A16z Supports CFTC in Legal Clash Over Prediction Markets
Joerg Hiller May 03, 2026 16:18
A16z backs the CFTC, arguing federal law overrides state bans on prediction markets like Kalshi, citing liquidity and price discovery benefits.
Andreessen Horowitz (A16z) has stepped into the growing legal battle over prediction markets, filing an 18-page letter in support of the Commodity Futures Trading Commission (CFTC) as it faces off against state regulators. The venture capital giant argues that federal law preempts state efforts to ban platforms like Kalshi and Polymarket, emphasizing that such restrictions undermine market liquidity and federal oversight.
The letter, submitted in response to the CFTC’s proposed rulemaking on prediction markets, takes aim at state-level crackdowns—ranging from cease-and-desist orders to criminal charges—that have targeted these platforms. A16z contends that forcing exchanges to block users based on their state of residence conflicts with the CFTC’s mandate to ensure impartial access to federally regulated markets. "Being forced to deny impartial access to users in states that seek to license or prohibit certain event contracts will likely severely circumscribe available liquidity," the firm wrote.
Federal vs. State Jurisdiction
At the heart of this dispute is whether prediction markets fall under state gambling laws or federal commodities regulations. State attorneys general argue that contracts tied to outcomes like elections or sports amount to unlicensed gambling. A16z counters that the CFTC, not states, holds the authority to define what constitutes "gaming" under its decades-long oversight of event contracts.
This isn’t just a battle over regulatory turf—it’s also about market structure. Prediction markets, which allow users to trade contracts on the likelihood of specific events, rely on liquidity to function effectively. A16z argues state bans fragment the market, reducing participation and distorting prices. Platforms like Kalshi and Polymarket dominate the $25.7 billion monthly trading volume (as of March 2026), with over 80% of users classified as retail traders, making access critical.
Social Utility and Blockchain Oversight
A16z has gone beyond legal arguments to highlight the broader benefits of prediction markets. The firm describes these platforms as unique tools for price discovery, aggregating collective intelligence to forecast uncertain outcomes. Additionally, A16z points to blockchain-based platforms’ on-chain auditability, asserting that this enhances regulatory oversight and reduces risks like insider trading or market manipulation.
However, critics argue that the effectiveness of these markets hinges on a small, informed elite rather than broad crowd wisdom. Recent studies suggest most retail users lose money, while a handful of insiders set prices.
Polymarket Eyes U.S. Comeback
Amid this backdrop, Polymarket is reportedly in talks with the CFTC to lift the ban blocking U.S. users from its main platform. The restriction stems from a 2022 settlement in which the platform paid a $1.4 million penalty for offering unregistered event contracts. A full comeback would require a formal vote by the CFTC, though progress could be expedited as four commissioner seats remain vacant.
The legal landscape for prediction markets remains volatile, with the CFTC recently suing states like Illinois and New York for attempting to enforce gambling laws on federally regulated platforms. A16z’s involvement signals growing private-sector pushback against state interventions, setting the stage for potential Supreme Court involvement.
As regulatory battles intensify, the outcome will shape not only the future of prediction markets but also broader questions about federal versus state authority in the crypto and financial innovation space.
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