Everyone’s an Accredited Investor on Polymarket
That sounds democratic. It also creates a very obvious problem.
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To buy shares in a pre-IPO startup, the SEC wants to see your tax returns. To trade complex options, your broker has to approve you in tiers. To short a regional bank, you need margin, a disclosure, and in some cases a net-worth attestation.
To put $10,000 on whether the Fed cuts rates by September, you can do it with a phone and a wallet connection.
Prediction markets didn’t lower the accredited-investor bar. They removed it completely.
The wall nobody talks about
For ninety years, American securities law has been built on a simple idea: some financial products are too risky, too opaque, or too concentrated for ordinary people to buy freely. The SEC’s answer was the accredited investor rule. In rough terms, you qualify if you make more than $200,000 a year or have more than $1 million in net worth outside your home.
The logic was never that rich people are smarter. It was that they can survive a loss more easily and, in theory, have access to lawyers, accountants, or advisers who understand what they are buying. That rule sits underneath private placements, hedge funds, most venture deals, and a long list of structured products that the average brokerage account never sees.
It is a blunt instrument. But it is also one of the main load-bearing walls of retail investor protection in the United States.
Prediction markets walked around that wall in about four years.
What Polymarket actually sells
If you’re reading this article, then you probably have a general idea of how Polymarket works. You buy a contract tied to an event, and if the event happens, the contract resolves to $1. If it does not, it resolves to $0. Prices between zero and one dollar get read as probabilities. If a contract is trading at 32 cents, the market is saying there is about a 32 percent chance of that outcome.
That part is familiar.
What you may not have thought as much about is what kind of product that actually makes this.
Polymarket presents itself as a market for probabilities, and that framing is a big part of its appeal. It feels clean, legible, and almost educational. It looks like a simple way to express a view on the future.
But under the surface, the structure is more serious than the interface makes it seem.
A Polymarket contract has no cash flow, no dividend, no underlying business, and no intrinsic value beyond the event itself. It is tied entirely to changing expectations about a future outcome, and it expires on a hard deadline. In practice, that makes it behave much less like a normal investment and much more like a short-duration derivative.
That distinction matters. Retail brokerages do not usually let people jump from buying index funds to trading the sharpest options products without some kind of gate. There are approval tiers for a reason. These products are easy to misuse, especially when users trade too often, chase lottery-like upside, or mistake conviction for edge.
On Polymarket, there is no real approval ladder. There is no meaningful suitability screen. There is a wallet connection and a market.
The data nobody wants on the landing page
A recent working paper from researchers at HEC Montréal, the University of Toronto, and ESSEC analyzed 1.4 million Polymarket users and about $20 billion in volume across 70 million trades from 2022 to 2025. The headline finding was ugly and straightforward: about 71 percent of users lose money, while the top 1 percent of traders capture 84 percent of all gains.
That matters because it tells you what kind of market this becomes in practice. The idealized version of prediction markets is that they aggregate information cleanly and reward people who are right. The real version is harsher. A small minority of disciplined traders consistently extracts value from a much larger group of users who are less patient, less price-sensitive, and usually worse at sizing risk.
Many users trade too often, chase long shots, and enter at bad prices. They are not just losing on bad calls. They are losing on timing, execution, and structure.
The winners usually are not working with some magical edge. They are just more selective. They wait for mispriced contracts, avoid emotional trades, and understand that being right is only part of the game. Entry, exit, and price matter too.
That is the part that gets buried. The issue is not just that many users lose money. It is that this kind of outcome should trigger a much more serious conversation about disclosure, suitability, and retail protections.
If a traditional broker offered a retail product where most users lost money and a tiny minority captured most of the gains, regulators would want that fact stated clearly and repeatedly. On prediction markets, that reality is mostly treated as background noise instead of central product information.
The regulatory theory is doing a lot of work
The bull case for prediction markets rests on a distinction that gets thinner the longer you look at it.
Kalshi’s CEO, Tarek Mansour, has argued that sportsbooks are designed for customers to lose, while Kalshi is simply a neutral exchange. Peer-to-peer. Fees from both sides. No house risk on the outcome. In his framing, that makes it a financial market rather than a casino.
