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▲ Prediction Market, US Commodity Futures Trading Commission (CFTC)/AI Generated Image
The U.S. Commodity Futures Trading Commission (CFTC) has initiated direct legal action, asserting exclusive federal court jurisdiction against Wisconsin's crackdown on prediction markets.
According to cryptocurrency media outlet Cointelegraph on April 28 (local time), the CFTC filed a lawsuit against Wisconsin to block the state's attempt to shut down federally regulated prediction market platforms such as Kalshi and Polymarket. CFTC Chairman Michael Selig made it clear that state governments cannot circumvent clear congressional directives. He emphasized, "The message to Wisconsin is the same as to other states like New York or Arizona," adding, "If you interfere with the operation of federal law regulating financial markets, we will sue."
This conflict began when Wisconsin Attorney General Josh Kaul filed a civil lawsuit on April 23 against Kalshi, Polymarket, Coinbase, and Robinhood, among others. Attorney General Kaul argued that contracts related to sports outcomes offered by these platforms constitute illegal sports gambling under Wisconsin state law. He demanded that these companies cease operations, asserting that thinly disguising illegal activities does not make them legal. However, the CFTC maintains a contrasting view, stating that the state government is infringing upon the exclusive authority designed by the federal government.
In a 29-page complaint filed with the court, the CFTC pointed out that Wisconsin misunderstands the difference between betting and swaps. Alexandra McTague, an attorney with the Department of Justice's Civil Division, criticized Wisconsin's attempt as an infringement on the national swap market oversight system designed by the U.S. Congress. Event contracts are classified as swaps under federal law, specifically the Commodity Exchange Act, and do not fall into the category of gambling as defined by Wisconsin, according to the analysis. The CFTC added that individual actions by state governments lead to regulatory fragmentation, making federal enforcement difficult.
Prediction markets began gaining popularity by accurately predicting the results of the 2024 U.S. presidential election more precisely than opinion polls. Currently, major cryptocurrency-related companies such as Crypto.com have also entered this market, which has grown into a huge industry generating over $1 billion in annual revenue. In addition to Wisconsin, several states, including New York and Arizona, have launched crackdowns citing consumer protection. However, a recent ruling by an Arizona court and the Third Circuit Court of Appeals sided with the CFTC, blocking state government intervention.
The outcome of this lawsuit is expected to have a decisive impact on the regulatory environment for platforms utilizing blockchain technology and decentralized market structures. The CFTC has requested clarification that state gambling laws do not apply to transactions executed in federally regulated markets. The possibility of the jurisdictional dispute between the federal and state governments reaching the Supreme Court has also been raised. Prediction market platforms are preparing for legal battles, maintaining their stance that they comply with federal regulations and provide a safe trading environment.
*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*
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