A16z Backs CFTC in Fight Against State Prediction Market Bans

A16z has thrown its weight behind the Commodity Futures Trading Commission (CFTC) in a growing federal-state standoff over prediction markets, opposing state regulators that try to shut down platforms like Kalshi and Polymarket.

The venture capital heavyweight submitted the letter on Thursday in response to the CFTC’s advance notice of proposed rulemaking on prediction markets. It argues that state-level crackdowns, ranging from cease-and-desist letters to criminal charges, are creating barriers that undermine the federal agency’s mandate to provide “impartial access to its markets and services.”

In recent weeks alone, the CFTC has filed lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, claiming that those states overstepped by trying to regulate markets that fall under federal jurisdiction. A16z backed that position, arguing that forcing exchanges to block users based on their state of residence directly conflicts with the CFTC’s impartial access rules.

“Being forced to deny impartial access to users in states that seek to license or prohibit certain event contracts will likely severely circumscribe available liquidity,” the firm wrote.

Related: Prediction market battle gets closer to Supreme Court

CFTC gets to define gaming: A16z

State attorneys general have countered that platforms offering contracts on sports outcomes and political events are running unlicensed gambling operations. A16z pushed back on that framing, arguing that the CFTC, not state legislatures, holds the authority to define what constitutes “gaming” under federal commodities law, given the agency’s decades of oversight over event contracts.

Beyond the jurisdictional fight, a16z also made a case for the social value of prediction markets, describing their pricing mechanisms as a distinct form of price discovery that surfaces crowd intelligence on uncertain outcomes. The firm also showed support for blockchain-based platforms, claiming that the onchain auditability of transactions makes regulatory oversight more effective.

Kalshi and Polymarket trading volume. Source: Token Terminal

The letter arrives amid the growing popularity of these platforms. As Cointelegraph reported, monthly trading volume reached $25.7 billion in March, with more than 80% of users classified as retail, defined as those trading less than $10,000.

Related: Kalshi, Polymarket among 27 prediction platforms banned in Brazil

Polymarket wants back into the US

Polymarket is in talks with the CFTC to lift the ban that has kept American users off its main platform since a 2022 settlement, in which the company paid a $1.4 million penalty and agreed to block US customers over unregistered event contracts.

A full return would require a formal commission vote, though the process may move faster given that four of the CFTC’s commissioner seats are currently vacant.

Magazine: How to fix suspected insider trading on Polymarket and Kalshi

Cointelegraph is committed to independent, transparent journalism. This news article is produced in accordance with Cointelegraph’s Editorial Policy and aims to provide accurate and timely information. Readers are encouraged to verify information independently.