A16z backs CFTC, warns state bans limit prediction markets

Andreessen Horowitz filed an 18-page comment letter with the Commodity Futures Trading Commission on Friday arguing that state bans and cease-and-desist orders targeting prediction markets hinder impartial user access and conflict with federal fair-access requirements.

The firm said forcing platforms to block users by state would reduce liquidity and weaken market functioning. The letter cautioned that requiring exchanges to deny access based on residence would “likely severely circumscribe available liquidity,” a condition it said could impair market pricing and usefulness.

The filing comes after the CFTC in the past month brought lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, asserting those states are exceeding their authority by regulating event contracts the agency treats as swaps. CFTC Chairman Mike Selig has stated that prediction market contracts qualify as swaps and fall under the agency’s exclusive jurisdiction.

State attorneys general and regulators have taken the opposite position, issuing cease-and-desist orders and arguing that platforms are offering unlicensed gambling products subject to state law. The dispute has focused on whether event contracts offered by newer platforms, many of them blockchain-based, are federal swaps or state-regulated gambling.

Andreessen Horowitz also described how prediction markets generate prices that reflect collective probability assessments. The letter called those prices a “unique form of price discovery” that can reveal probabilities for uncertain events. The firm noted differences in blockchain-based platforms, saying the “auditability of onchain transactions” makes it easier for both participants and regulators to monitor trading activity compared with traditional, off-chain markets.

Market activity has increased in recent months. In April, leading platforms Polymarket and Kalshi reported cumulative lifetime trading volumes that together surpassed $150 billion, following a period of rising use.

The CFTC’s suits argue that state measures conflict with federal oversight of swaps and derivatives and should be preempted. State regulators have continued to pursue enforcement actions and proposed bans, citing consumer protection and gambling statutes. The Andreessen Horowitz letter frames its comments around preserving access for traders and observers who rely on market prices to assess the likelihood of future events.