Hyperliquid and Multicoin line up behind proposed CFTC prediction market rules
The Hyperliquid Policy Center and Multicoin Capital have thrown their support behind the Commodity Futures Trading Commission’s proposed framework for event-based and prediction markets, arguing that the time has come for clear, nationwide rules and a single federal referee.
In a joint comment filed on July 27, the final day of the public comment period, the two groups endorsed the CFTC’s attempt to formalize how it reviews prediction contracts, especially those touching sensitive subjects such as gambling, war, terrorism, assassination, and conduct that violates federal or state law. The filing positions the rulemaking as a chance to replace ad hoc, staff-driven judgments with written standards that market operators can actually design around.
According to the filing, codified rules would give exchanges and protocols far more predictability than the current patchwork of interpretations that can shift from one administration to the next. “Clear rules beat guesswork,” the groups argue, insisting that businesses need stable expectations if they are to invest in new markets and compliance systems.
What the CFTC is proposing
The CFTC is seeking to amend Regulation 40.11, following an earlier consultation, by introducing a structured, three-part test. Under the proposal, the Commission would first determine whether a product is an “event contract.” If so, it would then ask whether the contract involves one of the specifically listed categories-gaming, war, terrorism, assassination, or unlawful conduct. Finally, the CFTC would consider whether allowing trading in that contract would conflict with the public interest.
Crucially, the proposal does not impose a blanket ban on contracts merely because they are associated, in some broad sense, with these topics. Instead, the agency envisions a case‑by‑case review, with each product examined individually over a period that could extend up to 90 days. CFTC Chair Michael Selig has described the planned framework as intended to be “durable” and “transparent,” though the exact language may still change before the Commission issues a final rule.
The emphasis in the draft rule is on the actual settlement event that determines payouts, not on the trading itself. The CFTC draws a distinction, for instance, between a contract directly tied to an unlawful act and one that settles based on a lawful court decision related to that act. That approach aligns closely with the suggestions made in the Hyperliquid-Multicoin submission.
One federal regulator, not 50 different interpretations
A central theme of the joint comment is that the CFTC should remain the sole federal regulator for exchange‑traded prediction contracts. The filing carefully distinguishes these contracts from traditional bookmaker bets. In a bookmaker model, participants wager against the house. In exchange‑traded prediction markets, by contrast, traders interact with each other at market‑driven prices, while the venue merely matches orders and charges fees.
This distinction is not just semantic. It underpins the argument that prediction markets fall squarely under the Commodity Exchange Act and the jurisdiction of the CFTC, rather than under state gambling statutes. Several states have tried to treat prediction platforms as gambling operators, prompting clashes with both the platforms themselves and with federal derivatives regulators. Courts have yet to deliver a single, definitive nationwide ruling that resolves the tug‑of‑war between state gaming law and federal commodities law.
Recent developments highlight this uncertainty. One state has explicitly allowed access to CFTC‑regulated prediction venues, even as litigation in other jurisdictions continues against operators such as Kalshi and Polymarket. Those lawsuits effectively test whether federal derivatives regulation preempts state gaming requirements when the product is listed on a CFTC‑regulated exchange.
Hyperliquid and Multicoin argue that the CFTC’s role as singular federal supervisor is essential to preventing a fragmented market in which the legality of the same contract varies by state, undermining liquidity, price discovery, and user trust.
How to decide if a contract “involves” a restricted activity
The joint filing urges the CFTC to adopt a settlement‑based method for determining whether a contract “involves” a restricted category like war or gaming. Under this approach, what matters is the specific event or condition that controls settlement, not every tangential link the topic might have.
For example, a contract that pays out based on whether a particular sports match is played might clearly fall into the “gaming” bucket. But a contract that settles on a macroeconomic indicator that happens to be influenced by war, or on election outcomes shaped indirectly by geopolitical events, should not automatically trigger restrictions simply because war is one of many contributing factors.
The comment argues that the defining factor should be the payout condition: if the settlement event itself is a prohibited or listed activity, the rule applies; if the connection is only incidental and not part of the settlement mechanism, it should not. This is meant to avoid sweeping in broad categories of legitimate economic or political forecasting contracts that are only loosely adjacent to sensitive topics.
The CFTC’s proposal broadly mirrors this logic, focusing on the underlying event from which the contract derives its value. Still, Hyperliquid and Multicoin want the Commission to go further by publishing more examples and edge‑case scenarios, particularly where the line between “involving” a listed activity and merely “touching on” it is hard to draw in practice.
Demand for detailed, public reasoning
Beyond the definition of restricted contracts, the filing pushes for greater transparency around how the agency makes its determinations. Under the current draft, the CFTC must publish its reasoning when it blocks a proposed product. Hyperliquid and Multicoin suggest that the same level of explanation should apply when a contract is approved.
Their argument is pragmatic: documented approvals can serve as informal precedents and reference points, giving other venues a clearer sense of what is likely to pass muster. Over time, a body of examples-both approvals and denials-could function as a living guide for innovators, reducing the odds of wasted development cycles or regulatory surprises.
This request arrives at a moment when the CFTC is simultaneously demanding more detail from exchanges and venues that self‑certify new products. In late July, the regulator reiterated that it would not accept generic, template‑style submissions. Instead, it expects each contract, and even each new variation, to come with comprehensive information about its terms, settlement mechanism, underlying data sources, and compliance analysis.
