Coinbase Criticizes CFTC Proposal Against Event Contracts

Coinbase criticized the U.S. Commodity Futures Trading Commission (CFTC) on Thursday regarding the proposed rulemaking to ban certain event contracts.

Chief Legal Officer Paul Grewal expressed concerns on X, stating, “Event markets are a promising area of our future economy. We fully support the CFTC’s mission to uphold the integrity of the U.S. derivatives market and believe they can provide a robust regulatory framework for this emerging class of contracts. However, this proposal, if adopted, will ban many prediction contracts without good reason.”

Response from Lawmakers

Earlier this week, Senator Elizabeth Warren and other Democratic lawmakers urged CFTC Chair Rostin Behnam to finalize and implement the rule to prevent the “commodification of U.S. elections.” They argue that election bets “cheapen the sanctity” of the democratic process.

The CFTC voted in May to propose a rule that, if finalized, would ban event contracts betting on political contests, gaming, war, terrorism, and assassination. These contracts would not be available for trading or accepted for clearing through a CFTC-registered entity.

The lawmakers’ letter stated, “Political bets change the motivations behind each vote, replacing political convictions with financial calculations,” and warned that allowing wealthy individuals to wager significant sums while supporting specific candidates could undermine public trust in electoral processes.

Concerns Over Definitions

Grewal argued that the proposal has a definition problem, as the broad definition of “gaming” encompasses additional contracts like Nobel Prizes and the Oscars. He mentioned, “This definition of ‘gaming’ is also inconsistent with legislative history, confuses longstanding state rules, and could lead to negative consequences for nascent CFTC-regulated markets.”

He also criticized the proposal’s categorization of contracts as not in the public interest and exceeding the CFTC’s authority, stating it overlooks the public benefits of prediction markets.

In a letter to CFTC Secretary Christopher Kirkpatrick, Coinbase urged the CFTC to withdraw the proposal and collaborate with academic, industry, and policy stakeholders to create a more balanced approach that promotes innovation while ensuring market integrity.

Rise in Event Contracts

Event markets, including centralized platforms like Kalshi and the unregulated decentralized option Polymarket, allow users to bet on future events, including upcoming U.S. elections. Behnam noted a significant increase in event contracts available for trading on exchanges registered with the CFTC since 2021.

On Wednesday, the odds of U.S. Vice President Kamala Harris winning the presidential election rose to 49% on Polymarket, tying with former President Donald Trump.

Behnam previously indicated that allowing contracts regarding political events could push the CFTC beyond its Congressional mandate and expertise.

The CFTC did not respond to a request for comment from The Block.