While the US Fights Over Prediction Markets, Malta Is Quietly Writing the Rulebook

While the United States burns through courtrooms and congressional hearings trying to decide what prediction markets are, and eight European countries have simply banned them outright, a small Mediterranean island is doing what it has done twice before — quietly building the regulatory framework that everyone else will eventually copy. If you are a European prediction market user currently accessing Polymarket through a VPN because your country banned it, Malta just became the most important regulatory story in your world. Economy Minister Silvio Schembri announced on March 25 that the government is “actively exploring” a legislative framework for prediction markets, a sector that handled more than $40 billion in combined volume in 2025 and has produced two companies now valued above $20 billion each.

What Schembri Said

Speaking at the inauguration of Blockchain.com’s new Malta offices on March 25, Economy Minister Silvio Schembri made the clearest signal yet that Malta intends to create a regulatory home for prediction markets in Europe.

“We are actively exploring the emerging field of prediction markets, an area experiencing rapid global momentum which presents significant opportunities for innovation, provided it is supported by a clear, forward-looking legislative framework that enables it to develop responsibly and at scale.”
— Silvio Schembri, Malta Economy Minister

The language is deliberate. “Forward-looking” and “at scale” are not the words of a regulator looking to constrain — they are the words of a government that sees an economic opportunity. The Malta Gaming Authority already operates what legal experts call “one of Europe’s most established and well-regarded remote gaming regulatory frameworks,” and its approach is technology-neutral and risk-based, meaning product classification turns on the substance of the service offered, not the label slapped on it.

This matters because the central regulatory question everywhere — are prediction markets gambling or financial instruments? — is the exact question Malta is uniquely positioned to sidestep. The MGA does not force operators into ill-fitting categories. It assesses what the product actually does.

Malta’s Regulatory Playbook: First Mover, Again

Malta has pulled this move before. Twice. And the second time didn’t go as smoothly as the first.

In 2001, Malta became the first EU member state to regulate online gambling, establishing the Malta Gaming Authority and creating a licensing framework that attracted hundreds of operators while the rest of Europe debated whether internet gambling should exist at all. Today, the MGA oversees 350-400 active gaming licenses, and iGaming contributes an estimated 12-14% of Malta’s GDP — an extraordinary concentration for a country of 530,000 people.

Then in 2018, Malta did it again with crypto. The government passed the Virtual Financial Assets Act, the Malta Digital Innovation Authority Act, and the Innovative Technology Arrangements and Services Act — three pieces of legislation that created one of the world’s first comprehensive regulatory frameworks for cryptocurrency and blockchain. Malta earned the “Blockchain Island” label, and major exchanges including Binance set up operations there.

But the crypto chapter also exposed real weaknesses. Binance ultimately left Malta, and the MFSA struggled to keep pace with the enforcement demands of the industry it had attracted. In June 2021, the Financial Action Task Force greylisted Malta over anti-money laundering deficiencies — a humiliating blow for a jurisdiction that had built its brand on regulatory credibility. Before the greylisting, Malta had issued zero AML fines. It took 357 days of aggressive reform — dozens of enforcement actions, doubled business registry resources, and a thorough risk assessment overhaul — before the FATF removed Malta from the list in June 2022. The “Blockchain Island” brand had become an embarrassment before it became a lesson.

This history matters for the prediction market play because it cuts both ways. Malta has the institutional muscle to move first, but it also has a track record of moving first and then scrambling to build the enforcement capacity to match. The question is whether the FATF experience taught the MGA to front-load compliance infrastructure rather than bolt it on after the fact. The prediction market play follows the same structural logic as the first two moves. Malta’s MGA already has a Type 3 gaming license category that covers pool betting and betting exchanges — the exact model most prediction market platforms operate under. Operators earn commissions on trades between users rather than assuming outcome risk themselves, which is precisely what a Type 3 license was designed to accommodate. The infrastructure is not hypothetical. It exists, and it has been stress-tested by hundreds of operators over two decades — though not without its own security challenges.

