The CFTC and the birth of an asset class

It's tempting to treat the prediction market as a machine: a price is a probability, liquidity is the product, an oracle decides what's true. All of that is mechanism — the contract at the center is just a derivative, not a wager¹ — and the mechanism worked for decades before anyone could legally run it at scale in the United States. What was missing wasn't math. It was a regulator willing to say what these things are.

For most of its history, an event contract sat in a legal grey zone. Was it a derivative, supervised like a futures contract? Was it gambling, the province of state law and the casinos? Was it nothing at all — an unregulated wager a court might void? Nobody could answer cleanly, and the ambiguity was fatal. You cannot build serious financial infrastructure on top of a question mark.

So this is a piece about the answer, and it has three acts. The birth: how a grey-zone product became, by administrative fiat, a licensed asset class. The reversal: how the same regulator that opened the door then tried to slam it — moving to ban these contracts as "gaming," losing in court, and emerging, improbably, as the industry's chief protector. And the template: the realization that an asset class is never quite invented. It is recognized — and the sequence by which a regulator comes to recognize one is a play any other country can run next.

The grey-zone era

Two stories define the years before the line was drawn, and they point in opposite directions.

The first is Intrade, the Dublin-based exchange that, through the 2000s, became the place to trade on US elections and political events. Americans loved it; political scientists cited its prices; it looked, for a while, like the future. Then in late 2012 the U.S. Commodity Futures Trading Commission — the federal regulator for derivatives — sued, alleging Intrade had offered off-exchange commodity options to U.S. customers in violation of the rules. Intrade barred American users almost immediately and wound down soon after.² The lesson the market took away was blunt: run an event exchange for Americans without a license, and the CFTC will end you.

The second is the Iowa Electronic Markets, run by the University of Iowa's business school since 1988. The IEM traded real money on elections and economic indicators and produced forecasts that routinely beat the polls — and it survived not because it was licensed, but because regulators agreed to leave it alone. It operated under a pair of no-action letters: a posture in which the CFTC says, in effect, we will not pursue enforcement, provided the operator stays inside narrow limits — small stakes, an academic-research purpose, no advertising.³ A no-action letter is not a license. It is forbearance. It kept a single university experiment alive; it could never underwrite an industry.

Put those side by side and you have the whole problem. The one venue Americans actually used got shut down. The one that survived did so on an exemption so narrow it could only ever be a research project. There was no path in between — no way to be both real and legal at scale. The asset class did not exist, because no regulator had agreed it should.

The line, drawn in 2020

The turn was administrative, not technological. Over the years the CFTC built out a framework for what it calls event contracts — binary contracts that settle on a yes/no outcome — and treated them as a category of derivative within its jurisdiction under the Commodity Exchange Act. By 2020 the through-line was clear: an event contract is a regulated financial instrument, and a venue that wants to list one to the public can apply to do so as a federally supervised exchange.⁴

That is the moment a grey-zone product became an asset class. Not because the contracts changed — a binary on an election is the same object it was on Intrade — but because a regulator finally answered the question. These are derivatives. Here is the door. Walk through it and you are legitimate; walk around it and you are Intrade.

One company walked through. Kalshi obtained registration as a Designated Contract Market — a DCM, the same category of license a futures exchange like CME holds — and became the first federally regulated venue built specifically for event contracts.⁵ The significance is not the company; it is the category. For the first time, an American could trade an event contract on a venue operating inside the rules rather than around them.

What "regulated" actually buys

"Regulated" is a word people skim past, so it's worth saying what it concretely changes. A license is not a stamp; it is a set of obligations, and the obligations are the point.

A federally regulated exchange has to segregate customer funds — your money is held apart from the company's, so a venue's failure is not automatically your loss. It has to run market surveillance — watching for manipulation and reporting it, the same machinery a securities exchange runs. It owes consumer protections — disclosures, dispute processes, eligibility rules — that an offshore site simply does not. And, less obviously but most consequentially, it becomes a venue that institutions are allowed to touch. A pension fund or a bank cannot route flow to an unlicensed wager in Dublin; it can interact with a CFTC-registered exchange. Legitimacy is not a vibe. It is the precondition for the largest pools of capital to show up at all.

