Polymarket faces regulatory crackdown but continues to expand! In March, it partnered with Kaito to launch the Attention Market

Polymarket and Kaito AI collaborate to launch “Attention Markets,” allowing users to bet on trend popularity and public opinion. Based on sentiment share and emotional indicators, social data is used to quantify attention. The project was launched in March, reaching thousands of markets by the end of the year, initially focusing on AI topics. Massachusetts and other states have banned prediction markets, leading Polymarket to sue the state, claiming federal regulation.

Unveiling Attention Markets: Turning Social Sentiment into Tradable Assets

According to Forbes, Polymarket is partnering with Kaito AI to introduce “Attention Markets,” enabling users to bet on the popularity of trends, brands, and personalities, as well as public opinion. Kaito AI CEO Yu Hu states that these new markets will leverage social media data to quantify the scale and changes in public attention. Transforming intangible “attention” into measurable, tradable assets is a major innovation in prediction markets.

These markets will be based on two indicators: sentiment share and sentiment emotion. Sentiment share measures the proportion of discussion about a specific topic on social media. For example, if there are 1 million discussions about technology on Twitter today, and 100,000 mention ChatGPT, then ChatGPT’s sentiment share is 10%. Sentiment emotion analyzes whether these discussions are positive or negative, using natural language processing to determine user sentiment.

Polymarket will use data collected by Kaito from social platforms like Twitter, Reddit, and Discord to create markets where people can bet on the sentiment share or sentiment emotion of specific topics, individuals, or companies. For example, users can bet “Elon Musk’s sentiment share will exceed 5% next week” or “OpenAI’s sentiment will turn negative.” If these predictions are correct, bettors will earn rewards.

The company’s crypto division revealed plans to launch these attention markets starting in early March, aiming for thousands of markets by year-end. With about 10 months from March to December, creating hundreds of new markets each month demonstrates Polymarket’s strong confidence in the potential of attention markets.

Kaito’s CEO also provided more details, stating that the initial markets will focus on AI-related topics, with plans to expand into entertainment and major world events within a year. Focusing on AI is a smart choice, as it is currently the hottest tech trend with active discussions and high volatility, suitable for prediction markets. Entertainment includes box office, music rankings, celebrity events, while major world events cover politics, economics, and social issues.

Three Innovations of Attention Markets

Quantifying Intangible Assets: Turning hard-to-measure “attention” into precise data indicators and tradable markets

High Real-Time Responsiveness: Social media data updates instantly, allowing market prices to quickly reflect sentiment changes

Broad Application Scenarios: From AI to entertainment to global events, nearly all public topics can become markets

From a business model perspective, attention markets open a new growth engine for Polymarket. Traditional prediction markets focus on elections, sports, and other events with clear outcomes, limited by the frequency of such events. Attention markets can create new markets daily or even hourly, as social sentiment constantly shifts. This high-frequency market creation can significantly boost trading volume and fee revenue.

Kaito’s Counterattack: From X Platform Ban to Polymarket Partnership

This expansion comes amid strict regulatory crackdowns on prediction markets. Several states, including Massachusetts, have begun banning prediction markets, claiming these platforms operate unlicensed sports betting. As reported by CoinGape, Polymarket has sued Massachusetts, arguing that prediction markets should be under federal regulation rather than state oversight.

Under regulatory pressure, Polymarket’s move to launch attention markets is a strategic adjustment. Sports and election prediction markets are easily classified as gambling, due to their similarity to traditional betting. In contrast, attention markets are closer to “sentiment derivatives” or “social data trading,” which have more ambiguous legal status. Polymarket may be attempting to circumvent some regulation through product innovation.

Kaito confirmed its partnership with Polymarket via a post on X (formerly Twitter), stating that attention markets are the next step in predicting online trends. This is a major move for Kaito, especially after X’s crackdown on InfoFi crypto projects. Previously, Kaito operated a social data-based crypto info aggregation service on X, but after increased scrutiny of crypto-related accounts, some functions were restricted.

Partnering with Polymarket provides Kaito with a new commercialization path. It no longer relies solely on the X platform’s policies but can monetize social data capabilities as infrastructure for prediction markets. This shift from “information service provider” to “data supplier” diversifies platform risk and opens new revenue streams. Each transaction on Polymarket generates fees, and Kaito, as a data provider, can share in these.

Kaito states that prediction markets are becoming a core component not only in crypto but also in broader daily life. “Quantifiable attention opens new ways for prediction markets, allowing people to forecast trends and profit from them,” the company further explains. They also plan to integrate these attention markets directly into Kaito’s main site and launch a new standalone platform to enable cross-domain attention predictions.

This development has caused the KAITO token to rise nearly 7%. According to TradingView data, the current trading price is about $0.33. This immediate market reaction indicates investor recognition of the strategic value of Kaito’s partnership with Polymarket. A 7% single-day increase is rare in the current market environment, where the overall crypto market remains in a correction phase.

Survival Strategies Under Regulatory Pressure: Federal vs State Power Struggles

This expansion coincides with regulatory agencies’ intensified crackdown on prediction markets. Several states, including Massachusetts, have begun banning prediction markets, claiming these platforms operate unlicensed sports betting sites. Massachusetts regulators argue that platforms allowing users to bet on sports outcomes are essentially online casinos and must obtain state gaming licenses.

As reported by CoinGape, Polymarket has sued Massachusetts, asserting that prediction markets should be under federal regulation, not state jurisdiction. The core legal dispute concerns jurisdiction. Polymarket claims that under the US Commodity Exchange Act, prediction markets fall under the CFTC’s scope, and states have no authority to regulate them. Massachusetts contends that activities with gambling characteristics are within state jurisdiction, and federal authorities cannot override state gaming regulation.

This federal vs. state power conflict has recurred throughout US history. Sports betting was federally banned until the 2018 Supreme Court ruling, which allowed states to legalize it. However, crypto prediction markets are a new phenomenon, with unclear legal status. Polymarket attempts to classify its markets as “information markets” or “derivatives,” rather than “gambling,” to seek federal protection.

Legally, Polymarket’s proactive lawsuit against states is an aggressive defensive move. Instead of waiting to be sued or shut down, it seeks a court ruling on jurisdiction. If Polymarket wins, it could set an important precedent for the entire prediction market industry. If it loses, at least the regulatory boundaries will be clarified, allowing adjustments to their business model.

In this uncertain regulatory environment, launching attention markets is a smart diversification strategy. If sports and election prediction markets are banned in more states, attention markets can serve as alternative revenue sources. Moreover, the legal ambiguity around attention markets—betting on “discussion heat” of topics rather than specific outcomes—makes them harder to categorize as gambling.

The platform also plans to integrate these attention markets directly into its main site and launch a new independent platform to enable cross-domain attention predictions, starting with crypto. They aim to expand into AI, finance, entertainment, sports, geopolitics, and other culturally relevant fields. Kaito adds that these features will be rolled out in phases, with attention tags becoming core components of the Kaito and Polymarket ecosystems.

From a product perspective, launching an independent website indicates Polymarket views attention markets as a separate business line, not just an extension of the existing platform. This separation may also be a strategic move to mitigate regulatory risks—if traditional prediction markets are banned, attention markets can continue operating independently.