Coinbase hits back at CFTC proposal that would 'ban many prediction contracts without good reason'

Coinbase criticized the U.S. Commodity Futures Trading Commission late Thursday, arguing against its proposed rulemaking on banning certain event contracts.

“Event markets are a promising area of our future economy, and that is why we are responding today to the CFTC’s notice of proposed rulemaking,” Chief Legal Officer Paul Grewal posted on X. “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.”

Earlier this week, crypto-skeptic Sen. Elizabeth Warren, alongside other Democratic lawmakers, urged CFTC Chair Rostin Behnam to "promptly" finalize and implement the rule to prevent the "commodification of U.S. elections," arguing election bets "cheapen the sanctity" of the democratic process.

The CFTC voted in May to propose the rule that, if finalized, would ban event contracts that bet on political contests and other areas such as those involving gaming, war, terrorism and assassination. These contracts would not be allowed to be listed for trading or accepted for clearing through a CFTC-registered entity. 

"Political bets change the motivations behind each vote, replacing political convictions with financial calculations," the lawmakers said in Monday’s letter to Benham. "Allowing billionaires to wager extraordinary bets while simultaneously contributing to a specific candidate or party, and political insiders to bet on elections using non-public information, will further degrade public trust in the electoral process."

A definition problem

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

Grewal further took aim at the proposal’s evaluation of contracts as a category being not in the public interest and exceeding the CFTC’s statutory authority. “Not to mention, the proposal fails to recognize the public benefits of prediction markets,” he added.

In a more detailed letter to CFTC Secretary Christopher Kirkpatrick, Coinbase “strongly” urged the CFTC to withdraw the proposal and work with academic, industry and policy stakeholders to develop a “more balanced” approach to foster innovation while safeguarding market integrity.

Event contracts rise in popularity

Event markets, such as the centralized predictions platform Kalshi and the unregulated decentralized alternative Polymarket, allow users to bet on the outcome of future events, including on the upcoming U.S. elections. Behnam said there has been a "significant uptick" in event contracts listed for trading on exchanges registered with the CFTC since 2021. 

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

Behnam has previously said that allowing contracts involving political events would push the CFTC beyond its Congressional mandate and expertise.

The CFTC did not immediately return a request for comment from The Block.