At the CFTC inaugural Innovation Advisory Committee meeting, Wall Street veterans and upstarts from prediction markets agreed Washington needs clearer rules. They were rather less united on whether some of the products currently being invented should exist at all.
The Commodity Futures Trading Commission (CFTC) convened some of the biggest names in crypto, derivatives and prediction markets on Thursday to discuss the future of American finance. For roughly three hours, the future was blockchain, artificial intelligence, federal pre-emption and regulatory clarity.
Then Terry Duffy got the microphone.
The chairman and chief executive of CME Group had listened through discussions of crypto, tokenization and AI before arriving at prediction markets — the final 50-minute session on the CFTC’s official agenda, which specifically called for debate over jurisdiction, manipulation, product design and consumer protection.
“I’m a little concerned about this and I’m a lot concerned about it,” Duffy said.
His complaint was that innovation is all very exciting until somebody discovers that the easiest way to predict an event is to cause it.
Duffy said roughly 2,500 contracts had been self-certified since January 2025 without one being opposed, and argued that some products were plainly susceptible to manipulation. He cited sports contracts, a market involving Venezuelan leader Nicolas Maduro and a market tied to what President Donald Trump might say — the latter becoming controversial after Duffy said a teleprompter operator had been involved.
“That is not good for our industry,” Duffy said. “That is horrible for our industry. We’re not a bunch of carnival barkers at a circus.”
CFTC Chairman Michael Selig promptly objected to the examples. The Maduro and teleprompter contracts, he said, had not been listed in the United States.
“They never were,” Selig said. “This occurred offshore and that’s fake news.”
“Fake news,” Duffy replied. “Okay, that’s a cute comment, too.”
And with that, the Innovation Advisory Committee had achieved innovation in perhaps its purest form: a federal financial-regulation meeting people might voluntarily watch.
Duffy conceded the two contracts had traded offshore, while continuing to argue that their manipulability illustrated the broader danger. Then, lest anyone think the discussion had become insufficiently surreal, he introduced another matter of national economic significance.
“There’s another really economic contract that has been massively important for the United States,” Duffy said. “That’s a Nathan’s hot dog eating contest.”
Welcome to the new frontier of finance.
CFTC innovation push puts Congress on notice
The meeting was the inaugural gathering of the CFTC’s Innovation Advisory Committee, held Thursday (August 20) in Washington. The official agenda allotted 50 minutes to crypto regulation, 35 minutes to artificial intelligence and 50 minutes to prediction markets.
The committee itself is unusually heavy on people whose companies have a direct commercial interest in how those rules are written: Coinbase’s Brian Armstrong, CME’s Duffy, Robinhood’s Vlad Tenev, Polymarket’s Shayne Coplan, Kalshi’s Tarek Mansour, Gemini’s Tyler Winklevoss, DraftKings’ Jason Robins, FanDuel’s Christian Genetski and executives from Nasdaq, Cboe, Kraken, Ripple and other financial and crypto businesses.
Selig did not exactly open proceedings with the traditional regulatory message of we will carefully consider all relevant factors.
Instead, he declared that America had “crossed the Rubicon” into a new financial era. Blockchain, AI and prediction markets would transform finance, he said; the only questions were where that transformation would happen and “who will write the rules.”
On crypto, Selig made the choice unusually explicit.
He urged Congress to pass the CLARITY market-structure legislation, describing it as the best protection against another regulator conducting what he called a “rogue campaign of lawfare.” But if the bill stalls, he said, the CFTC will not sit around waiting for Capitol Hill.
“If CLARITY continues to stall because of Democratic obstruction, the CFTC will utilize its existing authorities to begin establishing a regime for crypto asset markets,” Selig said.
He said staff had already been directed to explore rules that could create a CFTC-regulated category of crypto-asset market and to work with onchain developers on compliant ways to operate in the United States.
In other words Congress may write the rules. The CFTC is preparing a pen just in case.
This was enthusiastically received by Armstrong, who described the previous regulatory environment as “a disgrace for America.” He recounted meetings in which Coinbase sought guidance from regulators, was told officials would not provide legal advice, and then found enforcement personnel taking notes. Coinbase would later receive a Wells notice, he said.
Armstrong joked that “nobody has done more for the economic development of the UAE and the Bahamas than Gary Gensler,” arguing that regulatory uncertainty pushed roughly 80% of crypto trading offshore.
The atmosphere, in other words, was not especially nostalgic for the previous SEC chairman.
Prediction markets meet their oldest problem: humans
If crypto produced the meeting’s broadest political message, prediction markets produced its sharpest philosophical argument.
Selig’s position is that federally regulated event contracts belong principally under the CFTC. In his prepared remarks, he accused states seeking to apply gambling laws to federally regulated derivatives exchanges of suffering from “Name Fixation Syndrome” — the mistaken idea that because something is called a sports future, sports regulators must regulate it.
The CFTC, he assured attendees, is “not afflicted with NFS.”
Brian Armstrong was happy to write the agency a clean bill of jurisdictional health.
“The federal law is unambiguous here,” he said. “The CFTC has exclusive jurisdiction.”
Armstrong went considerably further, arguing that prediction markets provide a public good by helping people determine “what’s true in the world” and are becoming an alternative to traditional and social media, whose information can reflect the biases of whoever is doing the talking.
There is, however, an awkward engineering problem with markets designed to predict reality: occasionally a trader can reach over and give reality a shove.
Robinhood CEO Vlad Tenev singled out “mention markets,” where traders wager on whether somebody will utter a particular word or phrase. They are “very fun,” Tenev conceded, but certain versions are “very prone to manipulation.” He described people at public appearances yelling at speakers to say particular words — leaving open the possibility that the enthusiastic audience member requesting a phrase may not merely be a devoted student of rhetoric.
