CFTC Innovation Advisory Committee Meeting – 8.20.26

COMMODITY FUTURES TRADING COMMISSION 

INNOVATION ADVISORY COMMITTEE 

On August 20, the Commodity Futures Trading Commission (CFTC) held an Innovation Advisory Committee (IAC) meeting, with the agenda available here and IAC member list available here.   

Session topics included the regulatory evolution of crypto assets, implications of artificial intelligence (AI) on market readiness and risk, and the jurisdictional and policy framework for prediction markets and event contracts.  Written comments in connection with the meeting can be submitted through August 27. 

Key Takeaways

• CFTC Chairman Selig framed the meeting around the CFTC’s roadmap for the “new frontier of finance,” highlighting efforts to advance the CLARITY Act while preparing to establish a crypto asset market structure under existing authority, develop compute as a commodity, modernize the regulatory framework for event contracts and prediction markets, and defend the CFTC’s exclusive jurisdiction and federal preemption.  He emphasized principles-based regulation, collaboration with industry, and regulatory clarity as essential to keeping innovation in the U.S. while protecting market integrity and consumers. 

• Section I discussions highlighted the costs imposed by the absence of a federal framework for digital assets, including state licensing requirements, creation of an uneven competitive environment, and regulation by enforcement.  IAC members raised varying priorities for Commission action independent of legislation, including greater CFTC-SEC harmonization and reciprocity, treatment of perpetual futures as futures rather than swaps, operational clarity as markets move toward 24/7 trading, and continued protections for protocol developers. 

• Section II centered on whether AI warrants a distinct regulatory framework, with IAC members broadly favoring regulation based on the function of automated systems rather than the technology itself and the evolution of existing automated trading (AT) standards rather than a new regime.  Members also discussed compute as an emerging commodity and asset class, examining price discovery, hedging demand, and the review process applicable to novel compute derivatives. 

• Section III outlined general support among IAC members for the CFTC’s exclusive jurisdiction over event contracts and for a federal framework in place of state-by-state regulation, alongside discussion of listing standards for novel contracts and consistent customer protection requirements across direct and intermediated retail access.  Members discussed the adequacy of the self-certification process and the susceptibility of certain contracts to manipulation. 

OPENING REMARKS 

Michael Selig, Chairman, Commodity Futures Trading Commission 

Full remarks available here.  

Chairman Selig overviewed the CFTC’s historic role in fostering responsible innovation while maintaining fair and resilient markets.  He highlighted how the U.S. is at a pivotal moment where decisions on blockchain, AI, and prediction markets will determine whether innovation develops domestically or moves overseas.  Drawing on the history of the Commodity Exchange Act, the creation of the CFTC, and the Commodity Futures Modernization Act, he outlined how principles-based regulation, exclusive jurisdiction, self-regulation, and broad statutory authority over commodities have enabled U.S. derivatives markets to grow into approximately half of the $1.2 quadrillion global notional derivatives market.  He contrasted this framework with earlier periods when commodity options and other innovations were prohibited or constrained, stating that regulation and innovation must continue to advance together. 

Regarding crypto, Chairman Selig criticized the prior administration’s approach of regulation by enforcement, debanking, and legal uncertainty for causing offshore exchange failures while leaving market participants without clear rules.  He outlined the CFTC’s work with the SEC through Project Crypto to establish a clear taxonomy for crypto assets and stated that he remains hopeful Congress will pass the CLARITY Act, calling it the surest way to prevent a rogue campaign of regulatory lawfare against industry participants.  He added that if legislation does not advance, the CFTC intends to use its existing authorities to establish a crypto asset market structure, including exploring rules for crypto asset markets operating as a type of designated contract market (DCM) and engaging with developers to create compliant pathways for on-chain finance protocols in the U.S.   

Chairman Selig identified AI and compute as the next frontier for commodity markets, with access to compute capacity becoming an economically significant commodity requiring transparent spot, forward, and derivatives markets to improve price discovery, hedging, and capital allocation.  He highlighted the CFTC’s recent Request for Comment (RFC) on compute markets, coordination with the Department of Commerce, and plans to develop a regulatory framework that supports compute as a commodity underpinning the intelligence economy, consistent with the administration’s broader AI Action Plan. 

Chairman Selig described how prediction markets are facing many of the same legal challenges historically directed at commodity exchanges, emphasizing that Congress granted the CFTC exclusive jurisdiction over federally regulated DCMs and that the CFTC will continue defending that authority against state efforts to apply anti-gaming laws to federally regulated markets.  He cited CFTC Chairman Johnson’s concept of “name fixation syndrome” (NFS), the tendency to assume a derivative should be regulated based on the subject matter named in its title, as he emphasized for regulation to instead be determined by the nature of the derivative contract, not the underlying event.  He also emphasized that event contracts have existed for decades under the Commodity Exchange Act and criticized previous regulatory efforts to prohibit such products rather than establish a comprehensive framework. 