So the door was open. What nobody watching in 2020 could have guessed is that the same regulator would, within a few years, try to nail it shut — and that the attempt would teach the deepest lesson in this whole story.

The ban that lost

The hostility was sharpest over the contracts the public cares about most: elections. Letting people trade on who wins an election is exactly the use case that makes a regulator nervous — it looks like political gambling, it raises questions about integrity, and it sat unresolved for years. In 2023 Kalshi self-certified contracts on which party would control Congress. The CFTC opened a review and then, in September 2023, issued an order of disapproval: the contracts, it held, involved "gaming" and activity unlawful under state law, and were therefore contrary to the public interest.⁶ The following May, the agency went further, proposing a rule that would have defined "gaming" broadly enough to ban political, sports, and awards contracts wholesale across the entire market. The vote was divided; two commissioners dissented.⁷ This was a regulator trying, deliberately, to wall the category back off — barely three years after opening it.

It lost. Kalshi sued, and in September 2024 a federal court vacated the disapproval, holding that an election is not a "game" in any ordinary sense of the word. The D.C. Circuit declined to freeze that ruling, the contracts went live and traded straight through the November 2024 election, and in May 2025 the CFTC quietly dropped its appeal.⁸ The ban didn't just stall — it was beaten in court, then abandoned. That defeat is the hinge everything after it turns on.

And while the lawyers fought, the market ran — which is the part that still surprises people. Monthly trading volume across the leading venues went from under 100 million dollars in early 2024 to more than 13 billion by the end of 2025. The institutions arrived to match: in October 2025 the Intercontinental Exchange — the owner of the New York Stock Exchange — committed up to 2 billion dollars to Polymarket, structured around distributing its event data, not placing bets. By December, CNN and CNBC were reading market-implied odds on air next to the polls.⁹ And in March 2026, Kalshi raised 1 billion dollars at a 22 billion dollar valuation, a round led by Coatue.¹⁰ A grey-zone curiosity became, in roughly five years, something Wall Street pays for and cable news quotes.

Be honest about what most of that volume is, though. Since sports contracts launched in mid-2024, sports have made up roughly 80% of the trading on the largest regulated venue.¹¹ The license did not turn the category into pure forecasting infrastructure overnight; a lot of the flow is people who want action on a game. What the license did do is make the venue real enough that the forecasting and data layer — the part ICE actually bought — could be built on regulated rails rather than offshore ones. The mechanism was always sound. Legitimacy is what let the serious money treat it that way.

The turn

A court defeat forces a regulator to stop; it does not force it to embrace. The embrace came from two things changing at once: who held the gavel, and what the agency wanted. The acting chair through 2025, Caroline Pham, had already begun thawing the posture — running a "crypto sprint" and convening a council of exchange and crypto chief executives to talk through market structure.¹² Then in December 2025 the Senate confirmed Michael Selig as the 16th CFTC chairman. Selig came directly from running the crypto task force at the SEC, and he arrived talking about a "Golden Age of American Financial Markets" and a doctrine of regulating with "the minimum effective dose."¹² Within weeks, in February 2026, the agency formally withdrew the 2024 proposal to ban event contracts, along with a 2025 staff advisory that had warned firms off sports markets.¹³ The wall the previous regime tried to build was taken back down by the next one.

It's worth being precise about what "embrace" means here, because it isn't a single dramatic act. It's the accumulation of small official gestures, each of which reads, in hindsight, as the regulator deciding the category is its own.

An asset class, in writing

The clearest of those gestures came in March 2026. The CFTC's Division of Market Oversight issued a staff advisory to every licensed exchange, and its first sentence is the one to dwell on: prediction markets, on which event-contract derivatives trade, are "rapidly increasing in popularity with the American public both as a financial asset class and as a proven source of reliable information for news media, sports leagues, financial institutions, and everyday Americans."¹⁴ That is the federal government, in writing, filing prediction markets under the same conceptual heading as stocks, bonds, and commodities — the same agency that, thirty months earlier, had called the very same instrument unlawful "gaming."

Hold the significance and the caveat together, because both matter. The caveat: this is a staff advisory — the views of one division, which explicitly says it creates no rights and isn't the position of the full Commission.¹⁴ Nobody passed a law declaring a new asset class; that's not how it works. The significance: words like these, from this office, are exactly the soft infrastructure on which an asset class is built. The same month, the agency opened a formal request for comment on how it should regulate prediction markets at all¹⁴ — the procedural opposite of trying to ban them. The question had shifted from whether these markets may exist to how the federal government will house them.

