Paradigm Files Amicus to Support Keeping Election Markets in the US

Kalshi’s lawsuit and win against the CFTC

Kalshi is a financial technology company that operates a regulated exchange where users can buy and sell “event contracts”—an asset class whose payouts depend on whether specific future events occur. Those events can be anything from a hurricane to a change in interest rates. In 2023, Kalshi sought to list “control contracts” which would let traders take positions on which political party would control the U.S. Congress after an election.

In a controversial 3-2 split decision, the CFTC blocked Kalshi from listing the control contracts, asserting it had the authority to review contracts involving “gaming” or “unlawful activity.”

A federal district court disagreed. The court held that the agency had overstepped its authority, because elections involve neither gaming nor unlawful activity. The CFTC has now appealed.

Our amicus brief on appeal

U.S. Congressional elections carry immense consequences. The fates of bills, budgets, and nominees for both the executive branch and the judiciary all hang in the balance. Prediction markets like Kalshi’s serve two vital functions in this context. First, they let those with skin in the game—from business owners to investors—help protect themselves against political risks through hedging. Just as importantly, these markets harness collective wisdom to generate forecasts that help everyone, from citizens to organizations, better prepare for what’s coming. While polls can mislead, markets can cut through noise to reveal likely outcomes. Our amicus brief explains that Kalshi’s control contracts serve the public interest in these ways, and that the CFTC was wrong to try to ban them.

Why it matters

This is a case about whether regulators can stretch statutory terms beyond recognition to block innovative financial products that they don’t like. If the CFTC prevails, its expansive reading of “gaming” could theoretically let the agency regulate any derivative contract where money is staked on future events. That would nullify Congress’s decision to eliminate across-the-board regulatory review of new contracts. And it would make U.S.-based prediction markets extremely difficult to operate.

More broadly, a win for Kalshi would confirm that agencies must stay within statutory bounds even when confronting novel products. As technology continues to improve our financial markets, striking the right balance between innovation and regulation remains crucial.

At Paradigm, we’ve spent significant time researching prediction markets and advocating for the regulations that allow them to flourish. It is imperative that this technological primitive be allowed to reach its full potential, and we will continue to support efforts that work to bring about this future.