The genie is out of the bottle. Crypto-only underground prediction markets will always exist. I think it is better to heavily regulate legal options instead of pushing them underground. That didnt work for drugs or prostitution, and it wont work for gambling.
Except it generally worked for gambling for a very very long time. The existence of a black market does not mean something should be legal. Human trafficking happens, but that doesn't mean we should legalize and tax it. (extreme example I realize, but I use it to illustrate a point)
Pushing it to black markets takes away the possibility of heavy regulation (which absolutely should be in place), and stigmatises victims (gamblers), making it harder to come clean to friends and family. I agree with your assesment that no one should even start to gamble, I just doubt that declaring it illegal will achieve that.
The US Supreme Court effectively legalizing sports betting overnight provided an almost perfect real-world experiment to test that argument. And the result?
"Prediction market" ads running constantly on both sports channels/websites like ESPN. Shortly followed by mainstream cable news like CNN featuring Polymarket stats as a routine part of their horserace polling coverage. Gambling is now an omnipresent temptation for anyone even casually interested in following sports/political news.
And now millions of young men who previously would have had to seek out niche illegal venues to gamble have several dozen different apps on their phone offering to light their disposable income on fire by clicking a couple buttons every paycheck.
Except, gambling isn't illegal here - in fact, it's very common. There are lots of casinos within a few mins walk in any city in Spain. All the prediction markets need to do is comply with existing laws.
What? There aren't many casinos in Spain. In many regions (e.g. mine) they're restricted to one per province. My city (250K population in the core, metropolitan area about 500K) has one. Madrid (6M metropolitan area) has four, Barcelona (5M) has one.
For some reason, American companies have a really hard time following existing laws and regulations here. AirBnb and Uber both had the same approach of basically saying "Oops we didn't know" until the law (and others) cracked down on them, I'm sure someone could find older examples too, and surely tons of examples outside of Spain too.