Commodity Futures Trading Commission Chairman Michael Selig is warning that a failure to establish clear regulatory frameworks around prediction markets could trigger a collapse similar to that of FTX. Speaking in an interview with Dastan President and Co-Founder Farokh Sarmad, Selig argued that regulatory inaction harms builders, innovators, and everyday Americans seeking access to these products. He expressed concern that without proper oversight, prediction market activity will migrate offshore into unregulated territory, creating the same conditions that led to high-profile crypto firm failures.
Selig stated that exchanges must register in the United States and operate under rules that ensure fair markets, investor protections, and meaningful guardrails. The CFTC asserts complete jurisdiction over prediction markets and derivatives contracts and is positioning itself as the primary federal authority in this space. The agency’s goal, according to Selig, is to prevent a repeat of the implosions seen across the crypto industry in recent years.
Prediction markets such as Kalshi and Polymarket have grown dramatically over the past year, expanding from niche political betting platforms into large-scale venues covering sports, weather, geopolitical events, and more. Monthly trading volumes have surpassed $20 billion, and valuations have risen sharply alongside that growth. Kalshi reportedly doubled its valuation earlier this month after raising $1 billion at a $22 billion valuation.
That rapid growth has attracted scrutiny. Both Kalshi and Polymarket have faced accusations of insider trading, with public officials including California Governor Gavin Newsom alleging that individuals with ties to the Trump administration profited from privileged information on these platforms. A video editor for MrBeast received a fine and suspension after profiting from inside knowledge related to the YouTube personality’s content. In February, two Israeli nationals were arrested and charged with using classified military information to generate profits on Polymarket.
Both platforms have since introduced new policies and procedures aimed at addressing insider trading concerns. However, they continue to face legal challenges at the state level. Arizona Attorney General Kris Mayes filed 20 criminal charges against Kalshi, alleging the platform operates an illegal gambling operation. Nevada secured a temporary restraining order earlier this month barring Kalshi from offering event contracts in the state, and Massachusetts may pursue similar action.
Selig said he was surprised by the wave of state-level lawsuits, maintaining that the CFTC’s jurisdiction is clear. He drew a parallel to the previous administration’s approach to crypto regulation, which he characterized as regulation through litigation and enforcement rather than through coherent policy. He expressed a preference for collaboration with all stakeholders, including states, to develop workable rules rather than engaging in jurisdictional disputes through the courts.
To advance that goal, the CFTC has issued an Advanced Notice of Proposed Rulemaking, inviting public comments on the rules needed to properly oversee prediction markets. The agency also recently launched an Innovation Task Force designed to build a clear regulatory framework covering artificial intelligence, crypto, and prediction markets. The task force is expected to coordinate with other federal bodies, including the SEC and its Crypto Task Force, on related initiatives.
Originally reported by Decrypt.
