MiCAR and Prediction Markets: An Uncertain Outcome

The United States has seen a meteoric rise in the popularity of prediction markets, transforming prediction of political and economic indicators into a part of everyday life. Prediction markets are platforms where users bet on the outcome of future events. Rather than wagering against the house, participants trade against one another, and the market price of a given outcome becomes, in effect, a live probability estimate.

While platforms like Kalshi and Polymarket have dominated the US, in Europe there are first cases of the regulators designating them as unlicensed gambling, starting from Portugal and Hungary¹, and the Dutch Gambling Authority being one of the latest examples.² The result is that prediction markets remain largely inaccessible to European users, and European operators face real legal risk.

Whether this leaves Europe cut out entirely, or whether a compliance pathway exists, depends in large part on a piece of legislation most prediction market operators have not yet seriously considered: MiCA.

How European and US regulators classify prediction markets

Prediction markets in the US sit in the regulatory grey-zone, where the placing of money on “yes” or “no” scenario is equated to an option contract, which places these platforms within commodity futures regulation rather than gambling law.³ This grey zone is the reason why they are not likely to be compliant in Europe.

For many regulators, certain prediction market contracts are economically indistinguishable from binary options, a subcategory of derivatives. Since 2018, binary options offered to retail clients have been effectively banned across the EU.⁴ These types of assets have been deemed too complex and non-transparent and their offering to retail clients has been essentially banned.

On the other end, many prediction markets argue they are merely “matching engines” for users and thus not “gambling” in the traditional sense (where one bets against the house). However, the general definition of gambling, in several European states classifies gambling not through the role of the platform, but through the betting on an outcome, which is partly or fully determined by an activity based on chance or depends on the occurrence of a previously unknown event.

Gambling is typically defined as betting on an outcome, which is partly or fully determined by an activity based on chance or depends on the occurrence of a previously unknown event.⁵

Why regulatory fragmentation makes compliance nearly impossible

While the classification of an activity as gambling is not an issue by itself (after all, online gambling is a developed industry in Europe), the most significant hurdle remains the lack of EU-wide harmonization for gambling. Unlike financial services, where MiFID II and related directives create a passportable framework, gambling law remains a matter for each Member State. Under the current regulatory framework, Member States retain broad discretion to define what constitutes a “game of chance” and how they should be regulated. Portugal, Hungary, France, and the Netherlands have each reached their own conclusions, and several other jurisdictions are watching closely. The French Autorité Nationale des Jeux has explicitly stated that prediction market platforms are illegal in France under current law.⁶

Enforcement consequences: fines, payment blocks, and criminal risk

Operating outside this framework carries severe consequences. When platforms bypass the regulatory compliance and offer regulated services, the regulators typically reach for a well-established regulatory toolbox. Their measures can include anything from ISP blocking to restrict access to the websites, to instructing the payment processors and banks to block transactions linked to the platform’s wallets or bank accounts. The heaviest risk are the fines or even criminal investigations in the cases of the largest platforms.

The KSA was direct about its assessment of the activity itself:

“Prediction markets are on the rise, including in the Netherlands. This type of company offers bets that are not permitted on our market under any circumstances, not even by licence holders. In addition to the societal risks of these kinds of predictions, such as the potential influence on elections, we find that this constitutes illegal gambling.”

Kansspelautoriteit (KSA), Netherlands Gambling Authority⁷ — translated from Dutch

This is a notable statement. The Dutch authority did not leave open the possibility that a licensed operator could run a prediction market legally. The activity itself, in its view, is impermissible.

Where MiCA enters the picture

At the centre of most prediction markets is the utility token, which facilitates platform governance, collateral, or rewards. For these platforms to scale, their tokens must be accessible on regulated Crypto-Asset Service Providers (CASPs). CASPs are the licensed entities that list and custody tokens, and they require this documentation before listing. Ever since the advent of crypto, CASPs have been requiring companies to publish a whitepaper describing the token. However, under the European MiCA regulation, this listing triggers a mandatory whitepaper notification procedure, alongside mandatory compliance with the regulatory authorities of at least one EU state.⁸ What many operators have not fully absorbed is that this whitepaper requirement does far more than regulate the token. It creates a detailed disclosure obligation about the platform itself.

As part of the mandatory disclosures, specifically under item F.11, the issuers have to disclose the services provided by them. This means that the operators can no longer hide behind abstract tokenomics. They must explicitly detail the platform’s underlying mechanics and services. By detailing these services in a formal filing, platforms are effectively inviting regulatory scrutiny. If that description resembles an unlicensed derivative or gambling product, the competent authority receiving the notification is well positioned to refer the matter to the relevant sector regulator. By filing a whitepaper, an operator who has so far avoided formal regulatory scrutiny may effectively invite it.

This forces the operators to consider European compliance beyond initial filing, but to look towards a standardized framework to limit regulatory risk. While small, this forces operators of such platforms to think about compliance and to handle it from the European perspective or close off the market entirely, or partially from one of the biggest crypto-markets in the world.

What a compliant whitepaper for a prediction market token should include

Navigating this requires careful drafting. A whitepaper for a utility token linked to a prediction market platform should be constructed with several considerations in mind.

First, the token and the platform must be structurally and linguistically segregated. The whitepaper concerns the token, and descriptions of platform services should be scoped accordingly rather than offering a full account of the platform’s commercial operations.

Second, the description of services should be precise about what the platform does and does not do, and should avoid characterisations that map cleanly onto regulated financial or gambling activities. Imprecise language in a regulatory filing is difficult to walk back.

Third, the jurisdictional scope of the platform’s operations should be explicitly addressed, including any user-access restrictions that are already in place. This demonstrates that the platform actively limits access in jurisdictions where its services are impermissible.

Fourth, the issuer should consider whether proactive engagement with the competent authorities in the notification jurisdiction is appropriate prior to filing, rather than relying solely on the whitepaper to speak for itself.

Conclusion

It is clear that a single regulatory disclosure will not force every prediction market platform operator to start complying with the EU law. However, like with GDPR, it can have a trickle-down effect and result in noticeable change in the behaviour of the platforms, that have so far remained cold towards following European law.

The road into European markets for prediction market platforms runs through MiCA, and through understanding exactly what that filing commits you to disclosing. If you are building or operating a prediction market platform and considering European expansion, we would be glad to help you work through the regulatory landscape. Our teams have direct experience with MiCA whitepaper preparation and with assessing the regulatory risk profile of novel platform structures across multiple EU jurisdictions. Reach out to discuss your situation.