Cboe vs. Crypto: How ‘All-or-Nothing’ Options Signal TradFi’s Prediction Market Takeover

Cboe Global Markets, the world’s largest options exchange, is exploring a regulated comeback of binary “all-or-nothing” options, directly targeting the explosive, crypto-native prediction market sector led by Polymarket and Kalshi.

This move is not a simple product relaunch but a strategic inflection point, marking the moment traditional finance (TradFi) acknowledges the structural demand for event-driven trading and seeks to reclaim the narrative—and the revenue—from decentralized and fintech upstarts. It signifies a profound blurring of lines between gambling, speculation, and hedging, promising to reshape retail derivatives access, intensify regulatory scrutiny, and force a new era of competition based on liquidity, user experience, and trust.

The Binary Comeback: Why Cboe is Betting on ‘Yes-or-No’ Now

For the first time since 2008, Cboe Global Markets is in active discussions to reintroduce binary options. This initiative, reported by The Wall Street Journal and confirmed by the exchange, is framed as a new “starting point” for retail options traders. However, the subtext is unmistakable: Cboe is responding to a seismic shift in user behavior, catalyzed by platforms operating on the fringes of, or outside, its traditional domain.

The “why now” is quantified in a single, staggering data point: a combined $17 billion in monthly trading volume across Kalshi and Polymarket in January 2025. This figure represents more than just retail speculation; it is a market signal validating a product thesis that Cboe itself abandoned 17 years ago. In 2008, Cboe’s binary options on the S&P 500 and VIX failed because the market was institutionally oriented, the user experience was poor, and the retail demand for simple, event-based contracts was nascent and unproven. Today, that demand is not only proven but is growing at a compound monthly rate exceeding 40%. The catalyzing forces are clear: the rise of commission-free, gamified retail trading (Robinhood), the cultural normalization of “wagering” on real-world events (sports betting, political prediction markets), and the technological substrate provided by blockchain for transparent, global settlement (Polymarket).

Cboe’s timing is strategic, not reactive. It moves as prediction markets achieve “mainstream visibility,” as noted by Galaxy Research, and just as giants like Coinbase integrate them and Goldman Sachs explores the space. Cboe aims to enter the fray not as a follower, but as a legitimizing force, using its regulatory heft and existing brokerage relationships to define the next phase of the market’s evolution. The change is that TradFi’s most powerful derivatives infrastructure provider has decided the prediction market is not a fad, but a viable asset class worthy of a regulated, exchange-listed wrapper.

The Infrastructure Play: How Cboe’s Entry Rewires the Market

Cboe’s potential re-entry into binary options is less about innovation and more about infrastructure colonization. The fundamental “why” behind this move is a battle for the plumbing of modern speculation. Prediction markets like Polymarket created a new demand curve—simple, event-based, finite-outcome contracts—but they built it on new plumbing (blockchain, often with crypto deposits). Kalshi built a regulated version but still operates as a niche, standalone CFTC-registered exchange. Cboe’s play is to reroute that demand curve through the existing, multi-trillion-dollar plumbing of the traditional options market.

The causal chain is powerful. By offering binary options within a traditional “options wrapper,” Cboe instantly grants access to a product with prediction-market economics to every retail brokerage account that already offers options trading. This bypasses the need for users to onboard to a new platform, learn a new interface, or convert fiat to crypto. The impact is systemic:

* Who Benefits: Retail brokers (Fidelity, Charles Schwab, Robinhood) gain a new, engaging product to increase user engagement and trading frequency without significant new compliance overhead. Market makers gain a new, potentially highly volatile product to provide liquidity for, capturing spread. Mainstream retail traders get a familiar, regulated venue for event-based speculation, likely with SIPC account protections.

* Who Faces Pressure: Pure-play prediction markets face their most significant threat to date. Their unique selling proposition (simplicity, specific events) is directly challenged by a giant with superior liquidity, brand trust, and existing user access. Unregulated offshore binary options sites, long associated with fraud, face near-total obsolescence as a legitimate, regulated alternative emerges.

Cboe’s effort leverages its deepest moats: regulatory clarity (SEC/CFTC oversight), existing network effects (ties to every major broker), and the VIX brand authority. It reframes binary options from a sketchy, fringe product to a legitimate “gateway” derivative, as described by Cboe’s JJ Kinahan. This isn’t just competition; it’s an attempt to absorb a disruptive trend back into the traditional financial system, controlling its pace, shape, and profit pool.

