According to CoinDesk, crypto venture capital firm Dragonfly Digital Management and cryptocurrency exchange Crypto.com have joined Coinbase in commenting on the U.S. Commodity Futures Trading Commission’s (CFTC) proposed rule revisions for prediction markets.

These critics say the CFTC’s proposed rules broadly classify and prohibit certain event contracts, including those related to gambling (Coinbase believes the CFTC’s definition of gambling is too vague) and elections, which raises concerns. This ultra vires exceeds legal authority, stifles innovation and ignores the economic benefits of these contracts.

Dragonfly’s legal counsel Jessica Furr and Bryan Edelman wrote in a letter to the CFTC:

"Political event contracts should not be compared to games of chance such as the Super Bowl. On the contrary, elections have significant economic consequences. These contracts are designed to perform important risk hedging functions and comply with the Commodity Exchange Act." CEA) and provide the public with valuable forecast data, they should not be considered inconsistent with the public interest.”

I'm proud to have submitted comment letter for@dragonfly_xyz with @bryanmedelman to @CFTC on its proposed rule that effectively bans prediction markets in the US.Banning innovation is not the American way.https://t.co/ppNaPWaO3U https://t.co/gfuSOQKjhq

— Jessica Furr (@JessicaFurr305) August 9, 2024

Dragonfly also believes the proposed rule goes beyond the CFTC’s authority and broadly prohibits prediction markets without proper evaluation, especially given the U.S. Supreme Court’s recent overturn of the Chevron Doctrine in Loper Bright Enterprises v. Raimondo Doctrine). The ruling limits agencies' interpretive powers in the absence of congressional authorization.

Steve Humenik, Crypto.com’s special vice president for capital markets, believes that the CFTC’s attempt to ban prediction markets violates the rulemaking process stipulated in the Commodity Exchange Act, which includes a three-step process that requires the CFTC to ban a contract before banning it. Evaluate whether the contract relates to excluded goods, engages in specific activities, and is contrary to the public interest. Humenik wrote:

"The CFTC must clarify its reasons for determining that a contract has a basis for excluding commodities, and this should not be a preconceived conclusion. We urge the CFTC not to shy away from its obligation to conduct a three-step review process for such event contracts and to eliminate the event contract NOPR (proposed This section of the Notice of Rulemaking."

UCLA law professor Joseph Fishkin commented that prediction markets provide valuable insights into public opinion and political events and should not be regulated in a way that prohibits them in the United States.

“I think they add to our understanding of politics, the news media, the ‘conventional wisdom’ of politics, and the extent to which the masses are consistently wrong about certain types of political predictions,” Fishkin wrote. “I hope you don’t go so far as to allow them to be used here. Regulation in a way that the state disappears.”

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Related reports: "Decentralized prediction market Polymarket completes US$45 million in financing, led by Founders Fund"

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