He is right about the business model. He is just wrong that the business model settles the deeper question.
Bookmakers have long operated with balanced books and fee-like revenue. The house did not always care who won, as long as it captured the vig. Nobody looked at that structure and decided it was investing.
The CFTC framework has its own problem. The agency was built to oversee commodity futures, meaning contracts with real economic hedging use. A wheat farmer locking in a price before harvest makes sense. An airline hedging fuel costs makes sense. That rationale becomes much harder to defend when the contract is about whether a celebrity gets engaged by Christmas or whether a sports team wins a title.
That is where the distinction between gambling and event derivatives starts doing a huge amount of work.
And once that distinction holds, the consequences are significant. States lose tax revenue from betting markets. They lose the problem-gambling funds tied to that revenue. They lose the consumer-protection regimes built around gambling oversight. In return, those functions get displaced by a federal framework designed for commodity hedgers, not retail behavior in high-velocity event betting.
The part I keep getting stuck on
This is where the argument gets messy, because the accredited investor rule was always a pretty bad rule too.
It is a wealth filter dressed up as a sophistication filter. A 23-year-old quant at Jane Street can be locked out, while someone who inherited money can get waved through. The rule does not test whether you understand the product. It tests whether you have enough money that society has decided it does not need to care as much if you lose it.
Meanwhile, everyone under that wealth bar gets routed into the products they are allowed to buy. Lottery tickets. Scratch-offs. DraftKings parlays with terrible expected value. Zero day options that some brokers will approve after a short quiz. The accredited investor rule did not eliminate bad products for retail. It mostly pushed people toward the worst-regulated ones.
From that angle, Polymarket is not the disease. It is the symptom.
A generation watched the housing crisis, the meme-stock episode, FTX, and repeated policy head-fakes, then concluded, not unreasonably, that the official safe products were not always safe and the gated ones looked rigged. Prediction markets gave them something that felt different: liquid, transparent, mostly legible, and direct. For the first time in a while, it looked like actual price discovery with actual skin in the game.
That is the part I understand.
The problem is not that ordinary people got access. The problem is that the access arrived without any of the plumbing. No position limits scaled to account size. No meaningful disclosures about the edge working against retail. No tiered approval for the contracts that behave most like options. No clear answer about which regulator actually owns the harm.
The missing third option
The industry keeps framing this as a binary.
Either prediction markets are legitimate financial instruments that deserve broad access, federal preemption, and minimal interference, or they are gambling products that should be banned across most of the country.
That is too simple.
There is an obvious third option: treat them like what they structurally resemble, which is retail derivatives, and regulate them that way.
That means position limits. KYC tiers. Mandatory disclosure of the actual win-rate distribution. Cooling-off mechanics for accounts that repeatedly blow through deposits. The boring consumer-protection scaffolding that other corners of retail finance already use.
None of that is glamorous. That is exactly why it matters.
The current argument is too ideological. One side treats broad access as proof of legitimacy. The other treats any resemblance to gambling as proof the whole category should be crushed. Neither side seems especially interested in the more obvious answer, which is that products like this can exist, but only with rules that reflect the way they actually behave.
What this actually means
The old rule said you could not buy this unless you were rich enough to survive losing it. That was paternalistic, class-coded, and probably indefensible if you pressed on it hard enough.
The new rule says you can buy it if you have a wallet.
That sounds democratic. It also creates a system where 71 percent of the room loses money.
The real choice is not between those two frameworks, and that is the part almost nobody seems interested in saying out loud. Kalshi and Polymarket are racing toward broader legitimacy. The CFTC is fighting a turf war it did not ask for. States are suing. Congress is drafting bills that may never go anywhere. And the person with a few hundred dollars on a political contract is the one with actual skin in the game and the least voice in the room.
Everyone is an accredited investor now.
Nobody has really decided whether that is a feature or a bug.
Thank you for reading.
-APL
Sources: SEC, Research Gate, Bloomberg, CFTC, Reuters