Why Prediction Markets Have Entered an Unavoidable New Phase

The record volumes and Cboe’s response are not coincidental. They are the culmination of converging forces that have propelled event-driven trading from a theoretical curiosity to a commercially unavoidable segment. This new phase is defined by several key mechanisms:

1. Regulatory Perimeter Testing & Evolution

The growth of CFTC-regulated Kalshi and the cautious, public exploration by firms like Goldman Sachs have created a regulatory beachhead. They demonstrate that certain forms of event contracts can exist within the existing commodities regulatory framework, providing a template for others to follow and forcing regulators to refine their stance.

2. The Retail Speculation Supercycle

The post-2020 era has created a massive cohort of retail traders fluent in options, ETFs, and crypto. This cohort treats trading as a combination of investment, entertainment, and opinion expression. Prediction markets are the natural fusion of these motives, offering direct exposure to geopolitical, financial, and cultural events.

3. Blockchain as a Pressure Release Valve

Where traditional regulation moves slowly, blockchain-based platforms like Polymarket operate with global reach and permissionless innovation. This creates competitive pressure on regulators and TradFi to offer compelling alternatives before they lose an entire generation of traders to decentralized platforms.

4. The Dataification of Everything

In a world obsessed with polls, forecasts, and real-time analytics, prediction markets offer a financially incentivized, crowd-sourced truth-seeking mechanism. This utility argument—beyond pure speculation—grants them intellectual legitimacy that previous gambling-adjacent products lacked.

Blurred Boundaries: The Industry-Wide Convergence Ahead

Cboe’s maneuver is the clearest signal yet of a wholesale industry convergence. The once-distinct silos of traditional derivatives, crypto/DeFi markets, and event-based prediction platforms are collapsing into a single, contiguous spectrum of “outcome trading.” This is not merely a new product category; it is a paradigm shift in how financial markets conceptualize risk and opportunity.

The immediate industry change will be a bifurcation of the prediction market model. On one side, we will have regulated, financialized event contracts (Cboe’s binaries, Kalshi). These will likely focus on “respectable” underlying events: Federal Reserve rate decisions, CPI prints, corporate earnings thresholds, and major equity index levels. They will be marketed as educational tools, hedging vehicles, or simple speculation, wrapped in full KYC/AML compliance. On the other side, permissionless, culture-driven prediction markets (Polymarket, decentralized alternatives) will dominate for political elections, sports, celebrity events, and other “non-financial” outcomes. They will compete on speed, creativity, and global access.

This convergence forces a reassessment of core definitions. Is a binary option on whether the S&P 500 closes above 7,000 fundamentally different from a Polymarket contract on the same outcome? Economically, no. Legally and culturally, the gap is still wide, but Cboe is betting it can bridge that gap with trust and convenience. The ultimate result is the creation of a new asset class hierarchy, where event-driven contracts sit alongside equities, options, and futures as a standard offering, fundamentally altering portfolio construction for the retail masses.

Future Paths: Regulation, Dominance, or Fragmentation?

The trajectory of this nascent competition is not preordained. Based on the current landscape, three distinct paths emerge, each with profound implications.

Path 1: The Regulated Absorption (Most Likely)

Cboe successfully launches, brokers enthusiastically adopt, and the product captures a significant share of “financial” event trading. Regulators, preferring to oversee activity within existing frameworks, tacitly endorse this model by taking a harder line against unregulated or crypto-based competitors. Kalshi thrives as a specialized partner or acquisition target, while Polymarket and similar platforms are pushed further to the cultural and geopolitical fringe, facing persistent regulatory headaches. The market becomes institutionalized, with liquidity concentrated in a few TradFi venues.

Path 2: The Hybrid Détente

A clear regulatory demarcation emerges. TradFi exchanges are allowed to list binary options on strictly financial underlyings (indices, rates, currencies). Prediction markets are allowed to operate, potentially under new “innovation” licenses, for non-financial events (politics, sports, science). This path acknowledges the cultural demand while attempting to contain “gambling” and protect market integrity. In this scenario, both Cboe and the prediction platforms grow, but in parallel, non-competing lanes. Innovation would focus on cross-margining between these asset types.

Path 3: The Decentralized End-Around

If traditional regulatory moves are too slow or restrictive, the momentum could swing decisively toward decentralized platforms. Polymarket’s model, or a successor, could achieve such deep liquidity and user loyalty that it becomes the default price discovery mechanism for** **all event outcomes, financial or not. In this path, Cboe’s product seems like a slow, anachronistic imitation. The industry fracture becomes permanent, with a decentralized, global prediction layer operating independently of, and ultimately challenging, the price-setting authority of traditional exchanges.

The Tangible Impact: Fees, Liquidity, and User Onboarding

Beyond high-level trends, Cboe’s move will have concrete, measurable effects on market participants.

