‘A Financial Wrapper Around Human Curiosity’: Baranovskyi on Dual Regulatory Pressure Reshaping Prediction Markets Across Europe and US

Key Takeaways

• Quote Defines the Debate: Roman Baranovskyi calls prediction markets a financial wrapper around human curiosity about events with no underlying economic risk to hedge.
• Europe Closing Loopholes: ESMA classifies binary event contracts as financial instruments under MiFID II while nine national gambling regulators coordinate against unlicensed platforms.
• US Legislative Response: The Prediction Markets Are Gambling Act targets sports and casino-style contracts on CFTC exchanges citing over $1bn in lost state tax revenue and threats to tribal sovereignty.
• World Cup Market Shift: Prediction platforms captured 27% of US legal sports betting volume up from 9% in January with Polymarket posting the lowest 2.70% vig versus sportsbooks at 4.97% to 6.14%.

“A financial wrapper around human curiosity about an event.”

That is how Roman Baranovskyi describes what platforms like Polymarket and Kalshi offer. The head of iGaming and investment practice at SBSB Fintech Lawyers made the comment in an interview with European Gaming published on 24 July 2026. He argues the label matters less than the underlying activity and how the operator earns revenue.

The interview arrives as regulatory actions intensify on both sides of the Atlantic. Portugal blocked Polymarket in January over concentrated volume on a domestic election. The United States saw prediction platforms take 27 percent of legal sports betting volume during the 2026 World Cup according to H2 Gambling Capital data reported by The iGaming Europe. A bipartisan House bill introduced by Congressman Steven Horsford and Congressman Mark Amodei seeks to close the federal loophole that lets these platforms operate sports contracts under CFTC oversight.

The Financial Instrument Defense and Its Limits

Platforms have long claimed their binary yes-or-no contracts qualify as financial derivatives. Baranovskyi acknowledges the surface logic. A business owner hedging inflation above 4 percent moves real economic risk off the balance sheet.

Event contracts on a celebrity divorce or a World Cup match do not. “It’s a bet on something that will either happen or it won’t. That’s the textbook definition of a game of chance.” The financial wrapper does not change the fundamental character when curiosity rather than risk transfer drives participation.

This distinction carries immediate regulatory consequences. Portugal’s decision required no sign-off from Brussels. It stood on its own as one member state treating the platform as a bookmaker operating on its soil.

How Business Models Dictate the Regulatory Lane

From the player perspective the experience feels similar whether the interface shows a bet slip or an order book. Baranovskyi directs attention to the profit engine underneath.

A sportsbook sets the odds and builds margin into the pricing. The house profits when the player loses. A prediction market lets traders take the other side of each contract. The platform earns a flat transaction fee regardless of outcome. “A house that profits when the player loses belongs under bookmaker rules and a venue that earns the same fee whoever wins looks a lot more like an exchange.”

That line drawn in the interview aligns with the new US legislation. The Prediction Markets Are Gambling Act declares that sports and casino-style event contracts on federally registered exchanges constitute gambling rather than legitimate hedging. It protects weather and economic contracts that serve bona fide commercial purposes while prohibiting the sports and casino variants.

Sports prediction contracts are sports bets just with a different name and have been offered in all fifty states in clear violation of state and federal law. The bill has companion legislation in the Senate introduced in March 2026.

Coordinated European Actions and the ESMA Shift

Nine European gambling regulators announced a joint push against unlicensed prediction platforms in June 2026 timed to the World Cup. That coordination sits alongside the financial-side development in July when the European Securities and Markets Authority said publicly that event contracts with a binary, yes-or-no payout can qualify as financial instruments under the EU’s core investment-services rulebook (MiFID II).

The same category led to the 2018 ban on binary options for retail investors across the EU. One license or one prohibition now applies across all 27 member states on the financial side. Gambling law remains national. The combined pressure closes both exits at once.

Baranovskyi expects the global map to stay fragmented. “There is no scenario where Washington Brussels and Beijing agree on one framework for prediction markets.” The EU itself proves the point. Gambling is carved out of harmonized European law because member states protect tax revenue and state monopolies.

US Volume Surge Exposes the Competitive Stakes

Prediction platforms captured 27 percent of US legal sports betting volume during the 2026 World Cup. That figure rose from 9 percent in January. Kalshi recorded 31 billion dollars in notional trading volume in June. Polymarket’s international exchange reached a 10.8 billion dollar monthly high while its US-regulated platform hit 3.5 billion dollars. Rothera the Robinhood and Susquehanna joint venture took 2 billion dollars in its first full month.

A Citizens JMP Securities study of 104 matches showed Polymarket at 2.70 percent vig. Kalshi sat at 4.71 percent. The sportsbooks ranged from DraftKings at 4.97 percent to Fanatics at 6.14 percent. Polymarket offered the best price in every match studied.

DraftKings and Flutter Entertainment shares fell more than 25 percent year-to-date by the tournament’s final weekend. The data also notes that prediction markets count all trading activity including positions closed before events finish while sportsbooks record only original bets.

Casual bettors may still favor brand access and product experience over price. The upcoming NFL season will test whether the pricing edge reflects structural change.

Risks in Manipulation Settlement and Dual Compliance

The combined coverage from European Gaming The iGaming Europe and G3 Newswire emphasizes volume and legislation. What remains underemphasized is the operational cost of running a platform that must satisfy both financial surveillance rules and gambling consumer protections in the same product.

Baranovskyi outlines three exhibits regulators demand on manipulation. First the economics punish mispricing because traders arbitrage it back to fair value. Second active surveillance software must catch wash trading and similar schemes. Third settlement must be verifiable without relying on any single party’s word.

On-chain platforms use staked validators whose collateral burns on false outcomes. Licensed platforms face direct regulatory supervision of their settlement process. The limitation for on-chain operators is that users still need fiat on-ramps and off-ramps controlled by banks and exchanges inside regulated jurisdictions.

In my experience on the data infrastructure side this dual compliance burden changes integration timelines and risk models for any operator or supplier connecting to these platforms. The arbitrage that let unlicensed platforms operate with lower costs is closing. Platforms must pick a camp and accept the conditions attached.

Why Licensed Operators Gain as the Arbitrage Ends

Licensed sportsbooks and casinos that watched prediction platforms take World Cup volume now see the field leveling. A prediction platform that wants to keep sports volume will need gambling licenses and will carry the same compliance costs and taxes.

The US bill explicitly reaffirms state and tribal authority over gaming. It cites threats to over 100000 UNITE HERE members and 60000 Culinary Union members in Nevada. Gwen Mills of UNITE HERE and Ted Pappageorge of the Culinary Union both welcomed the legislation as protection for union jobs and benefits built over decades.

From an operator standpoint the lower vig on prediction markets forces tighter pricing discipline and faster product iteration. The regulatory tension will not disappear. The regulated camp gets bigger and duller with more licenses and fewer contract types. The unregulated camp gets smaller and harder to reach.

Watch how member states enforce the ESMA position over the next 12 months. The grey zone may not survive until the next World Cup. Operators and investors seeking clarity on sportsbook prediction market integration should review the advisory frameworks at https://sccgmanagement.com/our-services/.