fund hedges the path of policy. All with the same account, the same collateral, and the same confidence that the rules will hold when it matters.

That is the promise of going onshore. Two deals made it credible. The next year will make it real.