The rise of prediction markets has confounded Washington, with lawmakers still learning how the exchanges work — and little done in Congress to support or rein in the companies. But the midterm elections may spark movement, with both platforms and their regulator set to come under increased scrutiny as part of a broader oversight agenda by the Democratic Party.

For now, prediction markets have appeared as a nonpartisan issue, with both supporters and opponents on each side of the aisle.

Nearly 30 prediction market-related bills have been introduced in both chambers since 2025, with most sponsored by Democrats and introduced in the House of Representatives. Those measures focus on banning or restricting congressional members and staff from participating on the platforms and prohibiting particular contracts, primarily sports-related ones.

Zero have passed.

With polls signaling Democrats are on track to flip the House next month, those bills and proponents seeking to tackle the industry may stand a better chance to succeed under Democratic leader Hakeem Jeffries.

Even beyond any sort of legislation, Democrats through committee investigative powers could confront President Donald Trump's son, Donald Trump Jr., and his advisory role with leading companies Kalshi and Polymarket, which many Democrats, and even some Republicans, fear may have been used to gain favorable regulatory rulings from the administration.

The regulator in question, the Commodity Futures Trading Commission, may face greater scrutiny too. Some lawmakers have worried whether the agency, after recent staffing cuts, can handle oversight of the booming prediction markets industry.

The CFTC disputes that concern, telling CNBC its work in other markets proves it can handle emerging event contracts. Meanwhile, both leading platforms said they welcome engagement with lawmakers and even potential legislation as the industry grows. 

"We welcome scrutiny," a Polymarket spokesperson said in a statement. "We are a new concept to most and our biggest problem is typically a lack of understanding of the way our platform operates … We want to work with lawmakers and staff to ensure all the promise and value of prediction markets is captured and regulations meet the scale and scope of the massive demand for the product."

Why Democrats might go after platforms

While both parties have expressed concerns over prediction markets, where things might get more partisan is over Trump Jr.'s role as an advisor at both Kalshi and Polymarket.

His venture capital firm 1789 Capital also has an investment in the latter company, though a spokesperson told CNBC that Trump Jr. doesn't sit on the firm's investment decision-making committee and "therefore has no ability to allocate capital to companies." The spokesperson added Trump Jr.'s advisory role at Polymarket was done outside of the firm's investment.

Both leading prediction market companies have sought favorable CFTC rulings, including for new products and ongoing rulemaking in the emerging space, as they grow, and some lawmakers have worried how Trump Jr.'s role may impact those decisions. 

"I know that the appearance of conflicts of interest was significant enough that a Republican senator called for a probe into Don Trump Jr. interests and specifically his interests in polymarket and culture," said Joseph Konizeski, a former trial attorney in the CFTC, referencing a letter by Sen. John Curtis, R-Utah, a skeptic of prediction markets. "So when you have a Republican senator making that sort of a public plea, I think that that tells you that it's a serious issue."

The office for U.S. Rep. Robert Garcia, D-Calif., who is set to be the chair of the House Oversight and Government Reform Committee if Democrats retake the chamber, did not respond to a request for comment.

A spokesperson for the president's son called the concerns on his relationship and role on the platforms as politically motivated.

"Democrats are obsessed with harassing Don because of his last name, despite having zero evidence that he has actually engaged in any wrongdoing whatsoever," the spokesperson said in a statement. "Don does not ever interface with the Federal Government on behalf of any company that he advises or invests in."

A person familiar with Polymarket's operations said the company's investors and advisors, such as Trump Jr., give business and strategic advice. Polymarket's internal management and legal teams handle regulatory obligations, the person added. 

Both Kalshi and Polymarket also have relationships with Democrats too. Former President Barack Obama staffer Stephanie Cutter is a senior policy advisor at Kalshi, while Polymarket hired in September Rob Eskridge, a former chief of staff to a Democratic congressman, to lead its government relations team.

