Two major U.S.-based crypto exchanges, Gemini and Coinbase, have challenged the US Commodities Futures Trading Commission’s (CFTC) proposed rule to limit prediction markets like Polymarkets.
The CFTC’s proposal, unveiled in May, seeks to restrict certain event contracts, especially those related to political events. This move has garnered backing from US lawmakers such as Senator Elizabeth Warren, who has voiced concerns about the risks associated with election-related gambling.
Gemini, Coinbase Urges CFTC to Withdraw Proposal
In an August 8 letter, Gemini argued that the proposed rule conflicts with the Commodity Exchange Act (CEA), as intended by Congress. The exchange claims the rule could undermine public interest and misinterpret the CEA’s goals.
Gemini contends that the proposal misinterprets the CEA by broadly categorizing all event contracts, potentially negating Congress’s intent for the CFTC to assess individual contract certifications. The exchange also criticized the proposal for lacking concrete evidence of harm from prediction markets, calling it a “solution in search of a problem.”
“The Notice of Proposed Rulemaking, 89 FR 48968, (Notice) does not provide any reasonable basis for concluding that prediction markets relating to elections or other unknown events are in any way a problem, or that anyone has been harmed by the existence of such markets,” the letter stated.
Read more: How Can Blockchain Be Used for Voting in 2024?
Cameron Winklevoss, co-founder of Gemini, emphasized that decentralized prediction markets are an important innovation with genuine public utility. These markets offer valuable insights into future events backed by financial accountability. Unlike polls or expert opinions, participants in prediction markets have a financial stake, adding integrity to the information.
“There is nothing thoughtful about a blanket ban on markets that have been employed for decades in one form or another and have proven extremely reliable tools for forecasting future events. More recently, the growth of these markets built on top of crypto protocols promises greater access, liquidity, and aggregation of the wisdom of the crowd for all,” Winklevoss added.
Gemini concluded that the rule could face extensive legal challenges if enacted by the Commission.
Notably, Coinbase echoed Gemini’s call for the CFTC to withdraw the proposal in its own letter. Paul Grewal, Coinbase’s Chief Legal Officer, criticized the proposal for its vague definition of “gaming.” Additionally, he disputed the CFTC’s claim that such markets are against public interest.
“We urge the CFTC to withdraw this proposal and work alongside academic, industry, and policy stakeholders to develop a more balanced approach that promotes innovation while protecting the public interest,” Grewal remarked.
Read more: Crypto Regulation: What Are the Benefits and Drawbacks?
In the past year, prediction platforms have surged in popularity, especially for betting on events like the 2024 US presidential election. For context, Polymarket has experienced a significant surge in activity. The decentralized platform saw over $387 million in volume last month, according to a Dune Analytics dashboard.
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