Chairman Selig outlined the CFTC’s roadmap for prediction markets, including proposed amendments to Rule 40.11 to define key statutory terms such as “gaming” and “involve”, establish public interest criteria for evaluating event contracts, and reduce regulatory uncertainty surrounding the enumerated categories of war, terrorism, assassination, gaming, and illegal activities.  He also highlighted a proposal to modernize the reporting framework for fully collateralized event contracts and previewed additional amendments to Parts 38 and 40 that would modernize DCM core principles, listing requirements, and establish new consumer protection expectations related to product governance, market design, and incentive programs. 

Walt Lukken, Chair, Innovation Advisory Committee 

Lukken commended Chairman Selig’s leadership in advancing the innovation agenda and highlighted the rapid expansion of CFTC-regulated markets.  He cited the growth in DCMs and traded contracts, crediting the Commodity Exchange Act and the Commodity Futures Modernization Act of 2000 for providing the principles-based regulation, self-certification, and exemptive authority that support responsible innovation and fair competition while preserving market safety, soundness, and customer protection.  He emphasized that the IAC’s role is to provide the CFTC with practical advice grounded in the real-world experiences of those who operate, use, and build the markets. 

SECTION I — CRYPTO’S REGULATORY EVOLUTION: FROM UNCERTAINTY TO CLARITY 

IAC Member Discussion 

• Lukken (FIA) framed the discussion around how the absence of a federal regulatory framework for crypto has required firms to navigate overlapping state requirements, uncertain jurisdictional boundaries, evolving legal interpretations, and regulation by enforcement, and asked participants to identify how those challenges have affected business development in the U.S. and where the CFTC can provide greater legal certainty.  He also highlighted the broader promise of blockchain and tokenization beyond digital assets, encouraging discussion on how the technology could transform market infrastructure, improve operational resilience and cybersecurity, and whether additional CFTC guidance is needed in those areas. 

• Tenev (Robinhood) emphasized that regulatory clarity and regulators taking clear, opinionated positions provide firms with the confidence to grow their businesses and serve customers.  He argued that the current state-by-state regulatory patchwork limits equal access to digital asset products, citing restrictions on crypto staking in four states, including California, and the inability to offer products such as USD Coin (USDC) in Texas, USDG in New York, and Robinhood Connect in New York.  He stated that a federal framework would provide greater certainty and durability, reduce multi-state operational burdens, and expand customer access to digital asset products. 

• Armstrong (Coinbase) described how the prior regulatory environment, marked by regulation by enforcement and the absence of clear legal guidance, discouraged innovation, drove approximately eighty percent of crypto trading offshore, and deterred entrepreneurs and venture capital investment.  He emphasized that the CLARITY Act would provide clearer federal oversight, including CFTC spot market authority, and reduce the existing 50-state regulatory patchwork.  He also encouraged the CFTC and SEC to continue advancing clear rules regardless of whether the legislation passes, highlighting the importance of coordination between the agencies for products that fall at the intersection of their jurisdictions, including equity perpetuals and key performance indicator (KPI) event contracts. 

• Winklevoss (Gemini) outlined how regulatory fragmentation, money transmitter licensing (MTL) requirements, and regulation by enforcement have hindered digital asset innovation in the U.S. while allowing competitors abroad to move faster and offer products such as perpetual futures that remain unavailable domestically.  He contrasted the differing state licensing regimes with more unified international frameworks, stating that U.S. firms have been competing with “lead shoes on and a parachute.”  He emphasized the need to pass the CLARITY Act while simultaneously advancing rulemaking, warning that delaying regulatory action risks future rules being written under a less supportive regulatory environment.   

• Yarlagadda (FalconX) welcomed the increased recognition of digital asset innovation and highlighted the need to reduce regulatory fragmentation as markets increasingly integrate digital assets, commodities, securities, prediction markets, and real-world assets.  Drawing on FalconX’s experience as the first CFTC swap dealer for digital assets, he encouraged greater harmonization and reciprocity between the CFTC and SEC, so firms do not have to undergo separate licensing processes, incur significant costs, and spend years obtaining additional registrations to offer similar products across regulatory frameworks. 

• Belshe (BitGo) raised that the greatest challenge facing digital asset innovation is the speed of regulatory decision making, arguing that businesses must move quickly, and that AI will further accelerate innovation.  He criticized regulation by enforcement, stating that firms should receive timely regulatory guidance rather than face enforcement actions after attempting to innovate, and argued that such an approach holds innovation back.  He encouraged faster decision making, continued engagement between regulators and industry, and a principles-based regulatory framework, arguing that it is better suited than prescriptive rules to address rapidly evolving technologies. 

