a16z urges CFTC to require on-chain KYC for prediction markets

Andreessen Horowitz’s crypto unit filed a comment letter with the U.S. Commodity Futures Trading Commission on Wednesday asking the agency to adopt a federal regulatory framework for prediction markets. The filing responds to the CFTC’s request for input earlier this year on how to treat event contracts and prediction markets.

The letter, authored by Miles Jennings, Scott Walker, David Sverdlov and Aiden Slavin, argues that a single federal framework would reduce conflicting state rules and provide clear standards for handling disputes and allegations of misconduct. The authors describe prediction markets as an extension of how information is priced in traditional markets and say regulators need rules tailored to their features.

a16z recommends using blockchain’s auditability to enable near real-time monitoring of trades, adding customer identification checks so platforms can build and maintain prohibited-trader lists, and setting clear settlement standards for contested outcomes. The filing also asks the CFTC to allow event contracts on controversial topics when a platform can show the contract serves a legitimate public interest.

The filing cites rapid growth on some platforms as a reason to act now. It notes one platform’s weekly volume rose from roughly $300 million to $3 billion and warns that automated trading or artificial-intelligence agents could interact with markets in ways that complicate oversight if uniform rules are not in place.

The submission comes amid heightened scrutiny from Congress and federal agencies over suspicious trades tied to classified or privileged information. Lawmakers passed a ban prohibiting members of Congress and their staff from using certain prediction market platforms. Federal prosecutors have charged a U.S. special forces soldier with using classified information to place bets tied to an operation, and platforms have canceled or altered markets after events such as the death of a foreign leader.

Some prediction market operators have already updated their rules. One platform now prohibits insider trading, bars elected officials and government insiders from betting on events they can influence, and enforces penalties that include wallet bans, fines and referrals to law enforcement. Other platforms have suspended and fined users accused of trading on privileged information, including political candidates and a content editor linked to a popular creator.

The letter points to federal oversight of other financial markets as a precedent for a national approach to event contracts. The CFTC’s next steps will determine whether it adopts on-chain monitoring and KYC measures like those proposed by a16z or relies mainly on voluntary platform rules and existing enforcement powers.