Chapter 38 Further Reading: The Regulatory Landscape

Foundational Texts

Arrow, K. J., Forsythe, R., Gorham, M., Hahn, R., Hanson, R., Ledyard, J. O., ... & Zitzewitz, E. (2008). "The Promise of Prediction Markets." Science, 320(5878), 877-878. A landmark letter signed by multiple Nobel laureates and leading economists arguing that regulatory barriers to prediction markets should be reduced. The authors make the case that prediction markets serve a public information function and that overly restrictive regulation destroys social value. Essential reading for understanding the academic consensus that has influenced regulatory evolution.
Bell, T. W. (2006). "Prediction Markets for Promoting the Progress of Science and the Useful Arts." George Mason Law Review, 14(1), 37-92. A legal analysis arguing that prediction markets qualify for regulatory exemptions under the "useful arts" clause and should be treated as information-producing institutions rather than gambling operations. Bell's arguments anticipate many of the legal strategies later employed by Kalshi and other platforms seeking regulatory approval.
Mayer Brown LLP (2023). "The CFTC's Evolving Approach to Event Contracts: From Dodd-Frank to Kalshi." White Paper. A comprehensive law firm analysis of the CFTC's regulatory framework for event contracts, tracing the evolution from Dodd-Frank's enactment through the Kalshi election contracts litigation. Particularly useful for understanding the "contrary to the public interest" standard and how it has been interpreted.

CFTC (2023). "Proposed Rule on Event Contracts." Federal Register, 88 FR 36285. The CFTC's proposed rulemaking on event contracts, which would have established formal criteria for evaluating whether event contracts are contrary to the public interest. Although overtaken by the Kalshi litigation, this proposed rule provides the most detailed statement of the CFTC's analytical framework for evaluating event contracts. Available at cftc.gov.
KalshiEx LLC v. CFTC, No. 23-cv-3257 (D.D.C. 2024). The full court opinion in the landmark Kalshi election contracts case. The decision provides detailed legal analysis of the CEA's event contract provisions, the "gaming" exclusion, and the standard of review for CFTC determinations. Essential reading for anyone involved in prediction market law or policy.
CFTC Division of Market Oversight (2014). "No-Action Letter to Victoria University of Wellington." CFTC Letter No. 14-130. The original no-action letter that authorized PredictIt's operation. Reading the actual letter — with its specific conditions and limitations — provides important context for understanding how PredictIt's operations exceeded the letter's scope and why the CFTC ultimately withdrew it.

SEC (2019). "Framework for 'Investment Contract' Analysis of Digital Assets." SEC Staff Statement. The SEC's framework for applying the Howey test to digital assets. While not specifically focused on prediction markets, this framework is directly applicable to tokenized prediction market products. The framework's analysis of "efforts of others" and "reasonable expectation of profits" prongs is particularly relevant.

European Commission (2023). "Markets in Crypto-Assets Regulation (MiCA): Regulatory Technical Standards." Official Journal of the European Union. The full text of MiCA and its implementing regulations. For anyone building or operating a blockchain-based prediction market in the EU, this is the definitive legal reference. Pay particular attention to the CASP licensing requirements (Title V), stablecoin provisions (Titles III and IV), and market abuse rules (Title VI).
Financial Conduct Authority (2020). "Policy Statement PS20/10: Prohibiting the Sale to Retail Clients of Investment Products that Reference Crypto-assets." The FCA's decision to ban crypto-derivatives for retail consumers in the UK. This policy statement explains the FCA's reasoning and the scope of the ban, which has significant implications for prediction market platforms targeting UK users.

CFTC (2022). "Order Instituting Proceedings Against Blockratize, Inc. d/b/a Polymarket." CFTC Docket No. 22-09. The CFTC's enforcement order against Polymarket. This document details the specific violations, the factual findings, and the settlement terms. It serves as a template for understanding how the CFTC approaches DeFi enforcement actions and what the agency considers minimum compliance requirements.
De Filippi, P., & Wright, A. (2018). Blockchain and the Law: The Rule of Code. Cambridge, MA: Harvard University Press. A comprehensive examination of how blockchain technology challenges existing legal frameworks. Chapters on smart contracts, decentralized organizations, and regulatory approaches provide essential context for understanding the regulatory challenges facing DeFi prediction markets. The book's analysis of the tension between code-based and law-based governance remains highly relevant.

Rose, I. N. (2024). "Prediction Markets and Gambling Law: The State-by-State Landscape." Gaming Law Review, 28(4), 201-225. A detailed analysis of how state gambling laws apply to prediction markets across all 50 US states. Rose categorizes states by their legal tests for gambling (predominant purpose, any chance, material element) and assesses the likelihood of prediction markets being classified as gambling in each jurisdiction. Essential for platforms assessing state-level legal risk.

Gamage, D., & Shanske, D. (2022). "Taxing Prediction Markets." Tax Law Review, 75(3), 445-498. An academic analysis of the tax treatment of prediction market gains under current US law. The authors examine the three possible classifications (Section 1256, capital gains, gambling income) and argue that regulatory clarity would benefit both taxpayers and the IRS. Includes detailed examples and calculations under each classification.

Coplan, S. (2024). "Building Polymarket: Lessons from Regulatory Engagement." Blog post, Polymarket.com. Polymarket founder Shayne Coplan's firsthand account of the platform's regulatory journey, including the CFTC enforcement action and subsequent restructuring. Provides valuable insight into the practical challenges of building a prediction market platform in an uncertain regulatory environment.
Mansour, T. (2024). "Kalshi and the Future of Regulated Prediction Markets." Presentation at the Milken Institute Global Conference. Kalshi CEO Tarek Mansour's perspective on the regulatory strategy of building within the existing framework. Discusses the DCM application process, the election contracts litigation, and the vision for expanding event contract categories. Available as video recording and transcript from the Milken Institute website.