The leading US crypto exchange Coinbase has sharply criticized the U.S. Commodity Futures Trading Commission’s (CFTC) recent proposed rulemaking seeking to ban certain political event contracts, arguing that the move would unjustifiably stifle a burgeoning area of the economy. In a statement posted on X, Paul Grewal, Coinbase‘s Chief Legal Officer, emphasized the potential of event markets within the future economy and expressed concern over the CFTC’s approach.
Event contracts are a type of financial derivative that allow traders to speculate on the outcome of specific events, typically framed as binary “yes” or “no” questions. These contracts enable participants to place bets on various future occurrences, such as political elections, economic indicators, or sporting events.
“Event markets are a promising area of our future economy, and that is why we are responding today to the CFTC’s notice of proposed rulemaking,” Grewal wrote. “We fully support the CFTC’s mission to uphold the integrity of the U.S. derivatives market and believe they can provide a robust regulatory framework for this emerging class of contracts. However, this proposal, if adopted, will ban many prediction contracts without good reason.“
The CFTC’s proposal, introduced in May, aims to prohibit event contracts that speculate on political outcomes and other sensitive areas, including gaming, war, terrorism, and assassination. These contracts would be barred from trading or clearing through CFTC-registered entities. The proposal has garnered support from prominent lawmakers, including Senator Elizabeth Warren, who has urged the CFTC to quickly finalize the rule. Warren and other Democratic legislators have argued that allowing political betting would undermine the integrity of U.S. elections by turning them into commodities.
Coinbase argues that the CFTC’s proposal suffers from a fundamental definitional issue. According to Grewal, the proposal’s broad definition of “gaming” could inadvertently capture contracts related to non-political events, such as Nobel Prizes and the Oscars. He noted that this definition is inconsistent with legislative history and could disrupt state-level regulations, potentially leading to unintended negative consequences for emerging markets under CFTC oversight.
Grewal also criticized the proposal’s blanket categorization of certain contracts as being against the public interest, arguing that this stance exceeds the CFTC’s statutory authority and fails to acknowledge the societal benefits of prediction markets. In a formal letter to CFTC Secretary Christopher Kirkpatrick, Coinbase urged the agency to withdraw the proposal and collaborate with academic, industry, and policy stakeholders to develop a more balanced regulatory approach that fosters innovation while safeguarding market integrity.
The debate around event contracts comes at a time of rising popularity for these markets. Platforms like Kalshi and Polymarket have allowed users to bet on the outcomes of various future events, including U.S. elections. Since 2021, the CFTC has noted a significant increase in event contracts listed for trading on registered exchanges, reflecting the growing interest in this space.
As the CFTC considers its next steps, the outcome of this regulatory debate will likely have far-reaching implications for the future of event markets in the U.S. and the broader digital asset ecosystem.
