A16z has supported the Commodity Futures Trading Commission (CFTC) in a growing standoff between federal states and prediction markets, opposing state regulators trying to shut down platforms like Kalshi and Polymarket.
The venture capital heavyweight filed the letter Thursday in response to the CFTC’s prior notice of proposed regulation on prediction markets. State-level crackdowns, ranging from cease-and-desist letters to criminal charges, are creating barriers that undermine the federal agency’s mandate to provide “unbiased access to its markets and services.”
In just the last few weeks, the CFTC has filed lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, alleging that those states overstepped their bounds in attempting to regulate markets that fall under federal jurisdiction. A16z supported that position, arguing that forcing exchanges to block users based on their residency status directly conflicts with the CFTC’s fair access rules.
“Being forced to deny fair access to users in states seeking to license or ban certain event contracts will likely severely limit available liquidity,” the firm wrote.
Related: Prediction market battle nears Supreme Court
CFTC defines games: A16z
State attorneys general have responded that platforms that offer contracts on sports scores and political events are running unlicensed gambling operations. A16z rejected that framework, arguing that the CFTC, not state legislatures, has the authority to define what constitutes “gambling” under federal commodity law, given the agency’s decades of oversight over event contracts.
Beyond the jurisdictional fight, a16z also defended the social value of prediction markets, describing their pricing mechanisms as a distinct form of price discovery that brings to light collective intelligence about uncertain outcomes. The firm also showed its support for blockchain-based platforms, stating that the auditability of on-chain transactions makes regulatory oversight more effective.
Trading volume of Kalshi and Polymarket. Fountain: Token terminal
The letter comes 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 and Polymarket among the 27 prediction platforms banned in Brazil
Polymarket wants to return to the US
Polymarket is in talks with the CFTC to lift the ban that has kept US users off its main platform since a 2022 settlement, in which the company paid a $1.4 million fine and agreed to block US customers for unregistered event contracts.
A full return would require a formal commission vote, although the process may move faster given that four of the CFTC commissioner positions are currently vacant.
Magazine: How to resolve suspected insider trading at Polymarket and Kalshi
