CLARITY Act could arm CFTC in prediction market turf war
Pending US legislation could grant the commodities regulator the authority needed to resolve an escalating jurisdictional clash with states over prediction markets like Kalshi and Polymarket.
The Commodity Futures Trading Commission could gain new powers to police prediction markets through the Digital Asset Market Clarity Act, according to testimony before a House subcommittee. The proposed legislation, which Republican senators want to advance before the August recess, would primarily establish a framework for digital assets. However, its text could carry significant secondary implications for platforms offering event contracts.
Carl Kennedy, a partner at Katten Muchin Rosenman, told the House Subcommittee on Commodity Markets, Digital Assets, and Rural Development that the CFTC is currently too "short-staffed" to manage the sector. “I do believe that with additional resources — they’re about to perhaps receive additional authorities under the CLARITY Act — with additional resources to address these new asset classes in the cash markets and crypto, as well as to deal with the explosive growth of prediction markets, I think that the CFTC certainly should receive additional resources,” Kennedy said.
The push for legislative clarity stems from a deepening legal conflict between federal and state regulators. CFTC Chair Michael Selig, the lone Senate-confirmed member on the normally five-person commission, has unilaterally asserted the agency has “exclusive jurisdiction” over event contracts by classifying them as swaps. This aggressive posture has drawn lawsuits from states targeting platforms over sports betting and prompted Democratic senators to accuse the CFTC of an “assault” on state authority.
For prediction market operators, the overlapping claims of power create immediate operational hazards. Last week, Selig ordered Kalshi to disregard a Michigan court ruling, a move the company warned “put [it] in an impossible position” between competing government mandates. Given the intractable nature of the dispute, legal analysts expect the matter will eventually reach the US Supreme Court to definitively draw the line between state and federal oversight.
The bill's final shape remains subject to intense lobbying. Gambling industry groups have actively petitioned the Senate to insert language prohibiting event contracts tied to sports and casino-style gaming. To secure the necessary Democratic support, the White House confirmed it “agreed to the most comprehensive and wide-ranging ethics provision in history“ and “bent over backward to accommodate [Democrats’] concerns.“