• Adams (Uniswap) emphasized that regulatory clarity and proactive guidance are essential for crypto startups seeking to build in the U.S.  He referenced how years of regulatory uncertainty imposed significant legal and operational burdens on crypto startups, driving some companies to fail or move development outside the U.S.  He stated that the current pro-innovation approach is “night and day” compared to the prior environment and urged passage of the CLARITY Act or, if legislation does not advance, continued proactive guidance from regulators to provide long-term certainty for builders. 

• Garlinghouse (Ripple) emphasized that regulatory clarity and clear rules of the road are essential to protect consumers, hold companies accountable, and provide responsible businesses with the certainty to build in the U.S.  While stating how the technologies represented at the roundtable can make moving money faster, more efficient, and more accessible, he reiterated that regulatory clarity is necessary to unlock that potential responsibly. 

• Wilson (DRW) emphasized that perpetual futures contracts are a valuable risk management tool that should be regulated as futures contracts, not swaps, arguing that otherwise they will remain offshore rather than being brought into a safe and regulated U.S. market.  He stated that offshore features such as 100-times leverage and auto deleveraging are not inherent to perpetual futures and should not be adopted, while encouraging approval of perpetual futures across a broad range of products.  

• Wilson also highlighted the need for additional regulatory clarity as markets move toward 24/7 trading, including facilitating 24/7 collateral movement, encouraging harmonized margin cycles over weekends, and clarifying whether futures commission merchants (FCMs) may self-custody customer segregated funds in tokenized form and under what constraints. 

• Sethi (Kraken) framed how regulatory clarity and rulemaking are both necessary to support innovation, emphasizing that legislation and rulemaking should advance in parallel rather than one before the other.  He cited how the U.S. remains the last G20 member without a digital asset market structure framework, while Markets in Crypto-Assets (MiCA) has been fully implemented in Europe, warning that continued delays will drive innovation overseas while leaving U.S. customers exposed to unregulated platforms.  He urged the CFTC and SEC to move forward with rulemaking and guidance to reduce regulatory costs. 

• Smith (Blockchain.com) welcomed the opportunity to engage directly with the CFTC on the future of U.S. digital asset policy and drew on Blockchain.com’s experience operating internationally, particularly with the implementation of MiCA in Europe.  He noted that while regulatory harmonization benefits larger firms, it can make it difficult for startups and small digital asset companies to compete, referencing how many were unable to become regulated under MiCA and ultimately wound up their businesses.  He encouraged regulators to incorporate regulatory sandboxes and safe harbors tied to business metrics so smaller firms can innovate, move at the pace enabled by AI and LLM tools, and remain globally competitive. 

• Lubin (ConsenSys) commended the open dialogue, clear rulemaking, and collaboration between the CFTC and SEC, contrasting it with the previous administration’s approach that hindered innovation and discouraged investment.  He emphasized that DeFi introduces new financial primitives that may exhibit both securities and commodities characteristics, requiring a holistic, first principles approach to regulation and continued coordination between the CFTC and SEC.  

• Lubin also highlighted vaults as an emerging area requiring harmonization, explaining that smart contracts can provide transparent, programmatic disclosure and allow investors to retain custody while deploying capital through automated strategies. 

• LaSalla (DTCC) emphasized that AI, blockchain, crypto, and financial markets are transforming rapidly and encouraged the CFTC to continue convening industry participants to foster dialogue, provide greater confidence, and support innovation despite ongoing legislative and regulatory uncertainty.  He highlighted the value of the SEC Crypto Task Force, explaining that engagement with regulators gave firms greater confidence to advance innovation even amid limited regulatory clarity.  He commended the harmonization efforts led by the CFTC and SEC Chairman Paul Atkins, noting that the resulting clarity enabled cross margining between cash and futures, delivering significant value to the industry. 

• Friedman (Nasdaq) welcomed the improved dialogue and collaboration between the SEC and CFTC, encouraging both agencies to translate that collaboration into tangible regulatory progress.  She cited Nasdaq’s efforts to expand its crypto options business, explaining that while the exchange has listed crypto exchange-traded funds (ETFs) and ETF options under SEC oversight, its proposed Bitcoin index options product has remained in regulatory limbo for about a year and a half.  She encouraged the SEC and CFTC to develop a collaborative approach for products that span both Commissions’ jurisdictions, provide greater regulatory clarity, expand client choice, and improve competitiveness.  She also emphasized the importance of establishing clear jurisdictional standards for prediction markets while maintaining coordination where jurisdiction overlaps. 

