Dragonfly and Crypto.com Evaluate CFTC’s Proposed Prediction Market Rules

Dragonfly Digital Management and Crypto.com have joined crypto exchange Coinbase (COIN) in criticizing the Commodity Futures Trading Commission’s (CFTC) proposed rules for prediction markets.

Critics say the CFTC’s proposed rules categorize and prohibit certain types of activity contracts, including those related to gaming, too broadly. Coinbase calls the CFTC’s proposed definition of gaming too vague. The crypto exchange says the rules exceed the commission’s legal authority, restrict innovation, and ignore the economic benefits these contracts provide.

“Political event contracts should not be equated with gambling on chance, such as the Super Bowl. On the contrary, elections have significant economic impacts. These contracts are designed to serve hedging functions and provide valuable predictive data to the public, in accordance with the requirements of the Commodity Exchange Act (CEA),” Dragonfly’s Jessica Furr and her counsel Bryan Edelman wrote in a letter to the CFTC.

Dragonfly argues that the CFTC’s proposed rule broadly restricts prediction markets without proper due diligence, especially given the Supreme Court’s recent ‘Chevron’ decision that limited the agency’s interpretive authority without Congressional authorization.

Steve Humenik, Special Vice President of Capital Markets at Crypto.com, argues that the CFTC’s attempt to ban prediction markets violates its process dictated by the CEA, which includes a three-step approach.

According to the CEA, this three-step process requires the CFTC to evaluate whether a contract involves an excluded commodity, engages in certain activities, and is contrary to the public interest before prohibiting it.

Joseph Fishkin, a professor of law at UCLA, wrote that prediction markets provide valuable information about public opinion and political events and should not be regulated in a way that would restrict them in the United States.