Today, June 10, 2026, the Commodity Futures Trading Commission (CFTC) introduced its first proposed framework for prediction markets to determine which event contracts are in the public interest and those that violate federal law.
This move comes after President Donald Trump recently stated that it’s “critically important” that the CFTC holds exclusive oversight of the industry, thus creating a significant legal standoff with several state attorneys general who are working to protect their own authority over gambling regulations.
The chairman of the CFTC, Michael Selig, who is also the agency’s only sitting commissioner on what should be a five-member panel, said the proposal offers “a durable, transparent framework to identify the contracts Congress directed us to scrutinize while letting legitimate markets move forward,” according to the commission’s press release.
Which contracts are legal under the CFTC’s new rules
The CFTC’s proposed regulation focuses on Section 5c(c)(5)(C) of the Commodity Exchange Act. It is supposed to draw clear lines between categories of event contracts that the CFTC is authorized to ban.
Anything tied to terrorism, assassination, war, gaming, or unlawful conduct is on the no-fly list.
The agency proposed a three-step test to determine if a contract should be prohibited.
- Does the contract reference a real or potential event?
- Does it fall into any of its restricted categories?
- Is the contract contrary to the public interest?
Instead of setting strict rules, the CFTC is proposing a flexible “balancing test” for prediction market contracts. The test involves weighing various factors like how useful the contract is for hedging risks, its ability to help discover market prices, and whether it might encourage illegal activity.
After the proposal is finalized, the CFTC will allow a 45-day window for public feedback when the rule is passed, and the rule will become official 60 days after its final adoption.
The CFTC also applied real-life scenarios of how it differentiates restricted and acceptable terms. For example, a contract based on crude oil transport through the Strait of Hormuz would not be filed under the “war” or “terrorism” categories because it does not violate the agency’s restrictions. That contract’s settlement is strictly tied to commercial activity rather than the conflict itself.
What does the government say?
The new framework is part of a larger ongoing conflict between federal and state authorities. Since April 2026, the CFTC has actively sued states like Arizona, Connecticut, Illinois, New York, and Wisconsin to block their attempts to use local gambling laws to shut down prediction market platforms, according to Cryptopolitan. The tension got worse last month when Minnesota became the first state to criminalize these markets outright, as Governor Tim Walz officially imposed felony penalties on operators.
A coalition of 39 attorneys general, led by Nevada’s Aaron Ford and Ohio’s Dave Yost, filed an “amicus brief” supporting Massachusetts in its ongoing legal battle against Kalshi’s sports contracts.
According to Cryptopolitan, the coalition argued that these platforms were effectively unregulated gambling operations, stating that over $1 billion was wagered across 3.4 million sports-related bets between January and June 2025, with approximately 90% of that volume directly linked to sports outcomes.
In a May 27th Truth Social post, President Donald Trump identified several state officials, including Chris Christie, Letitia James, Tim Walz, and JB Pritzker, as primary obstacles to federal oversight of prediction markets. “Other Countries are after this new form of Financial Market, and we want to remain at the top,” he wrote.
Why the new proposal is causing disagreement
The new proposal is sparking debates over whether the agency’s actions are driven by genuine policy objectives or political influence. According to Cryptopolitan, Senator Elizabeth Warren issued a formal request to the CFTC on Monday for internal records, communications with industry firms, and details regarding recent personnel departures. Apparently, her inquiry was sparked by a 25% workforce reduction since January 2025 and a drop in enforcement actions from 58 in the 2024 fiscal year to 11 under the current administration.
Warren further intensified her scrutiny by flagging possible problems concerning conflicts of interest, specifically pointing out financial ties between the Trump family and firms regulated by the CFTC. According to a New York Times investigation cited in a Cryptopolitan report, these connections include a business partnership between Trump Media and Crypto.com, investments by Donald Trump Jr.’s firm (1789 Capital) into Polymarket, and the Winklevoss brothers’ financial support for American Bitcoin Corp, which was co-founded by Eric Trump.
According to Reuters, concerns regarding insider trading are further complicating the prediction market landscape as high-profile cases have surged in recent months. Notable examples include a U.S. Special Forces soldier betting on the capture of Nicolás Maduro, George Santos wagering on his own attendance at the State of the Union, and a Google engineer accused of leveraging non-public search trend data for profit. Kalshi responded this week by implementing stricter oversight through requiring employment disclosures for traders in sensitive markets and reporting over 20 internal referrals to regulators during the first quarter of 2026, per Cryptopolitan.
The prediction market sector has grown from roughly $30.63 million in monthly trading volume in January 2025 to close to $479.5 billion in January 2026, according to DefiLlama. As of this week, the total value locked across prediction market protocols grew to roughly $500 million, with Kalshi and Polymarket accounting for the bulk of activity.
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