CFTC to Host Roundtable on Prediction Market Regulation

The US Commodity Futures Trading Commission (CFTC) has announced a public roundtable to re-evaluate its regulatory stance on prediction markets.

This move, which could significantly affect platforms such as Kalshi and Polymarket, comes after the CFTC’s recent request for information on event contracts.

CFTC Chair Calls for Common-Sense Regulation

Acting Chair Caroline D. Pham, who took over leadership after the resignation of Rostin Behnam, has been outspoken in her criticism of the commission’s previous stance. She described it as a “sinkhole of legal uncertainty” that has hindered innovation in prediction markets.

According to the official press release, discussions will focus on the legality of event contracts under the Commodity Exchange Act. The round table will address consumer protection concerns and potential regulatory amendments.

“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, which will be held at the CFTC headquarters in Washington, D.C., will provide a platform for stakeholders to express concerns and suggest regulatory reforms. According to the regulator, public comments and participation requests are due by February 21.

These plans come after the CFTC intensified its scrutiny of event contracts and unregistered platforms under the Biden administration. The former Chair, Rostin Behnam, expanded oversight of crypto derivatives and decentralized finance (DeFi).

Kalshi, a CFTC-regulated designated contract market, has faced significant regulatory roadblocks. Among them is the commission’s decision to block its proposal for election-related contracts. Polymarket, a blockchain-based prediction market platform, was fined $1.4 million for offering unregistered swaps.

When the CFTC targeted Kalshi five months ago, Polymarket’s activity dropped by 40%. This highlights the direct impact of regulatory actions on the sector.

The commission’s past actions have also included issuing a subpoena to Coinbase four weeks ago amid its investigation into Polymarket. The FBI also seized Polymarket CEO ShayneCoplan’s electronics following the platform’s election success.

This move signaled the regulator’s commitment to enforce compliance within the emerging prediction market.

Industry Response and Market Sentiment

Meanwhile, the CFTC’s regulatory reach has also extended to sports betting contracts, as evidenced by its recent review of Crypto.com’s Super Bowl betting contracts. Before that, it had also compelled Robinhood to halt the rollout of Super Bowl betting 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 comments highlight regulators’ complexity in creating policies that encourage innovation while ensuring consumer protection.

Despite the regulatory clampdown, however, prediction markets get support from high-profile industry figures. Ethereum co-founder Vitalik Buterin recently defended platforms like Polymarket. As BeInCrypto reported, he asserted that categorizing them as gambling is a misunderstanding of their role.

“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.

Notwithstanding, even if the CFTC finds a balanced approach to Polymarket, regulatory challenges persist globally. Thailand recently announced measures targeting Polymarket for crypto-based betting. Similarly, the prediction market is facing legal troubles in Singapore and France, reflecting the broader scrutiny prediction markets face worldwide.

Meanwhile, this latest development follows the CFTC’s recent announcement of public roundtables to discuss the crypto market structure. It indicates a broader push for stakeholder engagement in digital asset regulation.

The outcome of both roundtables could play a pivotal role in shaping the sector’s future, given the regulator’s push for consumer protection.