In a recent letter to the U.S. Commodity Futures Trading Commission (CFTC), Coinbase opposes the CFTC’s plan to ban smart contract-based political betting, arguing that regulation of prediction markets is outside the CFTC’s scope and overlooks their benefits. They suggest regulating individual cases instead.

Coinbase’s Take on the Controversial Proposal

In May, the CFTC proposed banning certain prediction markets by broadly defining “gaming” to include bets on political contests, awards, and sports events. In Thursday’s letter, Coinbase objected to this, arguing that the definition is too broad and unfairly restricts valuable event contracts without considering their benefits.

Coinbase’s Chief Legal Officer, Paul Grewal, took a jab at the CFTC’s broad definition of “gaming,” which could result in an extensive ban on prediction markets. Grewal asserts that the proposal does not align with the Commodity Exchange Act (CEA), which traditionally allows for a more nuanced evaluation of event contracts. He believes the CFTC’s approach could kill innovation and disrupt current regulatory practices.

Misapplication of “Gaming”

The proposal’s attempt to categorize various event contracts, including those related to elections and professional awards, as “gaming” is a major point of conflict. Grewal argues that this classification misinterprets the nature of these contracts, which he asserts should not be viewed as games but as valuable tools for forecasting and economic analysis.

Economic Value of Prediction Markets

Coinbase highlights the economic benefits of prediction markets, known for their ability to aggregate dispersed information and provide accurate forecasts. Grewal criticizes the CFTC’s cost-benefit analysis for not fully considering these advantages. He suggests that prediction markets can outperform traditional forecasting methods and help in efficient resource allocation.

Call for a Balanced Approach

Grewal urges the CFTC to reconsider its proposal and work towards a more balanced regulatory approach. Instead of imposing a blanket ban, he recommends that the Commission collaborate with industry, academic, and policy stakeholders to develop a framework that supports innovation while protecting public interests. Grewal also suggests that additional resources should be allocated for product reviews rather than relying on broad restrictions.

All in Good Faith!

In short, Coinbase’s response to the CFTC’s proposal highlights the need for a more positive and thoughtful approach to regulating prediction markets. By challenging the proposed ban, Coinbase aims to ensure these markets can offer valuable insights and contribute to economic growth while advocating for an accommodating regulatory framework supporting innovation and technological advancements.

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