a16z has filed an 18-page comment letter with the US Commodity Futures Trading Commission, backing federal oversight of prediction markets and pushing back against recent state-level crackdowns. The firm said those actions create serious barriers to fair access and could materially reduce market liquidity.
a16z argues state restrictions conflict with fair access
The letter was submitted on Friday (1). In it, a16z criticized recent moves by state regulators and attorneys general targeting prediction market platforms including Polymarket and Kalshi, where authorities alleged the platforms were offering unlicensed gambling products and issued shutdown orders or proposed bans.
a16z said forcing trading venues to block users based on where they live would clash with the CFTC’s principle of fair market access. The letter warned that if platforms are required to deny access to users in states seeking to permit or prohibit certain event contracts, the amount of liquidity available in the market would likely be severely limited. That point sat at the center of its argument.
Federal and state authorities are fighting over jurisdiction
The regulatory dispute around prediction markets has turned into a direct jurisdictional battle between federal and state authorities. Over the past month, the CFTC has filed a series of lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, arguing that those states are attempting to regulate markets already supervised at the federal level.
CFTC Chair Mike Selig has taken a clear position. He argues that event contracts traded on prediction markets fit the legal definition of swaps, which would place them under the agency’s exclusive jurisdiction. That leaves the core legal question unchanged: are these products derivatives, or are they gambling instruments.
150 billion dollars in volume cited as evidence of demand
a16z also used the letter to defend the economic value of prediction markets themselves. The firm said their pricing mechanism offers a distinct form of price discovery, giving society a way to surface probabilities around uncertain events.
On decentralized prediction markets, a16z pointed to the transparency of blockchain-based systems and said the auditability of onchain transactions makes real-time monitoring easier for both participants and regulators. According to the market data cited in the source material, cumulative historical trading volume on Polymarket and Kalshi had passed $150 billion by April this year, a figure the firm used to show the scale of demand.