September 2023 · the verdict

"…involves gaming and is contrary to the public interest."

The order disapproving Kalshi's election contracts.

March 2026 · the verdict

"…a financial asset class and a proven source of reliable information."

The staff advisory's opening line.

Who's in the room

If you want to know whether a regulator has truly adopted a category, don't read its press releases — read its invitation list. In January 2026 Chairman Selig relaunched the agency's main advisory body as the Innovation Advisory Committee, and the following month named its members.¹⁵ The roster is the tell. Sitting on a federal advisory committee are the chief executives of the exact firms the agency had spent the prior two years fighting or eyeing warily — Kalshi and Polymarket among them, alongside Crypto.com, Coinbase, Robinhood, DraftKings, and FanDuel, with the heads of CME, ICE, Nasdaq, Cboe, and the major crypto venues filling out the table.

Prediction-market firms now seated on the CFTC Innovation Advisory Committee

Kalshi

Tarek Mansour, CEO

Polymarket

Shayne Coplan, CEO

Crypto.com

Kris Marszalek, CEO

Coinbase

Brian Armstrong, CEO

Robinhood

Vlad Tenev, CEO

DraftKings

Jason Robins, CEO

FanDuel

Christian Genetski, Pres.

+ CME · ICE

Nasdaq · Cboe · crypto

Kalshi is the cleanest irony: the firm whose contracts the CFTC moved to disapprove in 2023 now has its founder advising the CFTC in 2026. The committee's formal charter is broad — innovation, digital assets, AI — and doesn't single out prediction markets by name; the agency parked the prediction-markets work in a separate internal task force, where "prediction markets and event contracts" is one of three explicit workstreams.¹⁵ But the direction is unmistakable. The people the regulator once tried to shut out are now the people it asks for advice. That is what adoption looks like from the inside.

The reversal is the template

Step back from the American specifics and the larger pattern is what matters for everyone else. An asset class is a regulatory decision wearing the costume of a financial instrument. The instrument is necessary but never sufficient: event contracts existed, fully built, on Intrade and the Iowa markets, and again on Kalshi while the CFTC was trying to ban them. What turned them into an asset class was a sequence any regulator can run — stop fighting it, name it in writing, bring its builders to the table, defend its turf, and write its rulebook. The United States ran that sequence in public, twice over: it opened the door in 2020, slammed it, and then re-opened it wider, all inside half a decade.

Two things follow, and they cut in opposite directions. The hopeful one: every other country now has that sequence sitting on the shelf, and each will face the same first decision the CFTC faced — which regulator owns this instrument? Route it to a gambling authority and you get the 2023 verdict, a bet to be banned. Route it to the body that already owns derivatives and you get the 2026 verdict, an asset class to be supervised. The same shape repeats wherever the question is asked: legitimacy first, then the venues and the institutions follow.

The sobering one is that none of this transfers cleanly. A license is granted per jurisdiction and does not carry across borders — a CFTC registration buys you nothing in Tokyo or São Paulo; each market is its own regulator, its own rulebook, its own fight. The rules themselves are still evolving even at home; what is permitted today, like election contracts, was contested yesterday and could be re-litigated tomorrow — the whole reversal above is the proof. And the very thing that makes a license valuable makes it double-edged: it is a moat and a constraint. The same obligations that keep competitors out — surveillance, segregation, eligibility — are obligations you carry, forever, in every market you enter.

This is the unmade decision Seeker's work lives in. We're not claiming a licensed exchange is live anywhere we operate — it isn't, and the license is the goal, not a fact. We'd argue the same fork points, in Vietnam, at one door — the commodity-exchange regime — and that the listing machinery a licensed venue would run there is the same machinery Kalshi runs in the United States. What we believe is narrower and, after watching the American reversal, harder to argue with: this category becomes legitimate the moment the right regulator decides to own it; that decision tends to arrive as a reversal rather than a clean start; and the venue standing ready — compliant, cleared, surveilled — when a country's regulator finally makes the turn is the one that inherits the market. The U.S. just showed the whole world how an asset class is made. The open question is who runs the play next, and where.