CLARITY Act could give CFTC more tools for prediction markets

A U.S. House hearing has put the Commodity Futures Trading Commission’s staffing and authority at the center of the debate over prediction markets.

Summary

• Lawyer Carl Kennedy says CFTC needs more resources as prediction markets expand across U.S. markets.
• CLARITY Act could broaden CFTC duties while lawmakers debate oversight of fast-growing event contract platforms.
• State lawsuits against Kalshi and Polymarket continue testing the boundary between federal and gambling regulators.

Lawmakers on the House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development met on July 21 to examine customer protection and market integrity in sports event prediction markets. Carl Kennedy, a partner at Katten Muchin Rosenman and a former CFTC lawyer, said the regulator may be too “short-staffed” to oversee platforms such as Kalshi and Polymarket while taking on broader duties.

Kennedy pointed to the Digital Asset Market Clarity Act, or CLARITY Act, and said the CFTC would need more resources if Congress expands its authority over digital assets while prediction markets continue their “explosive growth.”

His written testimony also argued that the Commodity Exchange Act already gives the CFTC a framework for regulating event contracts on registered exchanges. Trading volume across CFTC-registered prediction markets exceeded $25 billion in 2025. On one major platform, average daily event-contract listings rose from about 1,600 in April 2025 to roughly 162,000 in April 2026.

CFTC staffing becomes part of the prediction market debate

Kennedy told lawmakers that more legal authority would need to come with enough staff and funding. “With additional resources,” he said, the CFTC could address new digital asset markets while also dealing with the growth of prediction markets.

The CFTC already oversees registered derivatives exchanges under federal law. Kennedy said those exchanges must follow rules covering market surveillance, financial integrity, customer protection and controls against manipulation. He argued that those requirements can also apply to sports event contracts.

The wider dispute centers on whether sports contracts count as federally regulated derivatives or gambling products that states can restrict. CFTC Chair Michael Selig has defended what he calls the agency’s “exclusive jurisdiction” over federally regulated prediction markets.

As previously reported by crypto.news, the CFTC received more than 1,500 comments on its prediction market rulemaking earlier this year. Kalshi and Polymarket backed federal oversight, while several state gambling regulators argued that sports event contracts should remain under state gaming laws.

State and federal authorities remain locked in court fights

The dispute has become more direct in recent weeks. As crypto.news reported, the CFTC blocked Kalshi from unwinding certain Michigan sports event trades after a state court ordered the platform to stop offering the contracts. Kalshi said the conflicting orders placed it in an “impossible position” between federal and state requirements.

A Washington state ruling added another court setback. On July 20, a judge granted a preliminary injunction after finding that Washington was likely to succeed in its claim that Kalshi’s sports contracts violate state gambling laws. The order is set to take effect no earlier than Aug. 5 while the court considers further submissions.

Former CFTC Chair Gary Gensler has also argued in a court filing that sports prediction contracts do not fit the federal definition of swaps because they generally do not hedge economic risk. His position differs from Selig’s view of CFTC authority. As crypto.news previously reported, Gensler argued that “sports bets are very rarely, if ever, about hedging.”

The cases have not produced one nationwide rule. Some states continue challenging prediction market platforms. Meanwhile, North Carolina has taken a different route by recognizing federally registered prediction markets under a new tax framework starting in 2027.

CLARITY Act adds another question for the CFTC

The CLARITY Act mainly addresses digital asset market structure rather than rewriting sports prediction market rules. The legislation would divide oversight of digital assets between federal regulators and give the CFTC a larger role in supervising digital commodity markets. Kennedy focused on what that added responsibility could mean for an agency already handling a fast-growing prediction market sector.

The bill cleared the Senate Banking Committee in May by a 15-9 vote but still faces negotiations before a full Senate vote.The White House accepted proposed ethics restrictions aimed at addressing concerns over political officials’ crypto interests. However, the Senate had not published final text or scheduled a floor vote at the time of reporting.

The legislation still needs enough bipartisan support to clear the Senate’s 60-vote threshold. The latest ethics agreement could remove one area of dispute, but senators have yet to publish the final wording and face a limited legislative calendar before the August state work period.

For the CFTC, the prediction market debate is moving on a separate but connected track. The agency is defending its view of federal authority in court and developing rules for event contracts. At the same time, Congress is considering whether to give the regulator a larger role in digital asset markets.

Kennedy framed the issue as a question of resources as much as legal power. If lawmakers expand the CFTC’s duties under the CLARITY Act, the agency would have to carry out those responsibilities while continuing its existing derivatives oversight and prediction market work.