CFTC Moves to Separate Prediction Markets from Gambling in New Swap Rules

CFTC Draws Line Between Bets and Swaps

On Friday, the U.S. Commodity Futures Trading Commission (CFTC) issued two significant measures that could reshape the regulatory landscape for prediction markets in America.

This dual approach means that while prediction markets like those operated by Kalshi and Polymarket may soon fall under CFTC oversight as financial instruments, traditional gambling activities remain outside the agency’s direct jurisdiction. Both measures are subject to a 30-day public comment window, giving stakeholders until late June to weigh in on these pivotal changes.

Event Contracts Face New Federal Scrutiny

The CFTC’s move comes amid a surge of interest in event contracts—financial products that let users bet on the outcome of real-world events such as elections or sports matches. In recent months, platforms like Kalshi and Polymarket have drawn both investor attention and legal scrutiny. On June 7, Blockchain.com filed applications with the CFTC for two licenses: one as a designated contract market (DCM), allowing it to operate a futures exchange for event contracts, and another as a futures commission merchant (FCM), enabling it to broker derivatives trades. These applications signal that major crypto players see growth potential in regulated prediction markets.

Kalshi lost its appeal in September 2023 when a federal court allowed Ohio and Tennessee to regulate sports-event contracts as gambling under state law.

Yet this expansion is happening against a backdrop of unresolved legal battles over whether such markets constitute regulated financial activity or illegal gambling under state law.

States, Feds Clash Over Regulatory Turf

A key tension has emerged between federal regulators and state authorities. Several states—including Ohio, Tennessee, and New Jersey—have filed lawsuits against prediction-market operators on grounds of illegal gambling. The CFTC has responded by countersuing in defense of its federal jurisdiction over event contracts. This standoff escalated when New Jersey officials submitted a petition to the U.S. Supreme Court in June regarding their dispute with Kalshi.

As reported by decrypt.co, the CFTC’s chairman Michael Selig has argued that event contracts are “commonly known to the trade as swaps” and therefore fall squarely within the agency’s exclusive authority. However, states maintain that when these contracts resemble betting on sports or politics, they cross into territory traditionally governed by local gambling laws.

Court Rulings Offer Mixed Jurisdiction Signals

The legal picture remains unsettled. In late September 2023, a federal appellate court sided with Ohio and Tennessee, affirming their right to regulate sports-event contracts under state gambling statutes—a blow to platforms like Kalshi seeking federal protection. Meanwhile, other recent court decisions have gone both ways: one federal appellate ruling opposed state claims while two others supported them. This patchwork of outcomes underscores the ongoing uncertainty facing prediction market operators.

Adding another layer of complexity, the CFTC’s latest actions were submitted for White House review less than two weeks before Friday’s announcement. While federal agencies typically coordinate closely with executive branch officials before rolling out major policy shifts, it is unclear what feedback—if any—the White House provided during this process.

30 Days for Public Input Begins

Both new CFTC measures include a 30-day period for public comment before any permanent implementation occurs. This window gives industry participants, state regulators, and individual traders until early July to submit feedback on how event contracts should be classified and overseen at the federal level. The interim final rule excluding casino-style gambling is already active but may be revised after considering public input.

Despite the sweeping nature of these rules, leadership at the CFTC is currently thin: Michael Selig serves as sole commissioner and chair as of Friday’s announcement; four seats remain vacant with no White House nominations yet disclosed. This leadership gap may affect how quickly or decisively new regulations are enforced in coming months.

Defining the Edge: Prediction vs. Gambling

The distinction between regulated swaps and unregulated gambling is more than semantic—it will determine which agencies oversee billions in potential trading volume as new platforms enter the space. Blockchain.com’s pursuit of licenses follows its July partnership announcement with Polymarket to integrate prediction markets into its app, aiming for broader user access if regulatory clarity emerges.

Ultimately, while some see opportunity in federally regulated event contracts valued at up to $6 billion—Blockchain.com’s anticipated IPO valuation—the risk remains high given ongoing court disputes and unresolved jurisdictional questions. For now, prediction market operators face an uncertain path forward as both states and federal authorities vie for control over this rapidly evolving sector.

What could move the market

If, after the 30-day public comment period on the CFTC’s proposed rule to classify event contracts—including those on sports, politics, and weather—as swaps, the rule is finalized without major changes, platforms like Kalshi and Polymarket could immediately come under CFTC authority; however, whether this federal oversight will supersede ongoing state-level lawsuits remains unclear.