Kalshi CEO Tarek Mansour said last week on MS NOW that Trump Jr.'s connection to the company creates an "optics issue," but added that it has never used that relationship to gain favor with the U.S. government. 

Over the past nine months, Kalshi has had numerous conversations with lawmakers over Trump Jr.'s role in the company, reassuring them that the president's son solely advises on its marketing, the platform said. The company added it has seen bipartisan progress with lawmakers on how they view prediction markets by noting the benefits of a federally regulated exchange rather than one hosted offshore. 

Lawmakers are still learning about prediction markets, since they're so new, and that means what exact action they'll take in the area remains unclear.

"They want to do some amount of investigations on this. I think they don't seem to have a broad sense of what this entails yet," a Democrat and former general counsel to a U.S. senator, who asked not to be named to speak frankly, said about policymakers. The person said sports contracts are an easier entry point for lawmakers because they can compare the contracts with sports betting.

A spokesperson for Kalshi said the company welcomes legislative frameworks to tackle insider trading concerns, establish consumer protections and make clear standards on what contract types are allowed.

"Congress has both the opportunity and, we believe, the appetite to get this right," the spokesperson said. "Smart guardrails now will let this industry grow responsibly here at home while preventing the abuses that thrive offshore, beyond the reach of U.S. regulators."

Sean Patrick Maloney, a former Democratic representative who now leads the Coalition for Prediction Markets, warned his party about moving too aggressively against the industry.

"Why are you going to drive that to offshore platforms that don't have the same manipulation protections that you have here?" he asked at a conference in New York City this month. He added Democrats are often too focused on opposing something just because it's "coded Trump," which he called shortsighted.

CFTC in the spotlight

Democrats, and some Republicans, have expressed skepticism about the CFTC's ability to regulate these new markets, driven by concerns regarding the exchanges' sports offerings and worries about cuts the agency faced in 2025. 

The Government Accountability Office in July accepted a request by Sen. Elizabeth Warren, D-Mass., to review the commission's workforce reduction, according to a letter first reported by NPR.

A win for Democrats in the U.S. Senate would likely place Warren as chair of the chamber's Banking Committee. She has been a skeptic of prediction markets, and Warren is widely expected through the committee to expand oversight of the industry's regulator, the CFTC.

A representative for Warren's office declined a request for comment.

CFTC spokesperson Zach Fulton rejected criticism that the agency can't handle oversight of event contracts. "The CFTC currently regulates nearly $600 trillion in notional value across U.S. derivatives markets," he said in a statement. "The Commission is more than capable of overseeing prediction markets that are less than $1 trillion notional." Fulton noted in the statement that the CFTC is on track to hire roughly 100 employees in "critical areas" by the end of 2026.

And the CFTC has in recent months stepped up its regulatory work in the space. 

For example, in July, the commission announced it was seeking public comments on proposed rulemaking regarding vertical integration within its regulated exchanges, highlighting close relationships some event contract platforms have with market makers — including platforms with affiliated or in-house market makers. Last month, the agency sent a letter to exchanges detailing concerns on "mention markets," where users place trades on what an individual will say in a speech or broadcast. The letter said those markets have a greater manipulation risk.

J. Chris Giancarlo, a former CFTC chair, said the moves show the agency is building robust guardrails. "They're saying, 'this innovation should happen here, and we're duty bound to put a regulatory framework around it.'"

Yet, the commission remains steadfast in its support for the novel asset class. It continues to defend platforms in disputes with states across the country who argue their sports-related offerings amount to gambling, and has continued to approve new product offerings by the exchanges. 

Those decisions will face greater congressional scrutiny if power in Washington changes, David Aron, a former CFTC employee and special counsel at Lowenstein Sandler, said.

"If the Democrats take control of either chamber, then that chamber's committees that oversee the CFTC will be a little sharper with them, call them in, demand answers," he said. "That will not be fun." 

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.