Tenev’s verdict was characteristically Silicon Valley: the product is entertaining, possibly manipulable and therefore something “to look at a little bit more carefully.”
Then the generational argument began
Duffy’s criticism quickly turned into the meeting’s most memorable exchange when Luana Lopes Lara, co-founder of Kalshi, challenged the CME boss.
She asked whether CME had ever experienced market manipulation.
Duffy did not reach for the yes-or-no button.
“I have more people in my regulatory department than you do in your entire company,” he replied.
“Maybe you should learn a bit about efficiency then,” Lara shot back.
“Maybe you should learn about credible markets,” Duffy replied.
At which point the moderator performed the ancient Washington ritual of saying, “Let’s try to keep this productive.”
The exchange neatly captured the fault line running through the meeting.
The new prediction-market firms see old financial and gambling regulation as fragmented, slow and sometimes ill-suited to products that can be launched rapidly. The old exchange establishment sees a generation of companies discovering, with considerable enthusiasm, why market-integrity rules were invented in the first place.
Lara argued that every market has risks and that the purpose of regulation is to detect and address them rather than use their existence as an argument against innovation.
Duffy’s warning was essentially the inverse: one spectacularly bad product can set an industry back years. “When the financial industry takes bad behavior, it doesn’t take a step backwards,” he said. “It takes 20.”
Tom Farley, CEO of Bullish, later thanked Duffy and Lara for “spicing it up after three hours.”
“I’m wide awake,” he said.
The George Santos test
DRW founder Don Wilson offered perhaps the cleanest illustration of where even innovation-friendly market participants might draw the line.
He pointed to a Kalshi contract on whether former Congressman George Santos would attend the State of the Union. The CFTC and Kalshi ultimately dealt with the episode, Wilson noted, but he questioned why such a contract had existed in the first place.
The event was not particularly economically important, he argued, and its outcome was readily controllable by essentially one person.
It “never should have been listed in the first place,” Wilson said.
His preferred solution was not to strangle prediction markets but to cut out their bottom tier: reject products that fail basic standards so that contracts with genuine informational or hedging value — he cited Brexit and Federal Reserve decisions — can flourish.
That is arguably the central unresolved issue facing the CFTC. The interesting policy fight appears to be what separates a useful event derivative from a wager whose primary economic function is giving somebody a financial incentive to make something weird happen.
Armstrong proposed a presumption in favor of listing novel contracts unless regulators can identify a specific public harm, with further tests around causation and manipulability.
The CFTC itself acknowledges the problem. Selig said all event contracts must comply with core principles and not be readily susceptible to manipulation, while certain categories — including war, terrorism, assassination, gaming and illegal activity — carry additional public-interest considerations. The agency is preparing rules on product governance, market design and consumer protection.
Which leaves regulators contemplating questions that would once have sounded like jokes in a futures-law seminar: How much manipulability is too much manipulability? Is a hot-dog contest a legitimate event contract? Is betting on a politician’s vocabulary price discovery, entertainment or an invitation to shout helpful nouns from the audience?
Federal protection, but protection from whom?
The meeting also exposed a second contradiction.
Prediction-market companies want the CFTC to fend off state gambling regulators, arguing that federal regulation is both legally proper and better for consumers.
Rutgers professor Harry Crane delivered one of the day’s sharper attacks on state-regulated sports betting, accusing sportsbooks of “exploiting losers” and “banning winners.” He argued that state systems do not necessarily treat consumer protection as financial regulators would and said a federal principles-based regime could better protect both market participants and the public.
Lara likewise argued that Americans prefer regulated, onshore prediction markets and that state efforts to regulate federally supervised exchanges threaten a framework whose exclusive federal jurisdiction has long been central to derivatives regulation.
Selig is firmly on that side of the jurisdictional fight. His prepared remarks say the CFTC will defend its authority in court while simultaneously tightening the federal rules, including new consumer-protection requirements for retail event contracts.
“Federal pre-emption” sounds considerably more attractive if what is doing the pre-empting is a serious market regulator rather than merely a faster route to listing whatever somebody dreamed up before lunch.
By the end, even FanDuel — hardly an innocent bystander in the debate over where prediction markets end and sports wagering begins — was stressing “consumer trust,” clear rules, advertising standards and market integrity.
And committee chairman Walt Lukken supplied what may be the one sentence on which everybody could agree: nobody wants contracts that can be manipulated.
That sounds obvious.
After three hours of debate, it also sounded suspiciously like the easy part.
The frontier now needs fences
The CFTC said it created its Innovation Advisory Committee to help the regulator keep pace with technologies reshaping financial markets. Its membership reads like somebody seated the traditional exchange establishment beside crypto’s most aggressive builders and then deliberately removed the small-talk portion of dinner.
The result was revealing.
There was general agreement that the United States needs clearer crypto rules, broad enthusiasm for bringing financial innovation onshore, and considerable support for the CFTC asserting federal authority over prediction markets.
But beneath that consensus lies the harder fight.
The CFTC wants to accelerate. The industry wants permission to build. States are fighting to retain authority. Traditional exchanges want equal treatment. Prediction-market firms want room to experiment. And virtually everyone wants consumer protection — although they occasionally appear to have different consumers in mind.
Selig already began the meeting saying America had “crossed the Rubicon.”
By the prediction-market session, the industry had indeed reached the other bank.
There it found Duffy, waiting with 2,500 self-certifications, a hot-dog contest and several questions about what exactly everyone thought they were building.
Featured image: Mike Selig via X
The post CFTC’s Innovation Summit had everything: crypto lawfare, ‘fake news,’ hot dogs and a prediction market cage match appeared first on ReadWrite.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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