Underdog launches wholly owned CFTC-licensed prediction market exchange amid ongoing regulatory uncertainty

Underdog's New Exchange

Underdog has launched its own federally regulated prediction market exchange, shifting from reliance on third-party platforms to offering event contracts on wholly owned infrastructure. The exchange, licensed by the U.S. Commodity Futures Trading Commission (CFTC), is integrated into the Underdog app, allowing customers to trade prediction markets directly. This makes Underdog the first sports gaming operator to hold the complete prediction market license stack, comprising a Designated Contract Market (DCM), a Derivatives Clearing Organization (DCO), and a Futures Commission Merchant (FCM) registration.

The launch follows the company's March 2026 acquisition of Aristotle Exchange DCM and Aristotle Exchange DCO, both registered with the CFTC. Underdog previously offered prediction markets as an intermediary for exchanges including Crypto.com and Kalshi, beginning last fall with an initial rollout via Crypto.com. Since September 2025, Underdog's prediction market has generated nearly $6.5 billion in notional trading volume. The exchange is unavailable in 13 U.S. jurisdictions, including Nevada and Washington, D.C.

"Now with our own exchange, we're going to unlock so much for more sports fans. Prediction markets are largely about sports, and Underdog is the best at sports," said Jeremy Levine, CEO and co-founder of Underdog.

Regulatory Landscape

The launch comes as prediction markets face intense legal and regulatory scrutiny. Several state regulators, including those in New York and Michigan, have challenged the legality of sports-related event contracts, arguing they constitute unlicensed gambling under state law. A federal judge in the Southern District of New York recently denied Kalshi's attempt to prevent enforcement of New York gambling laws, ruling that state laws apply. In Michigan, a state court granted a temporary restraining order against KalshiEX, LLC, imposing a $120,000 daily fine if sports betting does not cease. Michigan's ruling partly cited Kalshi accepting patrons under 21, the minimum age for state-licensed betting.

The CFTC, under Chairman Michael Selig (appointed by President Trump), has asserted exclusive federal jurisdiction over event contracts and has sued at least ten states to block their enforcement of gambling laws. Selig, formerly Kalshi's outside lawyer, has proposed rules that would allow sports event contracts to continue without being deemed contrary to the public interest. Meanwhile, a class action lawsuit alleges Kalshi refused to pay $54 million to winners of a bet on Iranian leadership changes, and federal and state investigations into insider trading on prediction markets have emerged, including cases involving government officials and military planning.

Industry Implications

Underdog's move to bring trading infrastructure in-house reflects a broader industry trend toward vertical integration, but it does not resolve the fundamental jurisdictional dispute. State regulators maintain that sports contracts are gambling and must comply with state licensing, taxation, and consumer protection laws, while the CFTC argues they are commodities under federal law. Legal challenges involving Kalshi and other operators continue across multiple states, testing the limits of federal preemption. Proposed federal legislation, such as the "Prediction Markets Are Gambling Act," could further restrict event contracts, though passage appears unlikely in the current political environment. As the legal battles unfold, operators like Underdog are positioning themselves with full regulatory licenses to navigate the uncertain landscape.