March 17 (Reuters) - Event contracts have exploded in

popularity since the U.S. presidential election, fueling a

heated debate between traders who have embraced the nascent

asset class and critics who liken it to gambling.

Several market players such as retail-favorite Robinhood

and Interactive Brokers ( IBKR ) have rolled out event

contracts in recent months, looking to cash in on the boom.

Robinhood on Monday also launched a standalone hub on its

app to allow traders to wager on college basketball and U.S.

interest rates.

Here is how event contracts are shaping up as a new asset

class:

WHAT ARE EVENT CONTRACTS?

Event contracts allow traders to bet on specific outcomes,

offering opportunities to profit from predictions on everything

from sports and entertainment to politics and the economy.

Users can speculate on whether a movie will surpass a

certain Rotten Tomatoes score, or if the U.S. will enter a

recession this year, or if the price of bitcoin will breach a

new milestone.

When event contracts became more popular ahead of the U.S.

presidential election, Elon Musk said on X that prediction

markets were "more accurate than polls, as actual money is on

the line".

HOW DO THEY WORK?

Unlike gambling, where bets are placed against the house,

event contracts function as a marketplace between traders.

Such contracts typically pay out $1 if the event occurs.

Their prices fluctuate depending on the likelihood of the

underlying outcome.

WHY ARE EVENT CONTRACTS MAKING HEADLINES?

While proponents of event contracts see them as a new avenue

for traders, their road to legitimacy has been fraught with

challenges.

In 2023, the U.S. Commodity Futures Trading Commission

rejected a proposal by prediction marketplace KalshiEX to permit

trading of political event contracts tied to Congressional

control, saying they involved unlawful gaming and were "contrary

to the public interest".

Kalshi sued, and was cleared to resume trading these

contracts in October. The ruling also encouraged others waiting

to dip their toes into the sector.

Still, concerns remained. In a January interview with the

Financial Times, former CFTC Chair Rostin Behnam said he was

concerned about the legality and social impact of bets on

political and other events.

Robinhood was also forced to roll back its Super Bowl event

contracts in February, just a day after the launch, following a

request from the CFTC.

WHAT'S NEXT?

The rise of event contracts reflects the trend of

"democratization" in financial markets as firms seek to attract

retail investors. An anticipated wave of deregulation under

President Donald Trump may help companies facilitating these

trades.

CFTC Acting Chair Caroline Pham's pledge to end "regulation

by enforcement" could also foster a more collaborative

environment.

Critics, however, still voice concerns.

"These contracts are a backdoor attempt to bring gambling

into financial markets," said Cantrell Dumas, director of

derivatives policy at Better Markets, a group that advocates

stricter oversight of the financial sector.

"Expanding the CFTC's role into gambling would stretch its

limited resources and divert it from its core mission of

overseeing legitimate derivatives markets."

(Reporting by Niket Nishant in Bengaluru; editing by Arpan

Varghese and Devika Syamnath)