CFTC Chair Warns Prediction Markets Risk FTX Repeat

Prediction market rules need to happen fast — or the whole sector risks becoming the next FTX. That's the blunt message from Commodity Futures Trading Commission Chairman Michael Selig, who told interviewer Farokh Sarmad that federal agencies are failing the very people they're supposed to protect by dragging their feet on regulation. The warning comes as platforms like Kalshi and Polymarket handle over $20 billion in monthly volume and face mounting legal pressure from state attorneys general.

Selig Draws a Straight Line from FTX to Prediction Markets

Selig didn't mince words. In a wide-ranging interview with Dastan President and Co-Founder Farokh Sarmad, the CFTC chairman said the agency has complete jurisdiction over prediction markets and derivatives contracts — and that jurisdiction comes with an obligation to act before things blow up.

"We saw FTX and we saw all these implosions of crypto firms, I'm concerned we'll see the same with prediction markets if we keep pushing it offshore into the unregulated space," Selig said. His argument is straightforward: if Washington keeps punting on clear frameworks, the platforms that millions of Americans now use will either move offshore or operate in a gray zone that invites catastrophe.

The fix, according to Selig, is getting exchanges registered domestically. "We've got to make sure these exchanges come and register here in the United States and that our rules are set up to facilitate fair markets, markets that have investor protections, customer protections, and have real guardrails and rules," he added.

The failure of agencies to actually regulate, to do their job and set policy, is such a disservice to the builders and innovators and everyday Americans who want to access these products.

Why Are Prediction Markets Under Fire?

The boom happened fast. Prediction markets like Kalshi and Polymarket have gone from niche political betting platforms to massive event-contract exchanges covering sports, weather, geopolitics — basically anything with an outcome. Monthly volumes now top $20 billion, and Kalshi doubled its valuation earlier this month after raising $1 billion at a $22 billion valuation.

But the growth has dragged ugly problems into the spotlight. Both platforms face insider trading allegations. California Governor Gavin Newsom accused individuals close to the Trump administration of profiting from insider knowledge on prediction markets. A video editor for MrBeast received a fine and suspension for trading on inside information related to the YouTube star's content. In February, two Israelis were arrested and charged with using classified military intelligence to profit on Polymarket.

That's a lot of smoke for an industry claiming there's no fire. Both Kalshi and Polymarket have since rolled out new policies and procedures to address the concerns, but whether those voluntary steps satisfy regulators remains an open question.

States Are Not Waiting for Washington

Here's where it gets really messy. States are now launching their own offensives. Arizona Attorney General Kris Mayes filed 20 criminal charges against Kalshi, alleging the platform operates an "illegal gambling operation." Nevada scored a court victory this month, landing a temporary restraining order that bans Kalshi from offering event contracts in the state. Massachusetts may follow.

Selig was candid about being caught off guard. "I am surprised about it," he told Sarmad about the state lawsuits, adding that "I think the jurisdiction of the agency is very clear." That's a telling admission — the top federal regulator didn't see the state-level backlash coming, which suggests Washington and state capitals are not remotely on the same page.

The Chairman also took a not-so-subtle shot at the previous administration's approach. "What we don't want is states and others suing our registrants to assert their authority in the same way that the last administration did with crypto, where they're regulating by litigation and enforcement actions," Selig said.

We'd like to work together to get the policy right.

Can the CFTC Actually Get This Done?

Talk is easy. Rulemaking is hard. But the CFTC is at least making procedural moves. The agency published an Advanced Notice of Proposed Rulemaking to invite public comments on what prediction market regulation should look like — a standard first step before formal rules get drafted.

Last week, the CFTC went further by launching an Innovation Task Force designed to build a regulatory framework covering artificial intelligence, crypto, and prediction markets. The task force will coordinate with the SEC and its Crypto Task Force, which is significant because jurisdictional turf wars between the two agencies have historically slowed everything down.

"We've got to get the policy right, and we're committed to working with every stakeholder who wants to work with us," Selig said. The question is whether his agency can move faster than the states that are already filing charges and winning restraining orders. If federal rules don't materialize quickly, the patchwork of state-level crackdowns could define the market before Washington even publishes a draft.

We saw FTX and we saw all these implosions of crypto firms, I'm concerned we'll see the same with prediction markets if we keep pushing it offshore into the unregulated space.