Crypto venture capital firm Paradigm has filed court documents in support of prediction market platform Kalshi’s lawsuit against the Commodity Futures Trading Commission (CFTC), claiming that the existence of prediction contracts can help startups hedge risks and have positive external effects on the public.
Kalshi is a CFTC-regulated derivative prediction contract trading platform, not an on-chain prediction platform.
Paradigm expressed its support for Kalshi’s lawsuit against the CFTC in documents filed with the District of Columbia Court on Thursday.
Previously, in September last year, the CFTC banned Kalshi from listing prediction contracts related to the US presidential election, claiming that these contracts involved illegal gambling and were not in the public interest.
In response, Kalshi and its CEO Tarek Mansour filed a complaint against the CFTC, alleging that it violated the Administrative Procedure Act and that the contract was not within the CFTC’s regulatory jurisdiction.
Paradigm stated in the documents that prediction market contracts can help businesses, including crypto startups, hedge risks and have positive external effects on the public.
It also emphasized that although Paradigm is not an investor in Kalshi, it believes that the existence of prediction platforms could become a significant killer application in the crypto field and therefore is interested in the case.
Paradigm co-founder Fred Ehrsham illustrated this by giving an example:
Assume that Congress is about to pass a bill that will impact US crypto startups, and this bill will be directly influenced by a specific party in Congress. In this case, entrepreneurs can hedge risks by purchasing a prediction contract related to the party’s control in Congress, allowing them to avoid potential risks based on changes in the political situation.
He added, “When users participate in prediction markets, those who are not involved in the market can also obtain valuable real-time information, such as election positions. This may be more efficient and accurate in assessing current election trends and future outcomes compared to traditional polls.”
Similar views were also presented in another court document supporting Kalshi, where Joseph A. Grundfest, a professor at Stanford Law School, stated:
In a world full of low response rates in public opinion polls, extreme and biased opinions, and rampant misinformation, prediction markets provide an objective probability or indicator for specific election results.
It is reported that the CFTC will need to respond to Kalshi’s motion for summary judgment by February 26, 2024.
It is worth mentioning that Paradigm’s optimistic attitude towards prediction markets is not only because the company itself has invested in the field but also evident from the data.
Crypto asset management company Bitwise previously stated in a report that the prediction market will attract over $100 million in TVL (Total Value Locked) by 2025, nearly three times the current scale.
Last September, BitMEX also launched new prediction market derivative services, allowing users to make predictions about popular crypto events.
However, despite being called prediction markets, they are essentially gambling platforms and still raise legal concerns in various countries.
For example, the largest on-chain prediction platform Polymarket was fined $1.4 million by the CFTC in January 2022 for violating the Commodity Exchange Act (CEA).
At the same time, participating in political election betting through prediction platforms in Taiwan would also violate election laws and could result in up to six months of imprisonment.
(Bitwise, CFTC, Kalshi, Paradigm, Polymarket, prediction market)