On June 10, the U.S. Commodity Futures Trading Commission (CFTC) released its first proposed regulatory framework for prediction markets, proposing a three-step test to determine which event contracts serve the public interest and which violate federal law. CFTC Chairman Michael Selig said in a press release that the proposal provides a “durable, transparent framework.” Under the proposal, after the rules are finalized, there will be a 45-day public comment period, and the rules will take effect 60 days after final approval.
Three-Step Test and Prohibited Categories: What the CFTC Framework Confirms
The CFTC’s proposed three-step test evaluates, in order:
· Does the contract involve an event that has already occurred or an event that may occur?
· Does it fall into any restricted category?
· Does the contract violate the public interest?
The confirmed prohibited categories (Restricted Categories): Any contract involving terrorism, assassination, war, gambling, or illegal activity is within the ban.
The CFTC also proposes a “Balance Test” as a supplementary framework, weighing factors including the contract’s effectiveness for risk hedging, its ability to facilitate market price discovery, and whether it encourages illegal activity. The CFTC cites an example of “contracts based on the volume of crude oil shipments through the Strait of Hormuz,” confirming that they do not fall into the “war” or “terrorism” categories, because settlement is entirely tied to commercial activity.
Confirmed Legal Actions at the Federal and State Levels
CFTC Lawsuit: Since April 2026, suing five states: Arizona, Connecticut, Illinois, New York, and Wisconsin
39-State AG Coalition: Led by Nevada’s Aaron Ford and Ohio’s Dave Yost, submitting an amicus brief supporting Massachusetts’s legal action against Kalshi
Minnesota: In May 2026, Governor Tim Walz signed legislation classifying prediction market operators as felons, becoming the first state to categorically criminalize such markets
Confirmed Data by the 39-State Coalition: From January to June 2025, bets totaling more than $1 billion involved 3.4 million sports-related wagers, about 90% of which were directly tied to event outcomes.
Warren’s Request and Confirmed CFTC Enforcement Data
On Monday, Senator Elizabeth Warren formally filed a request with the CFTC, seeking access to internal records, communications with industry companies, and details on recent staff departures. Confirmed data: CFTC headcount has declined by 25% since January 2025; enforcement actions dropped from 58 in fiscal year 2024 to 11 during the current administration.
A New York Times investigation (cited by Cryptopolitan) confirmed potential conflicts of interest including: business cooperation between Trump Media & Technology Group and Crypto.com, 1789 Capital—Don Trump Jr.’s firm—investing in Polymarket, and financial support from the Winklevoss brothers for American Bitcoin Corp, co-founded by Eric Trump. Kalshi confirmed that in the first quarter of 2026 it submitted more than 20 reports to regulators and imposed employment disclosure requirements on traders in sensitive markets.
FAQ
What is the timeline for the CFTC framework to take effect?
According to the CFTC proposal, after the rules are finalized there will be a 45-day public comment period, and they will officially take effect 60 days after final approval. The CFTC has not yet announced an expected timeline for when the rules will be “finalized.”
Where do lawsuits by states regarding CFTC federal regulatory claims stand at the moment?
As of June 10, 2026, the CFTC is suing 5 states, and a coalition of 39 state attorneys general is supporting Massachusetts’s lawsuit against Kalshi. Minnesota has completed legislation to classify prediction markets as felonies. No court has yet issued a final ruling on whether federal regulation takes priority over state gambling laws.
How big are prediction markets right now?
According to DefiLlama data, monthly trading volume in prediction markets grew from about $30.63 million in January 2025 to about $479.5 billion in January 2026. As of this week, the total value locked in prediction market protocols is about $500 million, with Kalshi and Polymarket accounting for most of the trading volume.
