Former CFTC Chairman: After Predictive Market Surge, Clear Boundaries Between Gambling and Risk Management Must Be Established
Former CFTC Chairman Rostin Behnam stated in an interview at Georgetown University's Financial Market Quality Conference that after the explosive growth of predictive markets, Congress must delineate the boundaries between risk management and gambling, with related lawsuits potentially reaching the U.S. Supreme Court.
Behnam described the current regulatory approach to crypto spot markets as a temporary fix, akin to "duct tape and paper clips". Following the Senate's failure to advance the Clarity Act, regulators need durable rules. He also mentioned that if crypto companies go bankrupt, the protection available to customers under current laws is limited. Kalshi lost a case in the Sixth Circuit Court regarding sports event contracts, where the court ruled that Ohio and Tennessee could enforce their state sports betting laws, negating the federal commodities law's preemption of state laws. New Jersey has applied to the Supreme Court to review the split between the Third and Ninth Circuits, case number 26-299, with Kalshi's response deadline extended to November 9; Robinhood and the North American Derivatives Exchange have also filed separate applications regarding the Ninth Circuit ruling.
During his tenure in 2023, Behnam vetoed certain contracts under special rules for event contracts as per the Dodd-Frank Act, and in June 2024 proposed a broad definition of "gaming" that includes betting on the outcomes of competitions, skills, or chance games. Current Chairman Michael Selig withdrew that proposal in February 2026 and introduced a new predictive market framework on June 10, attempting to distinguish between gaming and gambling and narrowing the commission's path to classify event contracts as "violating public interest". The commission sided with the industry in certain state lawsuits, asserting that designated market event contracts fall under federal jurisdiction.
The Clarity Act passed the House 294-134 in July 2025, was released by the Senate Banking Committee 15-9 in May 2026, but failed to end debate with a 49-50 vote on September 15, falling about 11 votes short of the 60-vote threshold. The bill originally aimed to grant exclusive rights over digital commodity spots to the CFTC. After legislative stagnation, the SEC introduced a tokenized stock innovation exemption, while the CFTC issued a no-action letter and continued to formulate event contract rules.
In market mechanisms, buyers include platforms like Kalshi, Robinhood, and Crypto.com that aim to turn sports and event contracts into federally traded products, while sellers include state gambling regulators, tribal casinos, and traditional bookmakers. Funds are shifting from state-licensed markets to CFTC-designated contract markets, altering fee structures and tax allocations. Beneficiaries are predictive markets already registered at the federal level, while those under pressure are jurisdictions relying on state gambling taxes and tribal compacts. The driving events are the split among circuit courts and legislative failures, rather than the launch of a single product.
Source: Public Information
ABAB AI Insight
During his tenure, Rostin Behnam treated event contracts as special objects under commodity law: they could be listed or taken down for "violating public interest". He vetoed Kalshi's election-related contracts but left the gaming definition unfinished. After leaving office, he remarked that Supreme Court rulings and spot regulation felt like duct tape, acknowledging that the commission never had the total switch for spot markets granted by Congress. The Clarity Act aimed to write exclusive rights over digital commodity spots into the Commodity Exchange Act, but the Senate's 49-50 vote stalled debate, immediately filling the legislative vacuum with staff documents and lawsuits. The change in position of the same individual over two years illustrates the real timeline of U.S. crypto regulation: first enforcement, then proposals, and after legislative failure, pushing the problem to nine justices.
The capital path has bifurcated along "federal preemption or state gambling" lines. Kalshi, Robinhood, and Crypto.com have formed a predictive market alliance to write football scores as swaps, navigating designated contract markets to avoid state licensing taxes. New Jersey, Nevada, Ohio, and Tennessee have framed the same contracts as sports betting to preserve tax revenue and tribal agreements. The Sixth Circuit left state law intact, while the Third and Ninth Circuits are in conflict, with appeals piling up under case number 26-299. The flow of money does not depend on product design but on which legal framework takes effect: if federal wins, liquidity concentrates in a few DCMs; if states win, predictive markets must pay gambling taxes or exit. The current CFTC leadership's choice to side with the industry treats jurisdiction itself as a litigable asset.
The analogy is the 2018 Supreme Court overturning PASPA, returning sports betting to the states, and Bitcoin being recognized as a commodity by the CFTC yet lacking a spot licensing law for a long time. After PASPA was repealed, states opened up individually; predictive markets are reversing this operation, seeking to reclaim state authority under commodity law. The industry's position is that event contracts are expanding from niche hedging tools to mainstream betting interfaces, while legal classification remains stuck at "is this a swap or a bet". After the failure of the Clarity Act, durable rules can only come from the commission's own proposals or a Supreme Court ruling.
Structural judgments belong to regulatory changes. The mechanism is that Congress does not define gaming, and Dodd-Frank only provides a list of "violating public interest" involving gambling, terrorism, or assassination, which the commission fills in with rules, while courts dismantle it using preemption principles. After legislative failure, pricing power shifts from Senate procedural votes to circuit splits, then to whether the Supreme Court will take the case. Duct tape and paper clips are not rhetoric; they highlight the institutional gap where the Commodity Exchange Act has never provided a total authorization for spot markets: it can regulate derivative accounts but not the distribution of spot bankruptcy. Without filling this gap, every dollar transacted in predictive markets leads to another lawsuit over state-federal jurisdiction.