• Coplan (Polymarket) emphasized that entrepreneurs need a clear and workable path to develop honest, functioning businesses under the regulatory framework.  He outlined how Polymarket sought to engage with the CFTC early, pursued a DCM and derivatives clearing organization (DCO), and was willing to undertake a difficult process to operate in the U.S.  He welcomed the CFTC’s willingness to engage with innovators and stressed the importance of distinguishing between the technology and the financial primitive, arguing that constructive engagement by regulators is a significant multiplier for domestic innovation and responsible development. 

• Professor Reyes emphasized that the roadmap should continue to provide rules of the road for developers of financial protocols, stating that the prior CFTC consent decrees involving Ooki, Deridex, and ZeroEx left developers uncertain about how precedent applies to building protocols within the CFTC’s jurisdiction.  She urged that developer protections remain a core focus of the roadmap regardless of whether the CLARITY Act advances, noting that the Blockchain Regulatory Certainty Act (BRCA), while important, provides only narrow protections and would not address the issues raised by those consent decrees.  She encouraged a functional approach to rulemaking that distinguishes between the technology itself and the financial primitive, rather than relying on taxonomies that can quickly become outdated. 

• O’Malia (ISDA) emphasized that both legislative clarity and regulatory clarity are needed to support digital asset market infrastructure.  He highlighted the importance of federal preemption under the CLARITY Act, continued coordination between the CFTC and SEC, cross product margining, conflict of interest rules, and broad participation by banks and their customers to provide liquidity.  He identified several regulatory priorities, including addressing custody and segregation, updating Rule 1.44 for wallets and Rule 1.49 for eligible depositories, ensuring risk appropriate margin haircuts based on the underlying product rather than tokenization, coordinating capital regulation, margin haircut methodology, and cross border regulation, and preserving legal certainty in netting.   

• On 24/7 risk management, O’Malia stressed the need for ecosystem-wide coordination so that clearing and risk management keep pace with trading, well-established funding, clearing, margin treatment, and delivery rules, sound default mechanisms for new infrastructure, appropriate treatment of retail and institutional participants, and continued adherence to anti-money laundering (AML) and know your customer (KYC) requirements. 

• Nazarov (Chainlink) emphasized that regulatory clarity, fairness, and coordination between the SEC and CFTC are critical to maintaining trust in U.S. financial markets and supporting U.S. innovation.  He cited that past regulatory fragmentation caused many developers to stop building or move development outside the U.S. as he welcomed the Commissions’ unified approach.   

• Nazarov also highlighted tokenization of equities as the next major development, stating that maintaining U.S. leadership will require moving U.S. financial markets on-chain at the same pace as the global financial system.  He further highlighted how 24/7 collateral management can reduce risk through greater transparency and that blockchains, smart contracts, and oracles can strengthen cybersecurity and resilience against future cyber threats, including those posed by AI. 

• Novakovski (Lighter) raised that DeFi should be viewed as a regulator’s friend, not a regulator’s enemy, because verifiable, on-chain transactions can improve transparency, consumer protection, and fairness while making regulatory oversight easier.  He stated that open source, verifiable financial infrastructure strengthens cybersecurity and operational resilience, welcoming the CFTC efforts to better understand how DeFi is consistent with the CFTC’s Core Principles.  He also raised how automated deleveraging (ADL) can be consistent with Core Principles and protect consumers if implemented in a fair, transparent, and verifiable manner. 

SESSION II — ARTIFICIAL INTELLIGENCE: PREPARING FOR INTELLIGENT MARKETS

IAC Member Discussion 

• Lukken opened the discussion on AI by describing it as an innovation super cycle transforming capital and derivatives markets at an increasingly rapid pace.  He highlighted the growing use of generative AI across trading, compliance, surveillance, customer service, and risk management, as well as the emergence of agentic finance, where autonomous systems execute financial decisions with limited human intervention.  

• Lukken asked which AI developments will have the greatest impact on CFTC markets, the risks members believe the CFTC should prioritize, and how the CFTC can support cybersecurity, operational resilience, and market integrity through convening power, guidance, and its principles based, outcomes based, technology agnostic regulatory framework. 

• Armstrong highlighted the intersection of AI and financial services, arguing that frontier AI models can strengthen cybersecurity by identifying vulnerabilities, reviewing internal code, and improving defenses before attacks occur.  He also identified stablecoins as the default payment rail for an emerging agentic economy, where AI agents execute real time, cross border, and very small transactions on-chain, and argued that AI agents can expand access to financial advice by providing guidance on portfolio allocation, dollar cost averaging, and tax loss harvesting.  

