Andreessen Horowitz submitted a letter to the CFTC on May 2, 2026, backing federal jurisdiction over prediction markets and opposing state-level crackdowns on platforms like Kalshi and Polymarket. The venture capital firm argues that state bans conflict with federal commodities law and restrict market access for retail traders. a16z’s intervention comes as the CFTC has filed lawsuits against five states—Illinois, Arizona, Connecticut, New York, and Wisconsin—over their attempts to restrict event contract trading.
Federal Authority Over Event Contracts
a16z contends the CFTC has decades of established oversight authority over event contracts as commodities. The firm’s letter emphasizes that prediction markets provide price discovery and crowd intelligence on uncertain outcomes, functions central to commodity markets. State regulators, meanwhile, classify prediction market platforms as unlicensed gambling operations. The CFTC has consistently asserted federal jurisdiction, as evidenced by its 2022 settlement with Polymarket, which paid a $1.4 million penalty and agreed to block US customers pending regulatory approval.
Market Scale and Liquidity Concerns
Prediction market trading volumes have surged, reaching $25.7 billion in monthly volume as of March 2026. Retail users comprise 80% of traders, with platforms typically serving users with positions above $10,000 thresholds. a16z warns that fragmented state-level restrictions would “severely circumscribe available liquidity,” forcing platforms to deny impartial access to users across multiple jurisdictions. This liquidity concern directly impacts price discovery—the core function prediction markets provide to broader financial markets and decision-makers.
Jurisdictional Battle and Regulatory Gaps
The conflict between state attorneys general and federal regulators reflects deeper uncertainty over prediction market classification. States view these platforms as gambling; the CFTC treats event contracts as federally regulated commodities. Blockchain-based platforms like Polymarket offer onchain auditability for regulatory oversight, addressing transparency concerns. However, the CFTC currently has four vacant commissioner seats, potentially complicating enforcement and rulemaking authority. Polymarket remains banned from the US market while seeking CFTC approval to re-enter.
Precedent and Next Steps
The outcome of the CFTC’s lawsuits against the five states will likely determine whether federal or state regulatory frameworks prevail. a16z’s public letter signals that major venture capital is prepared to defend prediction market infrastructure against state-level prohibition. The timeline for Polymarket’s US re-entry remains unclear, as does the broader regulatory pathway for platforms operating across multiple jurisdictions.
