by Coinstrooper Crypto Articles
Quick Take
  • Indeed, exchange competition, sports law and federal preemption are increasingly overlapping the same market.
  • US law gives the CFTC authority over designated contract markets, while sports contracts have created a difficult boundary with state gambling law.
  • In June, the CFTC proposed a new framework for event contracts involving gaming and other enumerated activities under the Commodity Exchange Act.
  • The proposal would allow a 90-day review and assess products case by case using public-interest factors.

What Happened

On August 12, the New York City Council opened an investigation into the marketing practices of several prediction-market companies, including Polymarket, Kalshi, Coinbase and Gemini Titan, examining allegations involving young users, influencer marketing and misleading promotions.

Contracts linked to payroll data, inflation or commodity prices fit within derivatives markets because businesses and investors can use them to manage financial risk;

Market Context

Prediction markets have become one of the fastest-growing fronts in US trading, and sports contracts are now at the center of a legal fight over regulatory control.

On August 11, the Commodity Futures Trading Commission responded with emergency authority after Kalshi notified the agency of a market emergency, arguing federally regulated derivatives markets require national treatment.

Indeed, exchange competition, sports law and federal preemption are increasingly overlapping the same market.

US law gives the CFTC authority over designated contract markets, while sports contracts have created a difficult boundary with state gambling law. In June, the CFTC proposed a new framework for event contracts involving gaming and other enumerated activities under the Commodity Exchange Act. The proposal would allow a 90-day review and assess products case by case using public-interest factors.

A Tennessee court also ruled in Kalshi’s favor, leaving a federally regulated market subject to different judicial interpretations across states.

Sports contracts have a different purpose, with most participants trading based on the outcome of a game rather than hedging an existing exposure.

Kalshi operates as a CFTC-regulated designated contract market, while sportsbooks fall under state gambling laws. Although many retail users approach both products in similar ways, the legal framework remains different.

Fernando Lillo Aranda, CMO at Zoomex, believes prediction markets can protect retail users without restricting access. He argues that exchanges should focus on transparency, market integrity and helping users understand the products they trade.

“The priority should be transparency, fair market design, and clear risk disclosure. Ultimately, the objective should be to empower users through knowledge rather than limiting innovation.”

Lillo Aranda also says sports, politics, weather and live-event markets present additional risks around manipulation, misinformation and emotionally driven trading because many newcomers approach them as entertainment rather than financial products.

“Many first-time participants approach prediction markets as entertainment rather than as financial products with real risk. Financial literacy is one of the strongest forms of consumer protection. Well-regulated prediction markets can coexist with strong user safeguards if exchanges combine transparency, responsible product design, and continuous education with high standards of market integrity.”

Why It Matters

On July 31, New York sued Kalshi in state court, seeking more than $36 billion in damages and an order barring the exchange from offering event contracts nationwide.

CME has also sued the CFTC over its approval of perpetual futures for Kalshi and Coinbase, alleging competitive injury from rules opening new products to rivals.

Details

BeInCrypto spoke with Fernando Lillo Aranda, CMO at Zoomex, and Federico Variola, CEO of Phemex, about regulatory classification, the role of sports contracts, retail safeguards and growing competition between exchanges.

The Product-Specific Legal Boundary

Court rulings remain divided:

The Third Circuit sided with Kalshi in its dispute with New Jersey, ruling that federal law preempts the state’s attempt to block the exchange’s event contracts.

Judges in Nevada, Maryland and Ohio allowed state gaming authorities to continue enforcement actions against Kalshi while the underlying legal disputes proceed.

One way to draw the line is by looking at what the contract is actually used for:

Retail Protection Depends on Education as Much as Regulation

Exchange Competition Within the Regulatory Debate

Federico Variola, CEO of Phemex, believes the legal disputes extend beyond consumer protection and into competition between exchanges.