The U.S. Commodity Futures Trading Commission (CFTC) has made a significant regulatory reversal by withdrawing a controversial 2024 proposal that sought to prohibit event contracts related to sports, politics, and war. The proposed rule, initiated under the prior administration, was deemed "contrary to the public interest" by the newly confirmed CFTC Chair, Mike Selig.
The decision marks a clear departure from the previous administration's aggressive stance, which aimed to limit such markets through rigid application of regulations, often stifling innovation. In a statement released Wednesday, Selig announced that the Commission "is withdrawing that proposal and will create new rules based on a clear and logical understanding of the Commodity Exchange Act." The CFTC also scrapped related advisory guidance that had warned regulated firms against offering certain event contracts amid legal ambiguity.
This move provides much-needed legal certainty for both crypto-linked and traditional prediction markets, which have operated under a cloud of regulatory doubt. The CFTC's new strategy, according to sources familiar with the matter, seeks to "foster responsible innovation within derivatives markets" in alignment with Congressional intent. The agency's decision is part of its ongoing efforts to regulate popular prediction market platforms like Polymarket and Kalshi, which have seen surging demand for real-time betting on events.
The market impact is already substantial. Polymarket, which was previously shut down, had processed over $3 billion in volume—equivalent to the 2024 election cycle volume—demonstrating significant existing demand. Users have increasingly relied on these decentralized platforms for crowd-sourced probability assessments, often trusting them more than traditional polls.
Chair Selig has expressed heightened interest in establishing clear event contract regulations and plans to collaborate with staff on this framework. Furthermore, towards the end of last month, Selig disclosed that the CFTC would partner with the U.S. Securities and Exchange Commission's (SEC) Project Crypto, scheduled to take effect in July 2026. This collaboration aims to align digital asset strategies and establish a comprehensive regulatory framework.
The regulatory shift is expected to reduce existential risk for native crypto platforms, boost developer confidence, and accelerate Web3 application development. Prediction markets integrate naturally with blockchain technology through smart contracts that enable automatic settlements and on-chain transparency. While community reaction has been mixed—with developers optimistic about rapid implementation and some skeptics warning of potential future reversals—the overall momentum favors innovation and increased market participation.