• Armstrong contended that concerns about AI-driven market manipulation are overstated, arguing that AI trading represents a continuation of existing algorithmic trading rather than a fundamentally new risk and that a diverse ecosystem of AI models is unlikely to produce uniform market behavior.  He cautioned against applying a precautionary principle, encouraging regulators to address demonstrated risks rather than hypothetical scenarios that may never materialize. 

• Tenev outlined how AI can strengthen cybersecurity by advancing formal verification of software, allowing firms to mathematically prove that smart contracts function correctly rather than relying solely on manual audits.  He encouraged the CFTC to consider incorporating formal verification into future regulatory expectations as the technology matures, alongside modernizing business continuity requirements for FCMs so they better reflect current operational and cybersecurity risks. 

• Winklevoss suggested that the CFTC could strengthen cybersecurity by helping connect digital asset projects, security researchers, and foundations with frontier AI labs to expand access to frontier AI models for identifying vulnerabilities and hardening networks before adversaries gain access.  He cited Zcash as an example of using AI to identify and patch vulnerabilities while also pioneering formal verification, noting that smaller projects may lack similar access to frontier AI capabilities. 

• Chippas (Rothera) asserted that while AI may accelerate and expand the use of systematic execution, regulators should focus on the behavior of AT rather than the specific tools generating orders.  He suggested considering identification and attribution requirements for systematic models so responsibility ultimately rests with a human or organization, while opposing requirements to provide source code to regulators.  He emphasized that regulators are unlikely to keep pace with rapidly evolving AI models and instead should apply consistent behavioral requirements and appropriate guardrails to AI-driven execution. 

• Yarlagadda raised how AI compute and data center capacity represent an emerging area of relevance for the CFTC, describing compute as a potential commodity and asset class.  He noted that U.S. companies are expected to invest approximately $670 billion in data centers this year despite uncertainty around future GPU pricing and demand, and stated that AI companies are already seeking hedging and insurance products for data center compute.  He encouraged the CFTC to provide guidance on price discovery and consider fast tracking the regulatory framework around compute, arguing that doing so could make the U.S. AI industry safer and support global leadership. 

• Sethi cautioned against treating AI as a regulatory “boogeyman,” calling for regulators to focus on the function of AI rather than the label.  He emphasized that AI represents advances in compute infrastructure, innovation, and transaction throughput, while enabling individuals to access capabilities previously available only to large institutions.  

• Belshe cautioned that AI-specific regulation would hinder innovation, emphasizing that AI tools are evolving too rapidly for regulation to keep pace and should not be regulated absent a specific, demonstrated risk.  He also warned that operational security (OPSEC) may become a greater vulnerability than cryptographic failure, highlighting the risks created by collecting unnecessary stores of sensitive digital asset information.  Citing incidents in France involving stolen records identifying individuals’ Bitcoin holdings, he encouraged regulators to avoid requiring firms to collect unnecessary honeypots of information that could become attractive targets for AI-enabled attackers, hackers, or other adversaries. 

• Wilson stated that reducing cybersecurity risk begins with enabling frontier AI labs to release their newest models as quickly as possible, contending that broader access strengthens market defenses and reduces hacking risk.  He stated that existing AT best practices remain effective for AI-driven market activity and should be evolved rather than reinvented, adding that he does not currently see a need for a new AI regulatory framework.  

• Wilson advocated for compute futures as an important risk management tool that could reduce the cost of capital and strengthen U.S. competitiveness in AI.  He encouraged the CFTC to allow such products to proceed through the existing self-certification process rather than a lengthy comment period, arguing that established regulatory frameworks remain appropriate for new technologies and markets. 

• Bolkovic (Options Clearing Corporation) emphasized that AI presents an opportunity to strengthen cybersecurity and organizational resilience, not just introduce new risks.  He encouraged efforts to ensure firms across the ecosystem have access to advanced AI capabilities, citing the need for broader access beyond initiatives such as Project Glasswing and consideration of minimum resiliency requirements.  

• Bolkovic discussed how existing risk management and third-party risk frameworks already provide a strong foundation for AI oversight, suggesting that the priority should be clarifying how those existing principles apply to AI rather than creating a new regulatory regime.  He also endorsed continued convening of industry participants to share perspectives and best practices. 

• Jain (Multicoin Capital) encouraged the CFTC to establish an innovation exemption or safe harbor for emerging compute derivatives so new market structures can be tested at a smaller scale before being implemented on a fully compliant basis.  He recommended using AI to stress test markets, arguing that the transparency of DeFi could enable the CFTC to identify leverage concentration and manage risks proactively rather than reactively.  He added that retail investors seeking exposure to AI-driven wealth creation in private markets often encounter scams and fraudulent vehicles, and suggested that the CFTC consider pre-IPO perpetuals as a regulated means for retail investors to gain price exposure to private AI companies. 

