The Signal

The CFTC just shifted from watching the prediction-markets jurisdiction fight to litigating it—publicly and aggressively. Chair Michael Selig telegraphed an imminent amicus (“friend-of-the-court”) filing backing Crypto.com in federal appellate court, positioning event contracts as federally preemptive derivatives under the Commodity Exchange Act, not state-regulated gambling products (CoinDesk, NEXT.io, Stocktwits).

That’s a material escalation: the regulator is no longer just approving/rejecting contracts inside its own perimeter—it’s attempting to shape the outer perimeter by arguing states can’t block access to CFTC-style event contracts (or functionally similar products).

Senate Democrats are simultaneously urging the agency to stay out of prediction-market lawsuits—raising the political cost of the CFTC picking sides while the industry’s sports-driven growth keeps pulling in state AGs and gaming regulators (Wired).

Net: the industry is being pushed toward a single fork in the road—federal derivatives venue vs state-by-state gambling patchwork—and the CFTC is trying to force that choice in court rather than by slow rulemaking.

The Mechanism

• The CFTC is making “exclusive jurisdiction” real. By stepping into an appellate case, the agency is aiming to set precedent that event contracts (and adjacent offerings) live under federal commodities law, limiting states’ ability to label them illegal gambling.

• Crypto.com is the test vehicle; Kalshi/Polymarket are the beneficiaries. Even if the brief is formally about one venue, the theory—event contracts as swaps—supports the broader industry posture that state actions are interference, not co-equal regulation.

• This is an enablement move for distribution. Brokers, sports-media partners, and payments providers care less about “is it cool?” and more about “will I get dragged into 20 state fights?” A strong federal preemption narrative de-risks partnerships—if it holds.

• It pressures platforms to look more like markets, not “betting.” If the CFTC wants courts to treat these as derivatives, platforms will lean harder into market microstructure signaling: surveillance, participant restrictions, market-maker programs, clearer contract specs, and cleaner resolution governance.

• States will respond by targeting the seams. If they can’t win on “this is gambling,” expect more pressure on: geofencing enforcement, marketing/solicitation, consumer protection hooks, and payment rails—especially around sports-like contracts.

• Second-order effect: category risk may become a listing strategy. The more sports pulls states into the fight, the more some venues may prioritize economics/politics-style contracts (or narrower sports formats) to reduce regulatory heat without surrendering growth.

The Landscape

Market Position
The industry is coming off a sports-fueled volume spike (Super Bowl and adjacent novelty contracts), then a modest cooldown—still at historically elevated throughput. One tracking report pegs combined weekly notional volume across major platforms at $5.3B, down ~14.8% week-over-week after the post–Super Bowl surge, with growth cited as 13x over six months (DeFi Rate). The business consequence is straightforward: higher volumes are attracting mainstream competitors and partners (we covered DraftKings’ “internalize the stack” posture), but they’re also catalyzing the enforcement and licensing backlash that threatens distribution.

Regulatory Environment
The regulatory contest is now explicitly tri-layered: (1) CFTC perimeter (event contracts as derivatives), (2) state gaming/AG actions (event contracts as gambling), and (3) a growing federal “who else has a say?” thread, with reporting that the SEC is coordinating and monitoring the space (NEXT.io). The CFTC’s court intervention is an attempt to collapse layers (1) and (2) into a federal answer—before the industry gets cemented into a state-by-state operating model.

Key Data

• CFTC action: Chair Selig signaled an imminent amicus brief supporting Crypto.com in the Ninth Circuit dispute touching event-contract access and state interference (Stocktwits, CoinDesk).

• Litigation scale (reported): Selig referenced “nearly 50” state cases involving event contracts in circulated coverage (Stocktwits).

• Industry volume: Combined weekly notional volume across top platforms cited at $5.3B, -14.8% WoW, after Super Bowl-driven spike; 13x growth in six months (DeFi Rate).

• Political pressure: Senate Democrats urged the CFTC to avoid weighing in on prediction-market lawsuits—an explicit signal that the agency’s courtroom strategy is becoming a congressional issue (Wired).

What’s Next

Watch the CFTC’s amicus filing itself—its precise framing will determine whether this is a narrow defense of a single product or a broad claim that state restrictions are preempted when event contracts sit inside the commodities regime. If the brief is expansive, expect platforms (especially onshore/CFTC-perimeter operators and partners building “regulated wrappers”) to accelerate distribution talks on the assumption that federal primacy is winnable. If it’s narrow—or if courts signal skepticism—the industry likely pivots to a dual strategy: litigate preemption while simultaneously hardening compliance controls (geofencing, marketing restrictions, category pruning) to survive a prolonged patchwork fight.

Predict This covers the evolution of prediction markets — platforms, regulation, volume, and methodology. For questions or tips: reply to this email.

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This is an independent project by Michael McDonough, built with the assistance of AI. Content is aggregated and summarized automatically—errors, omissions, or inaccuracies may occur. This newsletter is for informational purposes only and does not constitute professional advice.