Coinbase Challenges CFTC Proposal on Prediction Markets

By: Eva Baxter

Coinbase has voiced strong opposition to a recent proposal by the US Commodities Futures Trading Commission (CFTC), which could have significant implications for prediction market platforms like Polymarket. In an August 8 letter, Coinbase Chief Legal Officer Paul Grewal criticized the proposal for its vague and overly broad definition of 'gaming,' arguing that it categorizes all event contracts as against the public interest without sufficient evidence to support such claims.

Coinbase contends that the proposal exceeds the CFTC's statutory authority and deviates from the regular practice of evaluating contracts on a case-by-case basis. According to Grewal, the proposal fails to acknowledge the positive economic impact of prediction markets, dismissing their scientific merit and potential benefits without substantial proof of harm to investors.

In the letter, Grewal stated, "The Proposal questions their scientific merit and highlights their potential to harm investors, but without citing evidence to support these conclusions." Coinbase has called on the CFTC to either withdraw or revise the proposal, advocating for a more balanced approach that promotes responsible innovation while ensuring market integrity and customer protection.

"We firmly believe that this all-or-nothing approach to the treatment of event contracts is not consistent with the promotion of responsible innovation and growth in regulated, transparent markets with appropriate safeguards to protect market integrity and protect customers," Coinbase's letter added.

Coinbase's opposition has garnered notable support from the crypto community. CoinFund President Chris Perkins has urged the CFTC to "stop suppressing innovation and truth," emphasizing that these platforms provide essential datasets that benefit the public.

Rise in Popularity of Prediction Markets

The debate over the CFTC proposal comes at a time when prediction markets have seen a surge in popularity, especially for events like the 2024 US presidential election. Platforms such as Polymarket have reported substantial activity, with over $1 billion in total betting volume and more than $550 million in bets on the US election alone.

In light of this surge, the CFTC proposed new restrictions in May to limit specific event contracts, particularly those related to political events, citing concerns over market integrity and the public interest.

Some lawmakers, including Senator Elizabeth Warren, have expressed support for the CFTC's move, raising concerns about the 'commodification' of US elections through such platforms.