The U.S. Commodity Futures Trading Commission is turning to artificial intelligence as it faces rising pressure to police fast-moving crypto and prediction markets with a smaller workforce. In testimony before the House Agriculture Committee, CFTC Chair Michael Selig said the agency has authorized the use of Microsoft 365 Copilot across its staff and is building additional AI-driven surveillance systems to detect fraud, market manipulation, and insider trading across digital asset markets, prediction platforms, and traditional commodity derivatives.
Selig’s remarks came during a contentious hearing in which lawmakers questioned the agency’s staffing cuts, the risks posed by decentralized trading venues, and suspicious trading activity tied to sensitive geopolitical events on prediction platforms such as Polymarket and Kalshi. The hearing also underscored the growing urgency in Washington to finalize a legislative framework for crypto market structure.
A regulator under strain leans on automation
Selig told lawmakers that the CFTC is attempting to do more with less. According to his testimony, the agency’s full-time staff fell from 708 employees at the end of fiscal year 2024 to roughly 543, a decline of more than 20%. He defended those reductions, arguing that the CFTC is operating more efficiently than ever and that new technology can help fill part of the gap.
That argument met immediate resistance. Representative Angie Craig of Minnesota, the committee’s ranking member, said the agency cannot realistically supervise digital commodities trading and prediction markets with a headcount below levels sought even during the first Trump administration. She also criticized the current governance situation at the commission, noting that Selig is the only active commissioner and that four seats remain vacant. In her view, Congress never intended for the CFTC to function indefinitely under a one-member structure while its responsibilities continue expanding.
The staffing issue is more than an administrative concern. It goes directly to whether the CFTC can keep pace with around-the-clock markets, increasingly complex derivatives, and crypto-native trading activity that can move across jurisdictions and platforms in seconds. Selig’s answer, at least in part, is automation: use AI to triage surveillance, identify unusual patterns faster, and support investigators already stretched thin.
Polymarket activity becomes a flashpoint
One of the sharpest lines of questioning focused on potentially suspicious trades linked to major U.S. government actions. Lawmakers cited patterns on Polymarket, Kalshi, and other venues where event-driven contracts and related financial positions appeared to anticipate politically and militarily sensitive developments.
Representative Jim McGovern of Massachusetts referenced roughly $500 million in oil futures and equity trades that were reportedly placed shortly before President Donald Trump posted on Truth Social at 7:04 a.m. on March 23 that the United States had begun ceasefire talks with Iran. Other members pointed to a Reuters report alleging that six newly created Polymarket accounts made about $1.2 million by betting on U.S. airstrikes against Iran, with those accounts allegedly funded within the 24 hours before the February 28 action.
The lawmakers’ concern was straightforward: if market participants traded on material nonpublic information related to military or diplomatic developments, that would raise profound questions not only for market integrity but also for public trust in prediction platforms. These markets often market themselves as information discovery tools, but critics argue they can also become channels for exploiting privileged knowledge when contracts are tied to state action.
Selig repeatedly told the committee that the CFTC maintains a zero-tolerance policy toward insider trading. However, he declined to confirm or deny whether the agency is investigating any specific trades, saying public discussion of individual matters could compromise ongoing or potential enforcement work. He added that the commission’s enforcement division is strengthening its staffing under David Miller, a former CIA officer and former prosecutor in the Southern District of New York.
Crypto legislation seen as essential
Beyond surveillance and enforcement, Selig used the hearing to emphasize the need for statutory clarity in crypto regulation. He strongly endorsed the bipartisan CLARITY Act, describing it as essential to ending years of ambiguity that, in his view, have pushed developers and innovators offshore. He urged Congress to move the bill forward and send it to the president’s desk.
According to Selig, the CFTC and the Securities and Exchange Commission have already signed a joint interpretation clarifying which crypto assets should be treated as securities and which should be treated as commodities. The agencies have also entered into a memorandum of understanding designed to coordinate surveillance, information sharing, and rulemaking. The message was clear: interagency coordination is improving, but durable guardrails still require legislation.