Hyperliquid’s own markets inform its policy push
Hyperliquid’s policy position is shaped directly by its technical work. In May, the protocol launched HIP‑4 outcome contracts on its mainnet. These products are fully collateralized, settle at either zero or one, and intentionally avoid leverage and liquidations. Validators on the network approve canonical markets and resolve them using predefined data sources that are integrated into Hyperliquid’s infrastructure.
Earlier, Hyperliquid rolled out its first off‑chain event market tied to the U.S. consumer price index, using it as a proving ground before expanding into a broader architecture of outcome contracts. That expansion marked a strategic move beyond its origins in perpetual futures trading, signaling a long‑term bet on information and event markets.
The Hyperliquid Policy Center has been consistent in arguing that regulation should be technology‑neutral: on‑chain and off‑chain markets should be judged using the same substantive standards, provided they offer comparable protections and transparency. However, the filing acknowledges that Hyperliquid does not currently operate as a CFTC‑registered exchange in the United States. Even a finalized event‑contract rule would not, on its own, create an immediate legal pathway for decentralized prediction venues or for U.S. users to access them directly.
In other words, while Hyperliquid’s products illustrate what modern event markets can look like, resolving the status of decentralized platforms will still require additional regulatory work-potentially involving new guidance on self‑custody, non‑custodial protocols, and how to supervise venue functions that are implemented via smart contracts rather than traditional corporate entities.
Why prediction markets are forcing the issue now
One reason these questions have become urgent is simple scale. Trading volume in prediction markets has recently crossed the tens of billions of dollars per month, and large, established players in traditional finance are beginning to explore or integrate similar products. What was once a niche experiment is rapidly becoming a meaningful segment of the broader derivatives landscape.
With growth comes political and legal scrutiny. Critics worry about markets that could appear to incentivize harmful behavior-such as contracts framed around assassinations or terrorism-or that might simulate unlicensed gambling. Supporters counter that properly designed prediction markets are powerful tools for aggregating information, improving forecasts about everything from elections to inflation, and helping businesses hedge real‑world risks more accurately than conventional instruments.
The proposed CFTC framework can be understood as an attempt to capture the benefits of these markets while drawing clear lines around the most troubling edge cases. By articulating what is acceptable and what is not, the Commission hopes to avoid both extreme outcomes: a free‑for‑all in sensitive contracts on one side, and a de facto ban on almost all real‑world event trading on the other.
Industry hopes: legal certainty without stifling innovation
The Hyperliquid-Multicoin comment underscores a broader desire within the industry: a predictable environment where firms can innovate without constant fear that a change in political mood will retroactively criminalize or shut down their core business.
From their perspective, formal rules that define “event contracts,” specify prohibited activities, and map out a transparent review process would unlock several advantages:
– Exchanges could design products from day one to comply with well‑understood standards, cutting down on legal ambiguity.
– Investors and users could participate with more confidence that the venue is operating within a stable regulatory perimeter.
– Policymakers would gain better visibility into a growing market segment, enabling them to refine rules based on evidence rather than conjecture.
At the same time, there is a clear concern that overly restrictive or vague criteria could push legitimate activity offshore or into fully unregulated spaces, undermining consumer protections and weakening U.S. leadership in financial innovation. The joint filing walks a careful line, endorsing the CFTC’s role and framework while pressing for nuanced, settlement‑based tests that avoid overreach.
The unresolved question of decentralization
Even if the CFTC finalizes a balanced rule for event contracts, the hardest structural questions may lie ahead: how to apply those rules to decentralized, non‑custodial protocols. Unlike traditional exchanges, these systems often lack a central operator who lists contracts, vets users, or files self‑certifications. Governance decisions may be distributed across token‑holders or validators, and core code may be open‑source and globally deployed.
Hyperliquid’s own architecture-validator‑driven market approval, on‑chain settlement, and outcome tokens that behave more like digital primitives than conventional derivatives-sits squarely in this frontier space. For now, the joint filing largely focuses on the substantive standards for which contracts are allowed, rather than on institutional questions about who, exactly, must register, supervise, or police them.
That leaves regulators and builders facing a second, parallel challenge: designing supervisory models that can handle code‑driven venues without crushing the very attributes that make them valuable-resilience, transparency, and global accessibility.
What comes next
The CFTC will now digest the comments it received and decide whether, and how, to revise the proposed amendments to Regulation 40.11 before voting on a final rule. Market participants will be watching closely not only for the outcome but for the reasoning the Commission chooses to put on record.
For projects like Hyperliquid, the stakes are high. A clear, technology‑neutral framework around event contracts would validate years of experimentation in outcome markets and could open the door to more institutional participation, even if additional work is needed to accommodate decentralized designs. For Multicoin and other investors, a stable regulatory perimeter could help bring prediction markets firmly into the mainstream of the derivatives ecosystem rather than leaving them in a legal gray zone.
Whether the final rule leans more restrictive or more permissive, it will likely set the tone for how the United States approaches prediction markets for years to come-and will signal to both traditional finance and crypto‑native builders how far, and in what directions, they can safely innovate.