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The exchange wrote in a letter signed by their Chief Legal Officer, Paul Grewal, to the CFTC stating that the agency’s definition of gaming is too vague and unfairly limits valuable contracts for events.
Coinbase has responded to the Commodity Futures Trading Commission’s (CFTC) proposed rules on prediction markets. The crypto exchange firm disagreed with the CTFC’s approach to defining gaming in the proposed regulation and further noted that the supposed amendment is against the commission’s statutory jurisdiction.
The exchange wrote in a letter signed by their Chief Legal Officer Paul Grewal to the CFTC stating that the agency’s definition of gaming is too vague and unfairly limits valuable contracts for events. Coinbase thinks the CFTC should look at each prediction market contract individually instead of using broad categories.
Grewal wrote that the commission has failed to take into account the contribution of the prediction market to the economy. He further said that the decision to place a ban on the prediction market is not only an overstep of their boundaries but also a case of being economically unsound.
“This not only oversteps the commission’s statutory authority, and departs from a longstanding practice of making determinations on a contract by contract basis, but it is also economically unsound. The commission has failed to recognize the positive impact of prediction markets on the economy in its statutorily required cost benefit analysis under Commodity Exchange Act,” he wrote.
The CFTC had initially submitted a proposal on event contract that defined gaming as betting on outcomes of political events, athletic events, or awards and it had the support of three Democratic commissioners. However, Coinbase stated in the letter that the proposed ban would cripple the promotion of innovation and growth in a well-transparent and regulated market. They said:
“We firmly believe that this all-or-nothing approach to the treatment of event contracts is not consistent with the promotion of responsible innovation and growth in regulated, transparent markets with appropriate safeguards to protect market integrity and protect customers.”
The exchange criticizes the commission’s proposal of an ‘overly broad definition’ of gaming, which equates speculation with gaming. They wrote that if adopted, it will affect regular contracts as gaming, which are, in actual terms, not gaming. Coinbase said:
“If adopted, would capture contracts as “gaming” that by any common understanding are not, in fact, gaming. Few would agree that elections or professional awards such as Nobel Prizes or Academy Awards are granted through a process that should generally qualify as games, yet these are the examples presented as constituting such a definition.”
Coinbase’s Call for Innovation and Balanced Regulation
Coinbase informed CTFC of the significant benefit of the prediction market, citing research showing that it can do better than traditional forecasting methods. They further asked the commission to abandon the proposal and instead promote and encourage innovation by allowing certain types of contracts to be on registered future exchanges.
On his official X page Paul Grewal admonishes the CFTC to drop the proposal and partner with academic, industry, and policy stakeholders to create a balanced system that will allow more innovation and protect the public’s interests.
