Kalshi Cleared to Offer Congressional Prediction Markets in Victory Against CFTC

Despite having the option to appeal, Kalshi, previously barred from participating in this year’s election betting surge during the ongoing legal proceedings, now stands a chance to capture a small portion of that market in the final two months leading up to the election.

The company announced on their website on Friday, “We’ve achieved it!”, referring to the launch of U.S. election markets on Kalshi.

In a broader sense, this decision serves as a triumph for supporters of prediction markets, where participants wager on various real-life scenarios like elections or album sales or temperature rises. These markets are quite popular within crypto communities, even though Kalshi doesn’t utilize cryptocurrency directly. The crypto industry has been closely monitoring the case, and a VC firm named Paradigm has submitted an amicus curiae brief in support of the plaintiff.

Previously, the Commodity Futures Trading Commission (CFTC) declined Kalshi’s request to list congressional control contracts, citing concerns that they would constitute illegal gambling and not serve the public interest. Subsequently, Kalshi filed a lawsuit against this decision, claiming it as unreasonable and arbitrary.

On Friday, Judge Jia M. Cobb of the U.S. District Court for the District of Columbia, decided in favor of Kalshi in her ruling.

In the memorandum opinion that the court will soon release, it has been decided to approve the plaintiff’s request for summary judgment and reject the defendant’s counterclaim. As a result, the court order from September 22, 2023, which restricted the plaintiff from trading their congressional control contracts, is nullified.

Advocates argue that prediction markets are superior to polls and expert opinions when it comes to predicting future events and measuring public sentiment. This is due to the fact that those involved in these markets have a personal stake, which motivates them to conduct extensive research and honestly share their views.

2021 saw the explosive growth of Polymarket, a prediction market platform built on cryptocurrency infrastructure, garnering significant attention due to its appeal for election betting. In August alone, the platform recorded an astounding $470 million in total trades, marking a new high as per data from Dune Analytics; the majority of these transactions were conducted through election-related contracts.

Despite not being allowed to work directly with U.S. residents due to a regulatory agreement with the CFTC, Polymarket is still profiting from the U.S. election. Bets placed on Polymarket are encoded as smart contracts on a blockchain and are settled using USDC, a digital currency that maintains a consistent value relative to the U.S. dollar.

As an analyst, I’d rephrase that as follows: Unlike other platforms, Kalshi exclusively operates within the U.S., transacting in standard US dollars. However, each contract offered by them is subject to review or potential challenge by the Commodity Futures Trading Commission (CFTC). This led to a legal dispute between us and the CFTC, particularly concerning the Congressional control contract.

A potential conflict may arise as the Commodity Futures Trading Commission (CFTC) considers a new rule that could prohibit the entities under its supervision from providing contracts for political competitions. This is due to worries that such offerings might compromise the honesty and fairness of the elections.