For Retail Traders: The gateway becomes smoother but potentially more expensive. Trading a binary option on their existing brokerage app will be seamless, but they will likely pay the standard options fee structure (regulatory fees, broker commission) rather than the minimal fees on some prediction platforms. The trade-off is security and familiarity for potentially lower costs and a wider event selection elsewhere.

For Prediction Market Platforms (Kalshi/Polymarket): They face an existential question. Their response must be to double down on their unique advantages: broader event selection (from politics to pop culture), superior user experience tailored specifically for prediction trading, and community. For Polymarket, emphasizing decentralization, censorship-resistance, and global access is key. For Kalshi, leveraging its first-mover regulatory status and potential for more creative, non-index underlyings is vital.

For Regulators (SEC/CFTC): Pressure intensifies to provide clear guidance. Cboe’s application will force a definitive ruling on whether these instruments are legal options contracts or prohibited event-based swaps (or gambling). Their decision will create a ripple effect, either legitimizing the entire space or forcing a severe contraction.

For Market Makers and Liquidity Providers: A new, complex product emerges. Binary options have a unique risk profile (digital payoff discontinuity) that requires sophisticated hedging, often involving vanilla options on the same underlying. This could increase volatility and trading volume in the standard options markets as market makers hedge their binary books, creating a symbiotic relationship between the two product sets.

Key Players in the Prediction Market Wars

What is Cboe Global Markets?

Cboe Global Markets is the world’s leading derivatives and securities exchange network, most famous for creating the Cboe Volatility Index (VIX), the market’s premier “fear gauge.” It is the largest options exchange in the U.S. and a global leader in equities, futures, and foreign exchange trading.

*** ** Positioning: The established, regulated infrastructure backbone of global derivatives trading. Its brand is synonymous with institutional-grade reliability, liquidity, and innovation in risk management products.

*** ** Tokenomics/Roadmap (Analog): Its “network” is its relationships with brokers, market makers, and regulators. Its “roadmap” involves expanding its product suite to maintain dominance and capture new revenue streams, precisely as seen with the binary options initiative. Its success depends on attracting order flow and liquidity.

What is Kalshi?

Kalshi is a CFTC-regulated designated contract market (DCM) and the first U.S.-based exchange allowed to offer event contracts to retail customers. It operates as a traditional, centralized exchange but for non-traditional underlyings.

*** ** Positioning: The compliant, regulatory-first pioneer in the prediction space. It aims to bring event trading into the mainstream by working within the existing regulatory framework, offering contracts on economics, politics, and climate.

*** ** Roadmap: Expansion of contract offerings, partnership integrations (like the Coinbase rollout), and potentially lobbying for clearer, more permissive rules for event contracts. Its challenge is balancing regulatory compliance with the innovative speed of its crypto-native competitors.

What is Polymarket?

Polymarket is a blockchain-based, decentralized prediction market platform operating globally. It uses cryptocurrency (USDC) for deposits and trading and settles contracts autonomously via smart contracts and decentralized oracles.

*** ** Positioning: The agile, permissionless, and culturally-connected frontier of prediction markets. It excels at speed-to-market for current events and culturally relevant topics, often operating in a regulatory gray area.

*** ** Tokenomics: While it doesn’t have a native protocol token currently, its model is built on crypto-economic principles. Its growth is tied to the broader adoption of cryptocurrencies and the ideological appeal of decentralized, censorship-resistant markets.

*** ** Roadmap: Surviving and navigating regulatory challenges, improving UX to rival TradFi apps, and scaling its oracle and resolution systems to handle greater volume and more complex events reliably.

The Inevitable Synthesis: Prediction as a Core Financial Primitive

Cboe’s exploration of binary options is far more than a product announcement. It is a landmark event in the financialization of human curiosity and conviction. The trend it confirms is irreversible: the demand to trade on discrete future outcomes is a fundamental, persistent human behavior that technology has finally made scalable and, now, respectable.

The long-term trend points toward synthesis. The winning landscape will not be “Cboe versus Polymarket,” but an ecosystem where regulated and decentralized venues interact, each serving different but overlapping user needs within a broad “event economy.” Liquidity will be the ultimate king, and whichever platform—be it a TradFi titan or a crypto-native protocol—can offer the deepest, most reliable markets for the most sought-after outcomes will define the next decade of speculative finance.

This move by Cboe is TradFi’s opening salvo in claiming its piece of that future. It marks the end of prediction markets as a curious crypto niche and the beginning of their evolution into a core financial primitive, as fundamental to the next generation of traders as the call and put option were to the last. The battle is no longer about whether event-based trading will exist, but about whose infrastructure will settle it, whose rules will govern it, and who will capture its immense, and growing, value.