• Novakovski highlighted how AI can expand access to sophisticated investment strategies by enabling users to create customized trading baskets and strategies that previously required professional money managers.  He argued that the primary risks relate to consumer protection, including ensuring users understand what AI models do and preventing misrepresentation of their capabilities, rather than widespread systemic AI-driven market failures.  

• Novakovski supported formal verification, sandbox testing, and access to frontier AI models for market participants to strengthen the financial system, while emphasizing that regulators should focus on whether AI models operate within appropriate risk, leverage, and trading behavior guardrails rather than the complexity of the models themselves.  He also acknowledged the importance of addressing DeFi accountability and developer protections, encouraging continued collaboration between industry and the CFTC to develop appropriate approaches for AI-enabled DeFi systems. 

• Smith raised how broad access to frontier AI models is preferable to limiting access to select firms, contending that restricting access advantages large incumbents over entrepreneurs and slows innovation. He stated that firms should be able to test new models as quickly as they are released, noting that recent models have helped identify vulnerabilities in existing code. He also emphasized the importance of developing compute markets, arguing that the U.S. risks falling behind as activity develops offshore due to the difficulty of establishing spot values, index prices, and futures for compute, as well as the absence of a safe harbor for entrepreneurs.  He encouraged the CFTC to establish a framework that allows experimentation with new compute markets while maintaining U.S. competitiveness, and argued that, given the pace of AI development, regulators should prioritize consumer protection while avoiding unnecessary regulation. 

• Lubin stated that AI will ultimately provide a positive asymmetry for builders over attackers by improving software security, while cautioning that a transition period is likely as existing software vulnerabilities continue to be exploited.  He encouraged the CFTC to support open source and open protocols, arguing that transparency is a stronger foundation for security than obfuscation.  He also highlighted the growing role of formal verification in mathematically verifying the correctness of the Ethereum protocol and DeFi protocols, and encouraged the CFTC to use its convening power to promote a more holistic approach to security by addressing vulnerabilities across interconnected protocols rather than evaluating each protocol in isolation. 

• O’Malia drew parallels between the meeting’s AI discussion and earlier debates over high frequency trading algorithms, arguing that regulatory responses should focus on market oversight rather than the underlying technology.  He cautioned against proposals requiring firms to provide source code to the CFTC, instead emphasizing that FCMs, clearing houses, and trading platforms serve as the primary frontline safeguards by testing, pre-vetting, and overseeing activity before it enters the market.  He acknowledged that AI and DeFi present broader challenges than earlier trading algorithms and stressed that maintaining safe markets will require continued collaboration between the CFTC, industry participants, and on-chain providers. 

• Professor Reyes encouraged the CFTC to consider how existing third party, outsourcing, and supply chain oversight frameworks could be applied to AI, arguing that clarifying those obligations would provide greater certainty for AI developers while reinforcing corporate governance and other private law mechanisms that promote AI security.  On DeFi accountability, she reiterated the importance of regulating based on function rather than labels, emphasizing that not all protocols labeled DeFi serve the same purpose and that infrastructural resources should not automatically be treated as intermediaries subject to regulatory obligations that do not apply to them. 

• Yakovenko (Solana Labs) cautioned that approving only centralized implementations of products such as perpetuals could unintentionally disadvantage functionally equivalent decentralized implementations.  He argued that once a centralized model becomes the regulatory standard, it becomes more difficult for open source, formally verified smart contract-based systems to obtain approval, despite providing the same functionality.  Yakovenko warned that this could encourage decentralized systems to be built offshore and create a regulatory framework that favors a particular implementation rather than regulating based on function. 

SESSION III — PREDICTION MARKETS: INNOVATION, JURISDICTION, & THE FUTURE OF EVENT CONTRACTS

IAC Member Discussion 

• Lukken opened the discussion on prediction markets by noting that the issue has evolved over many years and has recently expanded significantly as prediction markets have demonstrated their ability to aggregate information and facilitate price discovery across a variety of products.  He highlighted the legal and policy questions arising from recent litigation, differing federal and state approaches, and the CFTC’s ongoing work through rulemakings and staff advisories, asking participants what lessons regulators should draw as the regulatory framework evolves.  

• Lukken also asked whether prediction markets and other event contracts are complementary to traditional derivatives and can enhance risk management, or whether they function as substitute products.  He emphasized the importance of maintaining trust in the markets and ensuring that contracts are not subject to manipulation. 

• Hoersten (Bitnomial) highlighted Bitnomial’s experience offering retail spot margin trading, perpetual futures, crypto as margin collateral, and infrastructure services supporting prediction markets.  He encouraged the CFTC to maintain an open mind when developing the regulatory framework, emphasizing that the prediction market ecosystem includes a broader range of market structures, clearing arrangements, and business models than traditional futures markets and that this diversity should be reflected in future regulation. 