Prediction Markets Across Europe: Who’s Banning, Who’s Watching, Who’s Regulating

Europe’s Ban-First Approach

The dominant European response to prediction markets has been swift and unambiguous: classify them as gambling, then ban the unlicensed ones. The Netherlands Gambling Authority fined Polymarket €420,000 per week for offering what it called illegal gambling services, ordering the platform to cease Dutch operations by February 2026. Portugal blocked Polymarket nationwide in January 2026 after $120 million flowed through the platform on the country’s presidential election. Hungary followed the same day with its own ban.

Romania’s National Gambling Office captured the prevailing logic across the continent when it blacklisted Polymarket in October 2025: “If you bet money on a future result, under the conditions of a counterpart bet, we are talking about gambling that must be licensed.” France, Belgium, Italy, and Poland reached the same conclusion through their own regulatory channels.

The result is a continent-wide patchwork. No harmonized EU framework for prediction markets exists. The EU’s Markets in Crypto-Assets regulation, which reaches full implementation in July 2026, applies to the underlying blockchain technology but does not specifically address prediction markets as a product category. This creates a regulatory vacuum — and Malta, characteristically, is the first country positioning itself to fill it rather than simply enforce it away. The question at the heart of the prediction market identity crisis — gambling or financial instrument? — remains unanswered at the EU level.

What This Means for Polymarket and Kalshi

If Malta creates a prediction market licensing framework, it would not just open one small country’s market — it could potentially create a pathway into the broader EU. Malta’s MGA licenses have historically enabled operators to serve customers across Europe, and the combination of an MGA gaming license with MiCA-compliant crypto infrastructure could give prediction market platforms the dual regulatory coverage they need to operate openly on the continent.

For Polymarket, this is existential. The platform is currently blocked in eight EU countries with no regulated path to serve European users. A Malta license would transform its European position from unwanted intruder to regulated operator. For Kalshi, which is already pursuing the power shift from sportsbooks to prediction markets, a European regulatory beachhead would complement its US CFTC registration and Brazilian expansion.

The capital is already following. The $35 million prediction market VC fund backed by both the Kalshi and Polymarket CEOs — launched the same week as Schembri’s announcement — signals an industry that is betting on regulatory normalization, not continued prohibition.

The US Regulatory Quagmire

The American approach to prediction market regulation makes Europe’s ban-first strategy look decisive by comparison. The US has been fighting over prediction markets in courtrooms, congressional hearings, and regulatory agencies simultaneously — with no resolution in sight.

On March 16, 2026, the CFTC published an Advanced Notice of Proposed Rulemaking seeking public comment on prediction market regulation. The comment period runs through April 30. Event contracts traded on CFTC-registered exchanges are classified as “swaps” subject to federal jurisdiction — a classification that Kalshi has leveraged to argue that federal law preempts state-level gambling bans.

That argument has been winning in court. On February 19, a federal judge in Tennessee granted Kalshi a preliminary injunction, finding that its sports event contracts are likely swaps under the Commodity Exchange Act and that federal law likely preempts Tennessee’s attempts to regulate them. The CFTC itself has filed an amicus brief supporting prediction markets — a dramatic reversal from the agency that fined Polymarket $1.4 million in 2022 and tried to block Kalshi from listing election contracts.

But the state-by-state battles grind on. Arizona has filed criminal charges against Kalshi. Nevada obtained a temporary restraining order blocking prediction market activity around March Madness. Massachusetts, Ohio, and Tennessee have all pursued their own enforcement actions. Thirty-four state attorneys general signed amicus briefs opposing federal preemption, and the circuit split that is forming virtually guarantees this fight reaches the Supreme Court — a process that could take years.

