The Prediction Market industry got out ahead of regulation and effectively chose their own (weak and hands-off) regulator in the CFTC. The requirements involved are not onerous. There are certainly jurisdictions where actual gambling is more tightly regulated. I am not exaggerating when I say that any pair of a good programmer and a decent lawyer could do the technical work to stand up a compliant exchange (they'd need capital, but, again, nothing insane compared to the capital you'd need for an unregulated exchange anyways).

I don't think you are at all correct about the relationship between Polymarket and other event trading venues. For one thing, Kalshi and polymarket are basically contemporaneous. For another, Polymarket plays at these games too (Polymarket has a former Commissioner of the CFTC on their board).

To the extent that Polymarket is playing in the legal grey zone, it's an active choice on their part, not a result of competitors' regulatory advantage or Polymarket's lack of access to regulatory leverage.