Coinbase criticized the U.S. Commodity Futures Trading Commission late Thursday, opposing proposed rules that would ban certain event contracts.
“Event markets are a promising area of the future economy, which is why we are responding to the CFTC’s Notice of Proposed Rulemaking today,” Chief Legal Officer Paul Grewal wrote on X. “We fully support the CFTC in its mission to maintain the integrity of the U.S. derivatives markets and believe they can provide a robust regulatory framework for this new type of contract. However, if adopted, this proposal would prohibit many speculative contracts without good reason.”
Earlier this week, cryptocurrency skeptic Senator Elizabeth Warren joined other Democrats in urging CFTC Chairman Rosten Benham to “quickly” finalize and implement rules to prevent the “commodification of American elections,” arguing that election betting “degrades the sanctity” of the democratic process.
The CFTC voted in May to propose a rule that, if finalized, would prohibit contracts for betting on political contests and other events involving games, war, terrorism, or assassinations. Such contracts cannot be listed for trading or accepted for clearing by any entity registered with the CFTC.
“Political betting changes the motivation for each vote, replacing political conviction with financial calculation,” the lawmakers wrote in a letter to Benham on Monday. “Allowing billionaires to make massive bets while donating to candidates or parties, and allowing political insiders to use nonpublic information to bet on elections, will further erode public confidence in the electoral process.”
Definition problem
But Grewal argued that the proposal had definitional problems, arguing that the sweeping definition of “gaming” would encompass additional contracts such as the Nobel Prize and the Oscars. “This definition of ‘gaming’ is inconsistent with legislative history, confuses longstanding state rules, and could have negative consequences for the fledgling CFTC-regulated marketplace,” he said.
Grewal also criticized the proposal’s assessment of the contract as not being in the public interest and exceeding the CFTC’s legal authority. “Needless to say, the proposal fails to recognize the public interest benefits of prediction markets,” he added.
In a more detailed letter to CFTC Director Christopher Kirkpatrick, Coinbase “strongly” urged the CFTC to withdraw the proposal and work with academic, industry, and policy stakeholders to develop a “more balanced” approach that fosters innovation and protects market integrity.
Event contracts are on the rise
Event markets, such as Kalshi, a centralized prediction platform, and Polymarket, an unregulated, decentralized alternative, allow users to bet on the outcome of future events, including the upcoming U.S. election. Behnam said there has been a “significant increase” in event contracts traded on CFTC-registered exchanges since 2021.
On Wednesday, Polymarket reported that Kamala Harris’ odds of winning the upcoming presidential election rose to 49%, tying her with former US President Donald Trump for the first time.
Venum has previously said that allowing contracts related to political events would allow the CFTC to overstep its congressional mandate and expertise.
The CFTC did not immediately respond to The Block’s request for comment.
Disclaimer: The Block is an independent media outlet providing news, research and data. As of November 2023, Foresight Ventures is the largest investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information on the cryptocurrency industry. Current financial disclosures include:
© 2024 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be legal, tax, investment, financial or other advice.