The CFTC has closed public comment on its proposed prediction market rule, receiving more than 1,500 responses.
What came back was not a policy debate but a structural deadlock: event contracts as financial derivatives, or event contracts as gambling dressed in legal cover.
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As Better Markets put it, “prediction markets offer the ability to gamble without the regulations that normally accompany gambling.”
The volume alone signals that this is a fight over market structure and over who gets to regulate a fast-growing market already handling billions in volume and expanding rapidly across new asset classes.
The Financial Case
Coinbase, Kalshi, and investors such as Andreessen Horowitz all argued that event contracts are swaps that fall under the CFTC's federal authority.
Their argument centers on function: price discovery, information aggregation, and hedging — the same pillars used to justify traditional derivatives markets.
“Event contracts are ‘swaps’ that Congress has placed squarely within the CFTC’s authority,” wrote Faryar Shirzad, Coinbase’s chief policy officer. Coinbase went further, calling prediction markets “a public good with broad benefits.”
The industry wants the CFTC to assert exclusive jurisdiction and preempt the state-level gaming laws it describes as a barrier to market access. Without federal cover, operators face a patchwork of licensing regimes that vary by state — and in some cases outright prohibitions.
Operators also warned that restricting regulated venues would not eliminate demand, but displace it. “When a contract type is prohibited… demand migrates to unregulated offshore platforms,” Kalshi noted.
LATEST: ⚡ Andreessen Horowitz is urging the CFTC to preserve federal oversight of prediction markets, arguing state restrictions create barriers to fair market access. pic.twitter.com/kpnKLuGzjg
— CoinMarketCap (@CoinMarketCap) May 4, 2026
The Gambling Case
State gaming regulators from Tennessee, Missouri, and Pennsylvania, along with consumer group Better Markets, pushed back hard. Their core argument is legal, not just moral: these contracts lack a direct economic purpose and therefore fall outside the definition of legitimate derivatives.
“Nobody ‘trades’ on sporting events. People bet on sporting events,” Better Markets wrote. In their view, such contracts are not just misclassified — they are “contrary to the public interest.”
Critics argue that if most Americans experience these contracts as a bet, then functionally they are a bet — regardless of what the underlying instrument is called.
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What the CFTC Decides Next
The more consequential argument may be behavioral rather than legal. Critics argue that contracts on elections, war, or death do more than resemble gambling — they risk creating perverse incentives around real-world outcomes, from political processes to geopolitical events.
As Rep. Paul Tonko argued in his submission, most Americans experience these contracts as gambling.
For brokers and trading firms eyeing this space, the outcome is binary. A ruling in the industry's favor would confirm federal preemption and allow integration of event contracts into standard trading accounts.
A ruling against would push regulatory authority back to the states, where a license-by-license buildout becomes the only path forward — slow, expensive, and uncertain in states where gambling law is deliberately broad.
The CFTC is to decide deciding whether prediction markets become part of the global financial system — or remain classified as a form of regulated gambling. In practice, that means choosing between Wall Street’s infrastructure and the regulatory logic of Las Vegas.
