Andreessen Horowitz (a16z) has thrown its support behind the U.S. Commodity Futures Trading Commission (CFTC) in an intensifying dispute with state authorities over prediction markets, warning that state-level enforcement against platforms such as Kalshi and Polymarket risks undermining liquidity and disrupting a rapidly growing corner of crypto-linked trading.
Key Drivers
In a letter submitted on Thursday to the CFTC’s advance notice of proposed rulemaking on event contracts and prediction markets, a16z argued that state crackdowns—ranging from cease-and-desist orders to criminal actions—are erecting barriers that conflict with the federal regulator’s mandate to provide “impartial access to its markets and services.” The venture firm’s filing contends that forcing exchanges to screen out users by state of residence would undercut the CFTC’s market-access rules and fragment participation across jurisdictions. “Being forced to deny impartial access to users in states that seek to license or prohibit certain event contracts will likely severely circumscribe available liquidity,” the firm wrote in its submission, urging the agency to preserve nationally consistent access for qualified market participants. The letter can be found here.
The intervention comes as the jurisdictional contest has escalated into formal litigation. In recent weeks, the CFTC has filed lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, asserting that those states overreached by attempting to regulate markets that fall under federal commodities law. A16z’s filing backs the federal position and frames state-by-state access restrictions as incompatible with the CFTC’s core principles.
Market Movement
The policy clash is unfolding against a backdrop of surging trading activity on prediction venues. As Cointelegraph previously reported, monthly volumes across the sector reached $25.7 billion in March, with more than 80% of users characterized as retail—defined as those transacting under $10,000. Data visualizations from Token Terminal track the rise of Kalshi and Polymarket over recent months, underscoring how quickly these venues have scaled as event contracts draw wider participation from crypto-native traders alongside broader retail interest. The combination of rising volumes and a heavily retail user base highlights the importance of consistent market access: any fragmentation by geography could affect participation patterns across platforms that depend on network effects to sustain trading activity.
These dynamics matter because event-contract markets turn collective expectations about uncertain outcomes—such as economic prints, sports results, or elections—into tradable prices. The letter from a16z positions that process as a distinct form of price discovery that aggregates crowd intelligence. Sustained liquidity, wide participation and clear settlement conventions are essential to that discovery function, and the firm argues that uneven access rules would work at cross-purposes with those aims.
Regulatory Fault Lines
A core source of tension is definitional: several state attorneys general contend that markets offering contracts on sports or political outcomes operate as unlicensed gambling. A16z pushes back, asserting that the CFTC—by virtue of its long-standing oversight of event contracts—should have the authority to determine what constitutes “gaming” within the scope of federal commodities regulation. From the firm’s perspective, delegating that definition to a patchwork of state regimes would introduce inconsistencies that complicate compliance and impair market integrity.
Beyond jurisdiction, a16z’s filing also highlights a technological angle. The firm signals support for blockchain-based prediction platforms, arguing that onchain auditability can make oversight more effective by leaving transparent records of transactions and positions. In a market segment where trade provenance and settlement certainty are crucial for trust, verifiable ledgers can help regulators and platforms monitor activity without sacrificing the core mechanics that draw users to these instruments.
Investor Reaction
The trading data cited in recent reporting—$25.7 billion in monthly volume and a heavily retail user mix—suggests that end users are responding to the accessibility and expressiveness of event contracts as a tool for expressing views on real-world outcomes. For retail traders, the ability to take narrowly defined positions with clear settlement events has proven compelling. For more sophisticated market participants, the appeal lies in hedging exposure to discrete events or seeking uncorrelated returns relative to traditional crypto assets.
Against that backdrop, market access remains a pivotal consideration. A16z’s emphasis on “impartial access” echoes concerns voiced across exchange-based markets: when users in certain states are blocked or face shifting requirements, activity may migrate unpredictably, leaving pools of liquidity that are smaller than the market’s aggregate demand would otherwise support. While the extent of any impact will depend on the ultimate contours of federal rulemaking and state enforcement, the firm’s submission underscores how rules clarity could influence where and how liquidity concentrates.
Broader Impact
The outcome of the federal–state dispute could shape product availability, platform onboarding practices, and liquidity distribution for prediction markets integrated with crypto rails. A finding that reaffirms the CFTC’s remit would align with a16z’s call for uniform access and could stabilize growth trajectories for exchanges that hew to federal compliance frameworks. Conversely, if state-enforcement models prevail, platforms may contend with more granular geofencing and operational complexity, which the a16z letter argues would constrain market depth.
Developments around Polymarket illustrate what’s at stake for U.S. users. The platform is in discussions with the CFTC to lift the ban that has kept Americans off its main venue since a 2022 settlement, under which the company paid a $1.4 million penalty and agreed to block U.S. customers over unregistered event contracts. Any broader return would require a formal commission vote, according to the reporting, with the process described as potentially moving faster given that four of the CFTC’s commissioner seats are currently vacant. How those talks progress, and how the courts resolve the agency’s lawsuits against individual states, will inform accessibility for U.S.-based traders and the location of liquidity across competing platforms.
For now, a16z’s submission places a clear marker: in its view, the CFTC should define the boundaries of “gaming” for event contracts and ensure that qualified users can access federally regulated markets on equal terms. With volumes climbing and retail participation high, the firm argues that the costs of fragmented access—particularly thinner liquidity—would be borne by traders who rely on efficient pricing and reliable settlement in these crypto-adjacent markets.
Cointelegraph states that it is committed to independent, transparent journalism and encourages readers to verify information independently, aligning with the goal of providing accurate and timely updates on evolving market and regulatory developments.
