Coinbase has raised its objection to the US Commodity Futures Trading Commission’s (CFTC) proposed rules for prediction markets. The largest crypto exchange in the United States argues that the regulations exceed the commission’s statutory authority.
Coinbase’s Chief Legal Officer, Paul Grewal, suggests that the proposal could statutorily ban certain types of event contracts by adopting a broad definition of “gaming.” He urged the CFTC to withdraw the proposal and take up an approach in line with the CEA.
Coinbase challenges the CFTC’s authority
We urge the CFTC to withdraw this proposal and work alongside academic, industry, and policy stakeholders to develop a more balanced approach that promotes innovation while protecting the public interest. As always, we appreciate the CFTC’s consideration of our response and look…
— paulgrewal.eth (@iampaulgrewal) August 9, 2024
Paul Grewal responded to the CFTC’s proposed rulemaking on prediction markets. He highlighted the potential of event markets in the future economy. He expressed complete support of Coinbase in the commission’s mission to uphold the integrity of the derivatives market.
He suggested that a robust regulatory framework could be provided for such an emerging class of contracts. He also noted that the enactment of this proposal will ban many prediction contracts without good reason.
Grewal simplified the issue by pointing out that the proposal has a definition problem. The CFTC’s proposal gives a broad definition of “gaming” including contracts like Nobel Prizes and the Oscars, which are clearly not forms of gaming.
The letter mentions that professional awards such as Nobel Prizes or Academy Awards are granted through a process that should generally qualify as games. However, these are examples presented that constitute a definition in the proposal.
He added that this definition of “gaming” is also inconsistent with legislative history. It has created confusion with existing state laws and could harm emerging markets regulated by the commission.
Coinbase CLO further added that the proposal’s evaluation of contracts “as a category” is not in the public interest and exceeds the watchdog’s authority to govern. The crypto exchange is urging the CFTC to withdraw the proposal and work with academic, industry, and policy stakeholders to build a balanced approach.
Coinbase’ legal battles with regulators continue
This move comes as Coinbase is dealing with the regulatory challenges pushed by watchdogs. The American exchange recently filed a reply in the court to its motion to produce crucial documents from the Securities and Exchange Commission (SEC).
The commission once again resisted Coinbase’s request for access to documents, including private emails from Chair Gary Gensler.
The filing showed the record of the SEC’s inconsistent views of digital assets and its own regulatory reach. The crypto platform advised the commission that if they are going to engage in an unprecedented regulation by enforcement campaign then the least they can do is maintain transparency.
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Coinbase’s stance against the CFTC’s broad definition of ‘gaming’ in prediction markets is understandable. The inclusion of events like the Nobel Prizes and Oscars under this category seems like an overreach and could stifle innovation in emerging markets.”
“It’s important for the CFTC to refine its regulatory framework, especially when dealing with new market categories like event contracts. Coinbase’s call for collaboration between policymakers and industry experts is a sensible approach to ensure balanced regulation.”
“Paul Grewal’s point about the CFTC exceeding its statutory authority with this proposal raises valid concerns. A broad definition of ‘gaming’ could create unnecessary confusion and disrupt the development of future economic markets tied to prediction contracts.