A powerful US congressional committee is to probe whether fast‐growing sports prediction platforms such as Kalshi and Polymarket should be treated as federally regulated derivatives venues or as illegal gambling operations, in a showdown that could reshape a multibillion‐dollar market.
The US House Agriculture Committee’s Subcommittee on Commodity Markets, Digital Assets, and Rural Development has scheduled a hearing to examine “customer protections and market integrity” in prediction markets, amid mounting pressure from leading gambling lobby groups for an outright ban on sports‐linked contracts.
Senior legal experts and officials from the American Gaming Association (AGA) and the Indian Gaming Association (IGA) are due to give evidence.
Clash over who should police sports prediction markets
The hearing comes against the backdrop of an escalating jurisdictional battle between federal derivatives regulators and gambling authorities at state and international level.
Supporters of prediction markets argue that the Commodity Futures Trading Commission (CFTC) already has sufficient powers under existing law to supervise event‐based contracts, including those tied to sporting fixtures. They say Congress should not rewrite the rulebook.
Legal specialist Daniel Wallach, who reviewed the witnesses’ prepared statements, said backers of prediction markets are urging lawmakers to avoid new legislation narrowing or redefining the CFTC’s remit. According to Wallach, those witnesses maintain that current statutes already permit the agency to regulate platforms such as Polymarket.
Robert Schwartz, one of the witnesses defending prediction markets, insists the CFTC can decide which event contracts exchanges are allowed to list without any additional authority from Capitol Hill.
“It has powerful authority to disallow exchanges from listing problematic contracts,” Schwartz said.
Drawing on provisions in the Dodd‐Frank Act, Wallach argues that the CFTC may block an exchange from listing any contract involving gaming where the agency determines the product is against the public interest. Under that interpretation, the key gatekeeper for sports‐related markets would be the federal derivatives regulator rather than state gambling commissions.
Gambling lobby warns of ‘nationwide online casino’
Major gaming groups strongly dispute that position and are pushing Congress to intervene directly.
David Bean, chairman of the Indian Gaming Association, contends that Kalshi is sidestepping gambling rules by listing contracts that, in economic substance, mirror conventional sports bets. Bean’s testimony focuses on what the products do in practice, not how they are labelled in derivatives law.
According to Bean, a pending CFTC rule would effectively convert federally regulated derivatives exchanges into “nationwide online gambling platforms” if they are allowed to list sports‐linked contracts. The AGA and IGA are therefore campaigning for a categorical ban on sports contracts, rather than leaving case‐by‐case decisions solely to the CFTC.
Their stance reflects growing concern within the licensed casino industry that prediction platforms could undercut or bypass established state‐licensed sportsbooks while operating under a federal derivatives framework.
Courts and foreign regulators tighten the screws
State‐level enforcement actions and recent court rulings have added urgency to the debate.
In France, the national gambling watchdog ordered internet service providers to block access to Polymarket, accusing the platform of offering illegal gambling services. The regulator classified the alleged breach as a criminal offence, carrying financial penalties.
In the US, a separate legal setback has emerged for the sector. Judge Analisa Torres ruled that New York’s gambling laws apply to Kalshi’s sports‐related event contracts, rejecting arguments that they fell solely under federal CFTC jurisdiction and were therefore insulated from state gambling controls.
Although the case directly concerned Kalshi, the decision has potential implications for Polymarket and other platforms offering similar contracts. Under the court’s reasoning, federal commodities oversight does not automatically pre‐empt states from applying their own gambling statutes to sports prediction markets.
The House hearing will place these competing legal theories in front of lawmakers, pitting those who say the CFTC’s existing powers are enough to block harmful contracts against industry representatives who want sports products barred from federally regulated exchanges altogether.
Hyperliquid pushes ahead with permissionless markets
While US politicians debate tighter curbs on sports contracts, one decentralised platform is preparing to expand the technical frontier of prediction trading.
Hyperliquid plans to launch permissionless “outcome markets” under its HIP‐4 framework, beginning on a testnet before a targeted mainnet rollout, as previously reported by crypto.news.
In a Telegram update on Sunday, Hyperliquid said its validators cannot practically review every possible event market as the universe of tradable outcomes grows. Instead, the HIP‐4 system would require validators to approve standardised templates that define how specific categories of markets must function.
Once a template is approved, its rules are stored and enforced onchain. Any deployer could then create a new market using that format without seeking a separate validator vote for each listing.
Deployers would still be responsible for designing and settling individual markets under the template’s conditions. Hyperliquid said validators will continue to create their own “canonical markets”, but expects them to approve fewer than 10 such outcome questions a year.
The HIP‐4 proposal deals purely with market design and onchain governance, and does not address the unresolved US legal fight over sports‐linked contracts. That dispute now moves to Capitol Hill, where lawmakers must decide whether to rely on the CFTC’s existing toolkit – or to shut down sports prediction trading on federally overseen exchanges altogether.
