A public roundtable has been announced to review the US Commodity Futures Trading Commission’s (CFTC) regulatory position on prediction markets.
Following the CFTC’s recent request for information on event contracts, this action might significantly impact platforms like Kalshi and Polymarket.
The Chair of the CFTC Demands Commonsense Regulation
Since taking over as Chair following Rostin Behnam’s resignation, Caroline D. Pham has been vocal in her criticism of the commission’s prior position. She called it a “sinkhole of legal uncertainty” that has stymied prediction market innovation.
The official press release stated that discussions will center on whether event contracts are lawful under the Commodity Exchange Act. The round table will discuss potential regulatory changes and consumer protection issues.
“Unfortunately, the undue delay and anti-innovation policies of the past several years have severely restricted the CFTC’s ability to pivot to common-sense regulation of prediction markets,” Pham said in the statement.
The roundtable will give stakeholders a forum to voice their concerns and recommend regulatory changes. It will take place at the CFTC headquarters in Washington, D.C. The agency said the deadline for public participation and feedback requests is February 21.
These initiatives follow the CFTC’s increased examination of unregistered platforms and event contracts under the Biden administration. Rostin Behnam, the previous chair, increased regulation of decentralized finance (DeFi) and cryptocurrency derivatives.
Kalshi, a designated contract market governed by the CFTC, has encountered numerous regulatory obstacles. The commission’s choice to reject its proposal for election contracts is one of them. A $1.4 million charge was imposed on Polymarket, a blockchain-based prediction market company, for providing unregistered swaps.
Five months ago, when Kalshi was the target of the CFTC, Polymarket’s activity fell by 40%. This demonstrates how regulatory measures directly affect the industry.
In the course of its inquiry into Polymarket, the commission also previously subpoenaed Coinbase four weeks ago. After the platform’s election victory, the FBI also confiscated the electronics of Polymarket CEO Shannon Coplan.
This action demonstrated the regulator’s resolve to uphold compliance in the nascent prediction market.
Market sentiment and industry response
However, the CFTC’s recent assessment of Crypto.com’s Super Bowl betting contracts shows that its regulatory reach has expanded to include sports betting contracts. Before that, it had also forced Robinhood to stop offering Super Bowl wagering contracts.
“The CFTC says it has spotted several key obstacles to balanced regulation of prediction markets, but the list that follows suggests they have instead identified a boatload of stuff,” remarked Geoff Zochodne, a sports betting reporter.
The remarks draw attention to how difficult it is for regulators to draft laws that protect consumers and promote innovation.
However, prominent industry heavyweights support prediction markets despite the legal crackdown. Vitalik Buterin, a co-founder of Ethereum, recently supported websites such as Polymarket. He claimed that classifying them as gambling is an erroneous interpretation of their function.
“Prediction markets are interesting because they’re a social epistemic tool: the public gets a view of how important certain events are and what kinds of things are likely to happen,” Buterin wrote.
Global regulatory issues still exist, even if the CFTC adopts a fair strategy for Polymarket. Thailand recently declared actions against Polymarket for betting on cryptocurrency. Similarly, the prediction market is dealing with legal issues in France and Singapore, which is indicative of the increased scrutiny prediction markets receive globally.
This most recent development came after the CFTC announced that it would hold public roundtables to analyze the structure of the cryptocurrency market. It suggests a more significant movement for stakeholder participation in regulating digital assets.
Given the regulator’s emphasis on consumer protection, the conclusion of both roundtables could significantly impact how the industry develops in the future.
