More Names From the Crypto Industry Step Up to Call Out CFTC’s Proposed Rules on Prediction Markets

• Crypto exchanges Coinbase and Gemini wrote letters to the agency regarding the same last week.
• Many in the industry and outside have stated the CFTC’s proposed rules will stiffle innovation in prediction markets.

The Commodities and Futures Trading Commission (CFTC) proposed rules on event contracts issued by prediction markets like Polymarket, seeking to ban them. Dragonfly Digital Management and Crypto.com stepped in to make clear the issues with the CFTC’s interpretation of such contracts, the ambiguous definition it adopted of ‘gaming,’ and how it can be overstepping its authority.

Notably, crypto exchanges Coinbase and Gemini wrote letters to the agency regarding the same last week. Dragonfly joined in calling the regulator out on its gaming definition and how gaming differs from political event contracts.

The firm mentioned in its letter to the CFTC, “Political event contracts should not be equated with gambling on games of chance like the Super Bowl. Rather, elections have significant economic implications. These contracts were designed to serve crucial risk hedging functions, aligning with the requirements of the CEA, and offer valuable predictive data to The public. For these reasons, they should not be considered contrary to the public interest.” It added, “Furthermore, the Proposed Rule exceeds the CFTC’s purview by partially regulating election-related issues in violation of the Administrative Procedure Act (the “APA”).”

Crypto.com stated, “The CFTC takes an overly prescriptive approach that is both unnecessary and an overreach of its statutory authority.” It also spoke about how the agency, by the provisions of the Commodities Exchange Act (CEA), follows a three-step process to review if event contracts can be listed on regulated venues. With that, the exchange asked the CFTC not to alter its process, asking it to void the proposed rules.

Moreover, the exchange asked the CFTC to clarify the applicable sections of the CEA, specifically Section 1a(2)(i), with Congress and not assume its position on it. Dragonfly also feels this, implying that the CFTC is overstepping its interpretive authority without a Congress mandate. Considering the recent Supreme Court decision that overturned the authority held by regulators to interpret laws they enforce, Dragonfly argued that the CFTC is overstepping its bounds.