• Lopes (Kalshi) overviewed Kalshi’s experience pursuing a regulated path from its founding in 2018, explaining that although Kalshi sought to work through the CFTC from the outset, it was unable to launch products for several years and ultimately sued the CFTC to ensure the law was applied correctly.  She contended that the resulting litigation reinforced the U.S. regulatory framework for prediction markets and demonstrated that Americans prefer regulated platforms with strong consumer protections.  

• Lopes emphasized the importance of preserving the CFTC’s exclusive jurisdiction, warning that broad state actions could affect companies beyond prediction markets and reflect a misunderstanding of the markets’ benefits.  She discussed that prediction markets provide important hedging tools for previously unhedgeable risks and valuable price discovery, noting that more than 75 percent of Kalshi users visit the platform to consume information rather than trade. She advocated for a federal framework over state-by-state regulation, stronger consumer protections, continued SEC-CFTC harmonization, and allowing competing market structures to develop so users can determine which models best serve their needs. 

• Donohue (Cboe Global Markets) supported efforts to improve legal certainty for crypto, tokenization, and on-chain transactions, while emphasizing that the U.S.’ bifurcated regulatory regime has been a key driver of its global leadership in securities, futures, and swaps markets by allowing regulatory frameworks to be tailored to distinct market structures and participants.  He urged regulators to distinguish between black-and-white jurisdictional questions and more complex gray areas, arguing that products clearly defined as securities under existing law should not be treated differently simply because they are listed on a DCM.  He cautioned that blurring those jurisdictional lines would increase litigation, create legal uncertainty, expose market participants to rescission risk under federal and state securities laws, and ultimately undermine customer protection, safety and soundness, and responsible innovation. 

• Duffy (CME) stated that CME has supported crypto markets since listing crypto futures in 2017 and continues to view crypto as an important and growing part of the financial system.  On AI, he encouraged exchanges and market participants to embrace the technology while establishing appropriate guardrails, highlighting its growing role in risk management and the importance of deploying it responsibly. 

• On prediction markets, Duffy stated that approximately 2,500 self-certifications had been filed with the CFTC since the administration took office in January 2025 without any being opposed.  He voiced his concern that several self-certified contracts violate Core Principle 3 because they are susceptible to manipulation.  Chairman Selig disputed that characterization, stating that those specific contracts were never listed in the U.S. and had instead traded offshore, calling Duffy’s claim “fake news.” Duffy responded that the contracts were listed overseas but maintained that manipulation of those markets is harmful regardless of venue. 

• Duffy separately questioned why a compute-related prediction market had already been approved on Kalshi while compute futures continue to face lengthy review, noting that Cantor Fitzgerald has since partnered with Kalshi on compute.   

• Duffy referenced how perpetuals and 24/7 markets are already affecting U.S. markets through offshore DeFi platforms accessed via VPN.  He urged the CFTC to ensure a level playing field for regulated U.S. exchanges, emphasizing that consumer protection and maintaining confidence in U.S. markets must remain the priority. 

• Crane (Rutgers University) supported the CFTC’s principles-based approach to regulating prediction markets, arguing that greater clarity around the enumerated categories of war, terrorism, assassination, gaming, and activities illegal under federal or state law is essential for innovation and market development.  He contended that these sensitive topics may also provide some of the greatest financial and informational value and should be addressed through clear regulatory standards rather than prohibition.  

• Crane emphasized that sports represent a significant economic sector with broader financial hedging applications beyond gambling, citing the Mattress Mack hedging example.  He framed how a federal, principles-based framework would provide stronger consumer protection than the current state approach, while better serving market participants and the public interest. 

• Lopes emphasized that market manipulation risks exist across both traditional and emerging markets, arguing that the purpose of regulation is to identify and address those risks rather than prevent innovation.  She stated that prediction markets have expanded because they provide hedging and price discovery for events and risks that traditional markets have largely overlooked, including wars, Federal Reserve (Fed) decisions, and local events. 

• Lopes raised how self-certification is particularly important for prediction markets because their value depends on bringing markets to users quickly as news develops.  She referenced how products falling between CFTC and SEC jurisdiction require continued coordination and that regulatory decisions should prioritize what is best and safest for the end consumer while supporting innovation. 

• Tenev discussed how customers value the ability to trade the outcomes of real-world events through prediction markets and that the CFTC is the appropriate regulator.  He noted how a federal framework provides sufficient surveillance and customer protection, suggesting that prediction markets could evolve beyond trading into a “truth engine.”  At the same time, he cautioned that certain prediction markets, particularly mention markets, may be especially susceptible to manipulation and warrant closer consideration from a customer protection perspective. 

