Coinbase has approached the Commodity Futures Trading Commission (CFTC) with a proposal suggesting that prediction markets can be governed under the current derivatives regulations. This comes as the CFTC is exploring how to manage event-based contracts that are linked to real-world outcomes.
In a letter dated April 30, Chief Policy Officer Faryar Shirzad addressed the CFTC in response to its Advanced Notice of Proposed Rulemaking concerning prediction markets. The CFTC is seeking feedback on how to classify contracts associated with economic, political, and other outcomes as trading activities evolve.
Shirzad emphasized that prediction markets have rapidly emerged as a vital segment of the derivatives landscape. He noted that their expansion signifies a real demand from market participants for tools that consolidate information, facilitate hedging against significant economic events, and democratize access to predictive insights.
Coinbase asserted that event-based contracts fall under the CFTC’s existing regulatory framework, negating the need for new legislation or rule changes. Shirzad pointed out that these contracts are not a novel concept, as derivatives markets have historically included real-world contingencies.
The company highlighted several critical arguments in its letter, stating that prediction markets are well within the current statutory framework and operate similarly to futures contracts by aggregating dispersed information into market prices, thus allowing participants to hedge against uncertainties.
Additionally, Coinbase cautioned against fragmented regulatory oversight, explaining that Congress has entrusted the CFTC with derivatives regulation to maintain consistent national oversight. The company warned that inconsistent state-level interventions could undermine this framework and lead to regulatory conflicts in inherently interstate markets.
The letter further pointed out that the CFTC already possesses the authority to “review, condition, or prohibit contracts that are contrary to the public interest,” including those susceptible to manipulation or harm. Coinbase suggested that this authority should be utilized to address specific instances rather than impose restrictions on the broader category of prediction markets.
Shirzad urged the CFTC to refine its current regulatory framework while ensuring market integrity, including a strong stance against insider trading.
In its correspondence, Coinbase called on the commission to clarify its application of authority under the Commodity Exchange Act, ensuring consistent customer protections whether trading directly on a Designated Contract Market (DCM) or through intermediaries. The company also requested updated guidance on how DCMs assess whether a contract is easily manipulable.
“The issue is not whether they are compliant with the law—they are—but how to ensure they evolve with integrity, clarity, and proper safeguards,” Coinbase stated.
Coinbase expressed gratitude for the chance to provide feedback on the commission's evaluation of prediction markets and looks forward to ongoing dialogue.
Coinbase is among several companies that have submitted feedback to the CFTC, including venture capital firms Andreessen Horowitz (a16z) and Paradigm, which have also contributed to the rulemaking process.
Miles Jennings, head of policy at a16z, described prediction markets as “one of the most powerful tools we have for transforming dispersed knowledge into actionable information.” He added that unlike polls, prediction markets are continuous and incentivized, with participants financially backing their beliefs, resulting in prices that reflect true conviction rather than casual opinions.
Jennings noted the rapid growth in this sector, highlighting that Kalshi's average weekly volume has surged to $3 billion, ten times its previous figure this year. He also mentioned that advancements in artificial intelligence and blockchain technology could further enhance the role of prediction markets.
“Prediction markets are not merely about betting on events; they are information engines,” Jennings remarked.
However, he cautioned that regulatory uncertainty could hinder future advancements. “The regulations the CFTC establishes now will shape whether this technology can thrive,” he said.