Prediction markets have quietly grown into a serious financial force — and the debate over who gets to regulate them is now coming to a head. Trading volume across major venues topped $50 billion in June, a dramatic expansion that has pulled in major exchanges and Wall Street trading firms and made the question of oversight impossible to ignore. Now, with the CFTC prediction markets framework entering its public comment phase, the industry is starting to coalesce around a clear answer: one federal regulator, one rulebook.
Summary
Key takeaways
- Prediction market trading volume exceeded $50 billion in June, drawing major financial institutions into the space.
- The CFTC issued a proposed framework clarifying its authority to review and block event contracts that involve activities contrary to the public interest.
- HPC and Multicoin Capital filed a joint comment letter supporting the CFTC’s proposal and recommending two targeted refinements.
- Several U.S. states are attempting to classify prediction markets as gambling and regulate them under state law, creating legal fragmentation.
- Hyperliquid’s onchain prediction markets launched in May and have already reached an all-time high in open interest.
A market that earned its rulebook
The idea that markets aggregate dispersed knowledge better than any single expert is one economists have debated for decades. Friedrich Hayek made it famous: prices, he argued, carry information that no central authority could fully collect or process. Prediction markets are that principle in action — participants buying and selling contracts tied to real-world outcomes, from Federal Reserve rate decisions to election results, producing prices that function as live forecasts.
For much of their history, these markets operated in a regulatory gray zone. That is changing fast. The scale they have reached — $50 billion in monthly trading volume as of June — has made ambiguity untenable. The financial industry noticed too, with established exchanges and trading firms moving into the space. The CFTC, as the federal regulator of derivatives markets, has responded by drafting a formal framework that would write the rules these markets now need.
According to CoinDesk, the CFTC has also been actively warning prediction market firms against submitting broad, template-style contract certifications. The regulator noted that firms continue to self-certify large batches of event contracts without providing specific terms, conditions, or compliance analysis for each one — an approach the agency said undermines its ability to properly evaluate submissions. It is the second such warning in recent months, suggesting the rapid growth of the sector is outpacing the compliance culture of some participants.
What the CFTC’s proposed framework actually does
The core question the proposal addresses is deceptively simple: when can the CFTC block an event contract from trading? Under existing statute, the Commission can review a contract that “involves” certain listed activities — war, gaming, and similar categories — and block it if it finds the contract contrary to the public interest. The problem has been that the word “involves” was never precisely defined, leaving room for both overreach and ambiguity.
A settlement-based reading of “involve”
The CFTC’s proposal settles that question by adopting what HPC and Multicoin Capital call a settlement-based interpretation: the Commission would look at what a contract actually pays out on, rather than any passing connection to a listed activity. A federal court in Washington, D.C. had already read the statute the same way. Writing that interpretation into formal rule text matters because it makes the standard durable across administrations — it cannot be quietly reread by a future Commission without going through the rulemaking process again.
That kind of procedural stability is exactly what builders in early-stage markets need. When the rules can shift based on who is running the agency, investment decisions become guesswork. Codifying the settlement-based reading removes that uncertainty at its root.
HPC and Multicoin Capital’s joint push for federal clarity
HPC and Multicoin Capital filed a joint comment letter in support of the CFTC’s proposal, making three main arguments. First, written standards that do not change with each administration give builders the confidence to invest. Second, prediction markets should answer to a single federal regulator — not fifty different state gambling commissions. Third, the Commission should publish its reasoning every time a contract review concludes, not just when it decides to block a contract.
Why the federal-versus-state fight matters
The federal regulation argument is not just procedural. Several states are actively pursuing prediction market platforms under their own gambling laws and challenging them in court. The structural distinction HPC and Multicoin draw is important here: a traditional sports bet is a wager against the house, where the bookmaker sets the odds and profits from losses. An exchange-traded event contract is a transaction between two willing participants at a market price, with the venue earning a fee regardless of the outcome. Congress recognized that structural difference when it assigned oversight of these instruments to the CFTC in 2010.
Forcing a national market to comply with fifty separate state gambling regimes would do the opposite of what the federal framework was designed to achieve. Each state’s definition of gambling, its licensing requirements, and its enforcement posture differ. A contract that is legal in one state might be prosecutable in another — a situation that is unworkable for platforms operating at national scale. HPC and Multicoin’s advocacy for exclusive CFTC jurisdiction is, at its core, an argument for the kind of uniform market structure that allows liquidity to concentrate and prices to become informative.
Publishing reasoning on both sides of the decision
The second refinement the two firms recommend addresses transparency. Under the current proposal, the CFTC would explain its reasoning when it decides to block a contract — but not when it decides to allow one. HPC and Multicoin argue that a decision to allow a contract is just as instructive as a decision to block one. The analysis is already complete by the time the review ends, and publishing it costs nothing. Every public decision becomes guidance the whole market can build on, reducing the need for builders to guess at where lines are drawn.
Onchain prediction markets and Hyperliquid’s role
Hyperliquid already supports outcome-based contracts — the foundational building blocks for onchain prediction markets. Those markets launched in May and have grown quickly, with open interest recently hitting an all-time high. Every position is fully collateralized and settled onchain, which means the credit risk profile differs substantially from traditional exchange-traded products.
The timing matters. Hyperliquid’s onchain infrastructure is expanding precisely as the regulatory framework is being written. Technology-neutral federal rules — rules that do not privilege one technical architecture over another — would allow onchain markets to compete on their merits rather than navigate a patchwork of state-by-state interpretations. The principles HPC and Multicoin champion in their comment letter — standards written in advance, reasoning published for all — apply equally to onchain derivatives like perpetual futures as they do to event contracts.
The CFTC’s proposal is still in its public comment period and subject to revision. But the alignment between a major onchain derivatives platform and a prominent crypto venture firm around a clear federal framework signals something broader: the prediction markets industry is moving past the phase where ambiguity was tolerable. Whether the Commission adopts the settlement-based reading as written, and whether it extends transparency requirements to both allowed and blocked decisions, will determine how much of the $50 billion monthly market develops under U.S. rules — and how much migrates elsewhere.
FAQ
What is the CFTC’s role in regulating prediction markets?
The CFTC is the federal derivatives regulator proposing a formal framework to oversee prediction markets. Its proposed rules include the authority to review and block event contracts that involve certain listed activities — such as war or gaming — when the Commission finds them contrary to the public interest.
Why do HPC and Multicoin Capital support the CFTC’s proposed framework?
They argue that clear, written federal rules give market builders the confidence to invest, and that a single federal regulator prevents the fragmentation that would result from fifty different state gambling regimes each applying their own standards to nationally operating platforms.
How does the proposal interpret the term “involve” in contract review?
The proposal adopts a settlement-based interpretation, meaning the CFTC looks at what a contract actually pays out on — not any incidental connection to a listed activity. A federal court in Washington, D.C. had previously read the statute the same way, and writing that interpretation into rule text makes it stable across future administrations.
What is the significance of publishing reasoning for contract review decisions?
Publishing the reasoning behind both allowed and blocked decisions promotes transparency and gives market participants clearer guidance for product development. Each published decision effectively becomes precedent that the entire industry can use to design compliant products without guessing at regulatory intent.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.
