Paradigm’s Response to CFTC Request for Comment

Prioritization is everything in policy.

In August, the CFTC issued a broad request for comment on a host of matters related to crypto and how recommendations of the President’s Working Group on Digital Assets’ 180 Day Reports (“the PWG Report”) should be implemented. Given the wide sweep of questions facing the CFTC on crypto policy at this time, it’s wise of the CFTC to seek open-ended comment from stakeholders.

While many of the issues in this request piqued our attention, we’re focusing our response on the three areas we think are especially important.

First, we ask the Commission to provide tailored exemptive relief for trading perpetuals on DeFi protocols by the end of the year. The idea of bringing perpetuals into US markets is something we’ve recommended in the past, both to provide additional options for American investors and to bring more liquidity onshore. Yet, to only allow perpetual contracts to be traded on CeFi is to deliberately hobble this product, akin to creating a new streaming network but requiring it be connected through an Ethernet cable instead of WiFi. The CFTC should embrace the cutting edge of perpetuals and allow them to be traded, with reasonable limits, via DeFi.

Second, we urge the Commission to codify a clear standard for what it means for an event contract to “involve” gaming and thus be subject to potential prohibition. Prediction markets represent a huge opportunity for American investors, policymakers, and ordinary citizens with their ability to provide fast, useful information about the state of the world. That said, there are aspects of prediction markets that do lie closer to gaming than investing. Until the line is drawn between these two topics, prediction markets as a whole will be under a cloud. Happily, U.S. District Court Judge for the District of Columbia Jia Cobb, a judge nominated by former President Biden, recently provided a definition for what qualifies as gaming under the Commodity Exchange Act. The CFTC should codify this decision via notice and comment regulation.

Finally, consistent with the PWG Report’s recommendations for jurisdictional clarity, we ask the Commission to coordinate with the Securities and Exchange Commission (“SEC”) to issue a clear test for which agency oversees which event contracts based on corporate events that solidifies the CFTC’s role as primary regulator of prediction markets. Divining the jurisdictional lines in crypto between the SEC and CFTC has baffled observers across the ideological and political spectrums. It would be a mistake to repeat that mistake for prediction markets. The CFTC should obviate this danger immediately rather than allow it to fester and burst into another multi-year legal battle across the country’s courtrooms.

While these issues are not the only ones that are important to crypto, we believe it would behoove the Commission for action on these topics to be taken with all deliberate speed.

Read our comment submission here.