Coinbase Takes Action Over CFTC’s Definition of ‘Game’ in Prediction Market Rules

Proposed rules on prediction markets by the Commodity Futures Trading Commission (CFTC) should be withdrawn because they exceed the commission’s statutory authority and ignore the positive impact prediction markets can have on the economy, Nasdaq-listed crypto exchange Coinbase wrote in a letter to commissioners.

“We believe this all-or-nothing approach to handling event contracts is not consistent with fostering responsible innovation and growth in regulated, transparent markets with appropriate safeguards to protect market integrity and customers,” Coinbase Chief Legal Officer Paul Grewal wrote in the letter.

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In May, the CFTC released a proposal on event contracts (prediction markets) that defines “gaming” as betting on the outcomes of political contests, prizes or athletic events. The proposal won the support of three Democratic commissioners who expressed concerns about market integrity and the agency’s role.

In yesterday’s letter, Coinbase said it disputed the CFTC’s definition of “gaming,” arguing that the commission unfairly restricted valuable activity contracts by categorically banning them without considering their individual public interest value.

The exchange stressed in the letter that the commission equates speculation with gaming, but did not distinguish between market speculation and actual gambling in its proposal.

The proposal would also ban war, terrorism and assassination contracts.

Polymarket offers a variety of contracts that fit this category and deal with geopolitical implications, including one asking bettors whether Iran will launch military action against Israel by next week in response to Israel’s assassination of the Hamas leader in Tehran.

Coinbase said the CFTC has overlooked the benefits of prediction markets, citing research that proves prediction markets can efficiently aggregate information and outperform traditional forecasting methods.

Instead, Coinbase is proposing that the CFTC withdraw its category-based ban on event contracts and continue to evaluate them on a contract-by-contract basis, taking into account the public interest of each prediction market category.

“We urge the CFTC to withdraw this proposal and work with academic, industry, and policy stakeholders to develop a more balanced approach that fosters innovation while protecting the public interest,” said Paul Grewal.