Venture capital firm a16z has filed an 18-page letter backing the Commodity Futures Trading Commission in its disputes with states over prediction markets. The firm argues that federal law preempts state regulations on platforms like Kalshi and Polymarket. It claims state crackdowns undermine the CFTC's mandate for impartial market access.
A16z submitted the letter on Thursday in response to the CFTC’s advance notice of proposed rulemaking on prediction markets. The firm opposes state actions, including cease-and-desist letters and criminal charges, that target platforms such as Kalshi and Polymarket. “Being forced to deny impartial access to users in states that seek to license or prohibit certain event contracts will likely severely circumscribe available liquidity,” a16z wrote in the letter. It contends that these measures conflict with federal rules requiring impartial access to markets and services. The CFTC has recently filed lawsuits against Illinois, Arizona, Connecticut, New York, and Wisconsin, alleging the states overstepped into federal jurisdiction over event contracts. State attorneys general argue that contracts on sports and political events amount to unlicensed gambling. A16z counters that the CFTC, with decades of oversight, holds authority to define “gaming” under commodities law. Beyond jurisdiction, a16z highlights the value of prediction markets for price discovery and crowd intelligence. It supports blockchain-based platforms for their onchain auditability, aiding oversight. Platforms saw $25.7 billion in monthly trading volume in March, with over 80% from retail users trading less than $10,000. Separately, Polymarket is negotiating with the CFTC to lift its U.S. user ban from a 2022 $1.4 million settlement.
