The CLARITY Act — a bipartisan bill aimed at clarifying cryptocurrency regulation — could grant the Commodity Futures Trading Commission (CFTC) the authority it needs to oversee the rapidly expanding prediction market sector, a legal expert testified before a House subcommittee hearing Tuesday.
Carol Goforth, a law professor at the University of Arkansas, told the House Financial Services Subcommittee on Digital Assets that the legislation’s framework for distinguishing between securities and commodities would give the CFTC clear jurisdiction over event-based contracts, including political and sports prediction markets that have seen explosive growth on platforms like Polymarket and Kalshi.
“The CLARITY Act’s functional test for determining whether a digital asset is a security or commodity would place prediction market contracts squarely in the CFTC’s purview,” Goforth said. “These are fundamentally event contracts — derivatives on real-world outcomes — which the CFTC has regulated for decades in other contexts.”
Prediction markets have surged in volume during the 2024 election cycle, with Polymarket alone processing over $1 billion in election-related wagers. The CFTC has historically treated event contracts as swaps subject to its oversight, but jurisdictional uncertainty has persisted, particularly after a federal judge blocked the agency’s attempt to prohibit election betting on Kalshi last year.
The CLARITY Act, sponsored by Representatives French Hill (R-AR) and Ritchie Torres (D-NY), would establish a statutory framework for token classification and create a registration pathway for digital asset trading platforms. Its passage would resolve the current regulatory tug-of-war between the SEC and CFTC over prediction market oversight.
Industry observers say CFTC regulation would likely require prediction markets to register as designated contract markets or swap execution facilities, imposing capital requirements, reporting obligations, and position limits — potentially reshaping the operational model for platforms that have operated in a regulatory gray zone.
Source: Cointelegraph
