📊 CFTC says F*** you to state regulators

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CFTC Chair Mike Selig filed an amicus brief yesterday in Crypto.com's lawsuit against Nevada, formally putting the federal regulator on the side of prediction market platforms in the escalating jurisdiction fight over sports event contracts. It's the first time the CFTC has intervened directly in one of the state-level lawsuits, and it moves the agency from the sidelines to an active combatant in a battle that will determine whether companies like Kalshi and Crypto.com can offer sports betting nationwide without state gaming licenses.

The opposition is bipartisan and loud. Four days before the filing, 23 Democratic senators urged Selig to stay out of the litigation entirely. Utah Governor Spencer Cox, a Republican, was less diplomatic: "I don't remember the CFTC having authority over the 'derivative market' of LeBron James rebounds," he wrote on X. "These prediction markets you are breathlessly defending are gambling, pure and simple." When both parties agree you're overreaching, the political cover for this move is thin.

Selig, a crypto-industry ally nominated by President Trump, had dodged questions about his position during his November confirmation hearing, saying he'd defer to the courts. An amicus brief technically keeps that promise. But as UCLA law professor Andrew Verstein told DL News, the CFTC's opinion carries outsized weight because "it has a terrifically wide congressional authorization to be the sole regulator of products that it wants to regulate." In a Wall Street Journal essay published the same day, Selig dropped any pretense of neutrality, writing that the agency would "no longer sit idly by while overzealous state governments undermine the agency's exclusive jurisdiction."

The corporate alignment here is hard to ignore. Trump Media partnered with Crypto.com to build Truth Predict, its forthcoming prediction market platform. The CFTC chair, appointed by Trump, just filed a brief supporting Crypto.com's legal position against state regulators. Robinhood and Coinbase both offer prediction markets through Kalshi. The industry's biggest players now have a federal regulator actively fighting their battles for them, and the companies with the closest ties to the administration stand to benefit most.

For prediction market companies, this is the best-case regulatory scenario: a sympathetic CFTC chair willing to spend political capital asserting federal preemption over state gambling laws. For states, it threatens their authority over sports betting, a market they license, tax, and generate billions in revenue from.

Polymarket is now letting anyone pay to make its markets more accurate. The platform announced that hedge funds, educational institutions, and everyday users can sponsor liquidity rewards on specific markets, effectively subsidizing tighter order books wherever they want better forecasts. It's a clever inversion of how prediction markets usually work: instead of waiting for organic trading interest to build, the people who care most about an answer can pay to attract it.

The mechanic is straightforward. Sponsored rewards flow to traders who post competitive limit orders close to a market's midpoint, with larger and tighter orders earning more, paid out daily. Polymarket's own docs describe the system as targeting "balanced quoting tight to a market's mid-point" and boosting two-sided depth - meaning the rewards are designed to attract real market-making, not just volume for volume's sake. The program borrows its structure from dYdX's liquidity incentives, adapted for event contracts.

Someone has already dropped $35,000 in liquidity rewards on the "Will Jesus return this year?" market, which is either a devout hedge or the most expensive theological bit in prediction market history. But the more practical use cases are obvious. A hedge fund that relies on Polymarket probabilities as a real-time signal wants tighter spreads so the price isn't getting pushed around by a few large orders. A research lab studying calibration wants deeper books so the data is cleaner. A community that cares about a niche local election wants reliable pricing instead of a thin book where one trader can move the line five points.

The underlying logic makes sense. Polymarket publishes accuracy metrics showing 91.2% accuracy one month before resolution and a Brier score of 0.0832, and it tracks how error changes with trading volume. Its maker-rebate documentation plainly states that deeper liquidity produces tighter spreads, lower price impact, more reliable fills, and greater resilience during volatile periods.

Rewards are scored on spread quality and two-sided depth, not raw volume, which at least structurally discourages the worst forms of gaming. The bigger picture is that Polymarket is outsourcing the cost of market quality to the stakeholders who benefit most from accurate prices. If a hedge fund wants a cleaner probability feed, they can fund it themselves instead of waiting for organic interest. If a university wants a live forecasting lab, they can build one for the cost of a research grant. It's a smart way to scale accuracy without scaling Polymarket's own costs - and it turns the platform into something closer to fundamental market infrastructure.

Bitwise filed a prospectus on Tuesday for six election-linked ETFs under a new "PredictionShares" brand, making it the third asset manager in four days to ask the SEC for permission to package prediction market contracts into funds that any brokerage customer can buy. GraniteShares filed the same day. Roundhill Investments filed on Friday. Wall Street is now racing to turn political event contracts, the same binary yes/no bets that Polymarket and Kalshi popularized, into something that sits in your Schwab account next to index funds.

The structure is straightforward, and each fund holds event contracts traded on CFTC-regulated exchanges that pay $1 if a specific outcome happens and $0 if it fails to. Bitwise's lineup covers the 2028 presidential race and the 2026 midterms, with separate funds for each party winning each chamber. If you buy the Democratic presidential ETF and a Republican wins, the fund loses substantially all of its value. The prospectus says this plainly.

Timing is key; The CFTC just filed an amicus brief backing prediction market platforms against state regulators, the Trump administration has made clear it wants these markets to flourish, and combined trading volume on Kalshi and Polymarket exceeded $37 billion last year. Bitwise CIO Matt Hougan said client demand drove the filing, and Bloomberg ETF analyst James Seyffart called it inevitable: "The financialization and ETF-ization of everything continues." He added that these filings would be far from the last.

In less than two years, prediction markets have moved from crypto-native territory into mainstream finance. Polymarket built its user base on USDC and blockchain rails. These ETFs strip all of that away. There are no wallets, no stablecoins, no decentralized resolution mechanisms. Just a ticker symbol and a binary political bet cleared through NYSE Arca. For the traditional asset management industry, prediction markets just became a product category worth filing for. For crypto-native platforms, the question is whether ETF wrappers bring legitimacy to the space or simply let incumbents capture the upside without building any of the infrastructure.

None of the filings have received SEC approval, and SEC Chair Paul Atkins said last week that some prediction markets may fall under securities laws, so the regulatory path remains uncertain. But three competing filings in four days tells you exactly where asset managers think this is heading.

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