Outgoing Commodity Futures Trading Commission (CFTC) Commissioner Kristin N. Johnson warned that prediction markets pose growing dangers to retail traders. She cited a scarcity of oversight and regulatory readability as main issues.
In her farewell public deal with on Wednesday, Johnson voiced concern that some market members are providing leveraged prediction market contracts to retail traders with out clear regulatory boundaries.
“As of immediately, we’ve got too few guardrails and too little visibility into the prediction market panorama,” she stated in a farewell speech on the Brookings Institution. “There is an pressing want for the fee to specific in a transparent voice our expectations associated to those contracts,” she added.
Johnson, appointed to the CFTC in 2022, stated she was “deeply dissatisfied” the company had didn’t implement a rule addressing political occasion contracts. These contracts, which permit customers to guess on outcomes of elections or sports activities occasions, have quickly expanded in recognition and quantity.
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Johnson slams license flipping loophole
Johnson additionally criticized the rising “lease or purchase my license” pattern in derivatives markets. She stated some companies search licenses for conventional merchandise, then pivot to self-certifying prediction market contracts as soon as accepted.
“In different contexts, companies which have acquired a license shortly public sale their newly minted license to others,” she stated.
Her remarks echoed broader issues about client safety and market stability. Drawing parallels between the collapse of crypto companies like FTX and the 2008 monetary disaster, she argued that governance and danger administration failures typically observe predictable patterns.
“If we fail to rightly prioritize client safety or market stability on the street to capturing the advantages of innovation or progress, the outcomes will be devastating,” Johnson stated.
She additionally warned that poor inner controls and compliance methods stay widespread throughout newer market entrants, notably in crypto and now prediction markets. “Innovation and market stability ought to work collectively, enabling one to foster the opposite,” she stated.
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CFTC grants regulatory aid to Polymarket
Johnson’s warning in opposition to prediction markets got here because the CFTC issued a no-action letter to QCX LLC and QC Clearing LLC, two entities linked to the prediction market platform Polymarket.
While the choice doesn’t exempt the entities from future compliance, it permits Polymarket to function event-based markets within the US with out quick regulatory penalties. In July, Polymarket acquired QCEX, a CFTC-licensed trade and clearinghouse, for $112 million.
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