Meanwhile, both platforms are surging in valuation. Kalshi locked in a $22 billion valuation in March 2026 after a $1 billion Coatue-led investment round. Polymarket hit $20 billion after securing strategic investment from the Intercontinental Exchange. Both company CEOs are now backing a $35 million prediction market-focused VC fund — betting, quite literally, that the regulatory winds will ultimately blow in their favor in the $40 billion prediction market war.

Two Approaches to the Same Problem

The Volume Explosion That’s Forcing the Issue

The urgency behind Malta’s exploration — and every other regulator’s scramble — comes down to scale. Prediction markets went from a niche curiosity to a $40 billion annual industry in two years, and the duopoly driving that growth has fundamentally reshaped who is trading what.

Kalshi and Polymarket together account for 97.5% of global prediction market volume. But the market share story has shifted dramatically. In December 2024, Polymarket controlled roughly 95% of the market, riding the US presidential election wave. By early 2026, Kalshi had seized 53% of weekly volume ($2.7 billion per week) while Polymarket settled at 47% ($2.1 billion). The reversal was driven by Kalshi’s aggressive push into sports markets — 90% of its volume now comes from NFL, NBA, and MLB contracts — while Polymarket continues to dominate politics, geopolitics, and cryptocurrency markets.

The steady-state numbers are what matter for regulators. The $2.5 billion monthly peak during the October 2024 election was a spike. The $4.8 billion combined weekly volume in early 2026 — roughly $19 billion per quarter — is the new baseline. This is not a sector that will shrink back to irrelevance once the election cycle fades. It has found permanent volume in sports, and that makes the regulatory question unavoidable.

Why Malta Has the Inside Track

Malta’s advantage is not just political will — it is structural. The MGA’s Type 3 gaming license was designed, in part, with exchange-style models in mind. Prediction markets, where users trade binary outcome contracts and the platform takes a commission, are functionally identical to betting exchanges. Malta does not need to invent a new regulatory category. It needs to adapt an existing one.

The talent pool is already there. With 350-400 licensed gaming operators on an island of half a million people, Malta has the deepest concentration of iGaming regulatory expertise in Europe. AML and KYC frameworks, responsible gaming tools, enforcement mechanisms, and compliance infrastructure have been built, tested, and refined over two decades.

But Malta may also be racing against the clock. On March 5, 2026, the European Securities and Markets Authority published guidelines on the conditions for classifying crypto-assets as financial instruments under MiCA. If prediction market tokens — the binary outcome contracts traded on platforms like Polymarket — get classified as financial instruments rather than gaming products, they would fall under MiFID II and ESMA’s jurisdiction, not national gambling regulators like the MGA. Malta’s window to establish prediction markets as a gaming-regulated product may be closing as MiCA’s classification framework takes shape. Getting a framework in place before that ambiguity hardens into precedent could be the difference between Malta regulating this sector and ESMA regulating it for them.

The demand side is equally compelling. Polymarket needs a regulated European home. It is currently blocked in eight EU countries and has no licensed path to serve European users. Kalshi is already expanding internationally, having launched in Brazil and pursuing other jurisdictions. Both platforms are flush with capital — Kalshi just raised $1 billion, Polymarket secured strategic investment from ICE — and both need somewhere in Europe where they can operate legally.

Timeline: Europe vs. Prediction Markets

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Sources

• Malta Could Become First In Europe To Regulate Prediction Markets As Global Boom Accelerates — Lovin Malta
• Prediction Markets: Advanced Notice of Proposed Rulemaking — CFTC / Federal Register
• Prediction Markets at a Crossroads: The Continued Jurisdictional Battle Over Event Contracts — Holland & Knight
• Prediction Markets In Europe: Why Malta Is Often On The Shortlist — Lawyers In Malta
• Malta Country Profile — Financial Action Task Force (FATF)
• Markets in Crypto-Assets Regulation (MiCA) — European Securities and Markets Authority
• Malta Gaming Authority — MGA Official Site
• The Business of Predicting the Future Is Booming but EU Regulators Remain Uneasy — Euronews