The Commodity Futures Trading Commission (CFTC) has ordered the closure of one of the most popular prediction markets after it failed to follow the terms of a no-action letter.
CFTC Targets Election Betting Site PredictIt
The Commodities Futures Trading Commission rescinded a letter granting PredictIt permission to operate its not-for-profit online marketplace, where users can wager money on the outcomes of elections and financial events.
The Victoria University of Wellington in New Zealand established the platform for research and education purposes, examining how markets can forecast real-world events. It had asked the CFTC to exempt it from legal action, and the agency granted it a no-action letter in 2014.
Users can wager on events, such as the 2024 presidential nominations and whether marijuana will be rescheduled by the federal government this year, using bank deposits or credit cards. PredictIt also accepts crypto deposits in USDC. People purchase shares in the outcome of an event, which can then be sold or redeemed, with the price fluctuating depending on how others bet and the outcome of the event.
CFTC Unclear on Grounds for Letter Retraction
In revoking the letter, the CFTC stated that the university had not operated its marketplace in accordance with the terms it had agreed to with PredictIt in 2014 but did not specify which rules it had violated. The letter demanded that the site close down its marketplace and cease offering contracts to customers by February 15.
PredictIt maintains that all open markets comply with the terms of the letter. According to a statement, this action will not affect the security of trader funds, but it will halt the addition of new markets. It will continue to accept new deposits and signups, as well as process withdrawals.
PredictIt does not yet know how it will settle markets that have an end date later than the February 15 deadline for closing operations, but it intends to operate until then. According to its website, the marketplace provides members of the academic community PredictIt’s data for free.
Recently, the regulator has placed a greater emphasis on event contracts, a field that has gained popularity alongside the recent boom in retail trading.
Polymarket, a cryptocurrency-based event market that was fined $1.4 million in January for failing to register its services with the CFTC, had made forays into allowing users to reap benefits from the outcomes of real-world events. The agency informed Polymarket that it had to stop providing the services unless it registered.
Since the regulation, Polymarket has geoblocked US customers and added former CFTC chair Christopher Giancarlo to its advisory board to assist with a possible reentry into the US.
Following the news of PredictIt’s protection being revoked, Polymarket tweeted:
“Viva la PredictIt. You will forever have a special place in our hearts and those of the prediction market community. The foundation you laid will not go to waste.”