• Tenev highlighted differences between direct-to-DCM and FCM-intermediated retail access, stating that inconsistent KYC requirements create unnecessary regulatory arbitrage.  He noted that some customers prefer direct DCM access because it requires less personal information, such as employer information, but maintained that retail customers should be subject to uniform KYC requirements regardless of whether they access markets directly through a DCM or through an FCM to ensure consistent customer protections. 

• Armstrong reaffirmed that federal law grants the CFTC exclusive jurisdiction over prediction markets, commending the CFTC for defending that authority and contrasting it with the 50-state regulatory framework for crypto.  He stated prediction markets provide a significant public good by improving price discovery and helping people better understand future events, describing them as complementary to traditional futures markets rather than substitutes.  He proposed evaluating novel contracts based on whether they create a specific public harm, have a direct causal link to that harm, and are sufficiently protected against manipulation. 

• Wilson stated that prediction markets are complementary to traditional derivatives, citing contracts on Brexit and Fed rate decisions as useful examples that provide simple hedging and informational value alongside existing products such as Fed funds futures.  He supported Armstrong’s proposed framework for evaluating novel contracts, with some contracts susceptible to manipulation and lacking sufficient public value to justify listing.  He emphasized that excluding such lower-value contracts would strengthen the market and allow more meaningful prediction markets to develop. 

• Robins (DraftKings) praised the CFTC’s constructive and collaborative approach to engaging with industry, contrasting it with prior regulatory experiences.  He agreed with Tenev that consumer protection requirements should be the same for customers accessing markets directly through a DCM and those accessing them through an FCM, arguing there is no meaningful distinction between the two models.  He emphasized that constructive, solutions-oriented dialogue is more productive for developing sound policy. 

• King (Fanatics) emphasized the importance of adopting a principles-based approach to consumer protection and responsible trading, arguing that the industry should establish minimum standards for all operators from the outset.  While noting that most customers use these products responsibly, he cautioned that a small portion may experience financial harm and argued that clear, proactive standards would both protect customers and help prevent the negative consequences and public backlash that could arise from inconsistent practices across the industry. 

• Farley (Bullish) emphasized that continued innovation in financial markets ultimately expands markets rather than creating a zero-sum outcome, citing past developments such as electronic trading and equity indices as examples of innovations that contributed to economic growth despite initial skepticism.  He encouraged the CFTC to maintain a pro-innovation approach while recognizing that some mistakes are inevitable as new products develop. 

• Farley also raised concerns about the use of VPNs to access U.S. markets from offshore platforms, arguing that firms can build substantial U.S. customer bases while claiming to operate exclusively overseas.  He urged the CFTC to address this issue, warning that failing to do so creates an uneven competitive environment and allows firms to establish significant U.S. participation before later seeking regulatory approval. 

• Coplan stated that prediction markets remain in an experimental phase, emphasizing that new markets and technologies inevitably require refinement rather than rejection.  He maintained that applying price formation and price discovery to important current events provides significant value, while acknowledging that certain contracts have exposed challenges that should be addressed through collaboration rather than by abandoning the broader market.  

• Coplan noted that Polymarket worked with the CFTC and law enforcement following manipulation concerns and has invested heavily in on-chain surveillance and proprietary surveillance software, voicing how the transparency of on-chain markets provides unprecedented visibility into trading activity and strengthens anomaly detection.  He concluded that innovation requires accountability and close cooperation between the public and private sectors, while emphasizing that the benefits of prediction markets outweigh the shortcomings that arise during the industry’s early development. 

• Genetski (FanDuel) emphasized that building consumer trust is the most important priority for the continued development of prediction markets, arguing that this requires clear rules of the road and a level playing field for all market participants.  He expressed support for the CFTC’s proposed rulemakings and public comment process as he encouraged continued engagement on issues including consumer protection, market integrity, and advertising to help strengthen confidence in the market. 

CLOSING REMARKS 

Michael Selig, Chairman, Commodity Futures Trading Commission 

Chairman Selig concluded by emphasizing that many of the challenges discussed are not new as he drew parallels to earlier debates over Reg AT, anti-gaming and anti-bucket shop laws, the fifty-state crypto framework, and ongoing disputes over state regulation of prediction markets.  He stated that these experiences demonstrate the importance of regulatory clarity, federal preemption, and protecting the CFTC’s jurisdiction, while noting the CFTC’s efforts to work with Congress to advance the CLARITY Act and strengthen those protections.  He emphasized the importance of defending the CFTC’s authority in court, continuing collaboration between the public and private sectors, and developing regulatory approaches that support innovation while getting the framework right.