The hearing reflected a wider policy shift in Washington. Rather than relying only on enforcement-by-interpretation, policymakers are increasingly focused on setting formal rules for market structure, jurisdictional boundaries, and platform obligations. For the CFTC, that matters because any expansion of authority over digital commodities will likely require both clearer law and stronger resources.
Prediction markets remain politically sensitive
Prediction markets were another central topic. Selig reminded lawmakers that in March 2025, the CFTC issued an advance notice of proposed rulemaking seeking public input on how to regulate event contracts traded on registered exchanges. He said the agency has not allowed contracts tied to war, terrorism, or assassination on its regulated platforms, though he declined to prejudge where the rulemaking process will ultimately land.
That distinction is important because the controversy around event contracts is no longer limited to election forecasting or macroeconomic data. As product offerings expand, prediction markets are colliding with questions involving public policy, gambling law, national security, and state sovereignty. Several Democratic lawmakers argued that sports-related event contracts in particular may undermine tribal gaming agreements and interfere with state-level authority over wagering.
The jurisdictional fight around prediction markets is becoming one of the most consequential regulatory battles in financial technology. Federal authorities want to assert control over event derivatives listed on federally regulated venues, while critics fear the category is becoming too broad and socially contentious. Selig’s testimony suggested the CFTC wants to preserve room for lawful event contracts without opening the door to products viewed as morally or politically unacceptable.
DEXs and offshore leverage draw concern
The hearing also turned to decentralized exchanges, especially platforms offering perpetual contracts on commodities outside traditional U.S. oversight. Representative Austin Scott of Georgia raised concerns about DEXs such as Hyperliquid, arguing that they list crude oil perpetuals without segregated customer funds, without meaningful market surveillance, and without U.S. supervision. He said activity on some of these venues can reach 200,000 orders per second and warned that such markets could influence domestic gasoline pricing.
Selig responded that the CFTC is monitoring these offshore markets and wants to bring that activity back within domestic regulatory reach. His comments highlighted a broader challenge: the migration of leveraged trading into crypto-native environments where access is global, enforcement is difficult, and the distinction between a software protocol and a regulated exchange is often disputed.
For regulators, DEX-based derivatives present a particularly difficult problem. They combine cross-border accessibility, pseudonymous activity, and high-speed execution, often with minimal investor protections compared with U.S. regulated venues. Even when the underlying contracts reference traditional commodities, the market infrastructure itself may sit largely outside the conventional compliance perimeter.
Stablecoins, tokenized collateral, and long-term rulemaking
Selig also told the committee that the CFTC has taken steps to clarify how capital tied to payment stablecoins should be treated, issued guidance related to tokenized collateral, and outlined obligations for U.S.-based software developers working on blockchain infrastructure. These comments indicate that the agency is attempting to build a more coherent supervisory approach not just for speculative trading, but also for the operational plumbing of digital asset markets.
Still, Selig argued that agency guidance alone is not enough. Administrative interpretations can shift with future political leadership, whereas legislation would provide a more durable foundation for oversight. In that sense, the hearing served as both a defense of current CFTC actions and an appeal to Congress to lock key principles into law.
The committee closed the session with a governance issue that may prove just as important as any policy dispute. Chairman GT Thompson said he and Ranking Member Angie Craig would send a letter to the White House urging swift bipartisan nominations to fill the CFTC’s four vacant commissioner seats. The hearing record will remain open for 10 days, leaving room for additional statements and follow-up submissions.
Taken together, the testimony painted a picture of an agency trying to modernize quickly as the markets it oversees become more technologically complex and politically sensitive. AI tools may help the CFTC watch more screens with fewer people, but lawmakers made clear that technology alone will not settle the deeper questions surrounding prediction markets, crypto jurisdiction, and the future shape of U.S. digital asset regulation.