A16z has endorsed the Commodity Futures Trading Commission (CFTC) amid a growing conflict among federal states over prediction markets, opposing state regulators who are trying to shut down platforms like Kalshi and Polymarket.
Heavy venture capital intricate letter dated Thursday in response to the CFTC’s earlier notice of proposed regulations on prediction markets. It argues that state-level crackdowns, ranging from cease-and-desist orders to criminal charges, create barriers that undermine the federal agency’s mandate to provide “impartial access to its markets and services.”
In recent weeks alone, the CFTC has filed lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, alleging that these states have overstepped the mark in trying to regulate markets under federal jurisdiction. A16z supported this position, arguing that forcing exchanges to block users based on their state of residence directly violates the CFTC’s Impartial Access Principles.
“Forcing the denial of unbiased access to users in states that seek to license or prohibit contracts for specific events will likely severely limit available liquidity,” the company wrote.
Related: The battle in the forecast market is getting closer to the Supreme Court
CFTC defines gaming: A16z
State attorneys general have countered that platforms offering contracts for sports and political events are conducting unlicensed gambling activities. A16z rejected this notion, arguing that the CFTC, not state legislatures, had the authority to define what constitutes “gaming” under federal commodities law, given the agency’s long-standing oversight of event contracts.
Beyond the jurisdictional battle, a16z also made a case for the social value of prediction markets, describing their pricing mechanisms as a distinct form of price discovery that reveals intelligence about uncertain outcomes. The company has also shown support for blockchain-based platforms, saying control of onchain transactions increases the effectiveness of regulatory oversight.
Kalshi and Polymarket trading volume. Source: Token terminal
The letter comes amid the growing popularity of these platforms. Monthly trading volume reached $25.7 billion in March, Cointelegraph reported, with more than 80% of users classified as retailers, or those trading for less than $10,000.
Related: Kalshi, Polymarket among 27 forecasting platforms banned in Brazil
Polymarket wants to return to the United States
Polymarket is in talks with the CFTC to lift a ban that has kept U.S. users off the main platform since a 2022 settlement in which the company paid a $1.4 million penalty and agreed to block U.S. customers over contracts for unregistered events.
A full return would require a formal committee vote, although the process could move more quickly given that four CFTC commissioner positions are currently vacant.
Warehouse: How to Fix Suspected Insider Trading on Polymarket and Kalshi
