Written & Organized: KarenZ, Foresight News
A century ago, when futures trading was just emerging, it was also labeled as 'gambling' by American politicians.
Today, CFTC Chairman Michael S. Selig has brought up this piece of history again.
On August 20th, US local time, at the inaugural meeting of the Commodity Futures Trading Commission (CFTC) Innovation Advisory Committee (IAC), Selig spent a considerable portion of his speech reviewing the history of the futures market: 19th-century commodity exchanges were besieged by state 'anti-gambling' laws, and commodity options were also long restricted. However, in the end, the United States chose to establish a unified federal regulatory framework, allowing new financial products to develop under clear rules.
Selig's message is not complicated: the debates surrounding crypto, artificial intelligence, and prediction markets today are, in his view, not entirely new. What regulation truly needs to answer is not just 'whether to allow innovation,' but how to bring innovation into a market framework that can be regulated.
Therefore, at this meeting, Selig for the first time unveiled what he calls the 'Roadmap for the New Frontier of Finance.'
The roadmap has three main lines: Crypto, AI Computing Power Markets, and Prediction Markets.
Among these, one of the most significant signals for the crypto industry is that Selig still views Congressional passage of crypto market structure legislation as the preferred solution. However, he also clearly stated that if such legislation continues to stall, the CFTC is prepared to study using its existing legal authority to establish a regulatory system for crypto asset markets.
First Path: If CLARITY Continues to Stall, CFTC Prepares to Act Using Existing Authority
Crypto is the part of the speech with the strongest policy signals.
Selig first reiterated the joint 'Project Crypto' being advanced by the CFTC and the SEC.
In January of this year, the SEC and CFTC upgraded 'Project Crypto,' originally led by the SEC, into a joint initiative between the two regulators. The aim is to address a core issue long plaguing the US crypto industry: which Crypto Assets are securities, which are not, and where the regulatory boundaries lie for the SEC and CFTC.
By March of this year, the two agencies further issued a joint interpretive document, categorizing Crypto Assets into five groups based on characteristics and function: Digital Commodities, Digital Collectibles, Digital Tools, Stablecoins, and Digital Securities. The document explicitly discussed scenarios where certain Crypto Assets are not securities, as well as the treatment under federal securities law of activities like Protocol Mining, Protocol Staking, Wrapping, and Airdrops.
However, for Selig, administrative agency interpretations are not enough.
In this speech, he still views Congressional passage of crypto asset market structure legislation as a more important and lasting solution, explicitly mentioning the CLARITY Act.
One of the core significances of the CLARITY Act is to further delineate, through legislation, the regulatory boundaries between the SEC and CFTC for the digital asset market and to establish a statutory regulatory framework for related markets.
What is truly noteworthy is the 'Plan B' Selig presented afterward.
He said, if the CLARITY Act ultimately continues to stall, the CFTC will utilize its existing authority to begin establishing a regulatory system for Crypto Asset markets. To this end, he has already directed CFTC staff to begin studying rulemaking proposals.
According to the vision described by Selig, this proposal might, in the future, allow existing CFTC-registered entities and currently unregistered Crypto Exchanges to be designated by the CFTC as a special type of Designated Contract Market (DCM), termed a 'Crypto Asset Market.'
These markets could subsequently, under CFTC oversight and specifically designed rules, offer trading of Crypto Assets with leverage or margin.
The word 'might' is crucial here. Selig's exact words were that staff have begun 'exploring rules,' and that such a framework 'could enable' the arrangements mentioned above. Therefore, it cannot yet be understood as 'CFTC has approved Crypto Exchanges to become DCMs,' nor as an already effective market access regime.
In addition, Selig revealed another task relevant to the DeFi industry: He has directed CFTC staff to engage directly with developers of Onchain Finance Protocols to explore how developers can offer such protocols in a legal and compliant manner within the United States.
This similarly does not provide specific exemption standards or regulatory conditions, but it at least indicates that when the CFTC discusses crypto regulation next, the scope is not limited to centralized venues like Coinbase and Kraken; developers of on-chain financial protocols have also been included as subjects of discussion in the regulatory framework design.
Second Path: Turning GPU Computing Power into a Market That Can Be Priced and Hedged
Compared to Crypto, Selig's approach to AI is quite different.
The CFTC is not responsible for regulating AI models themselves. What Selig has set his sights on is another asset behind AI: Compute, or computing power.
As the demand for high-performance GPUs for large model training and inference grows, computing power has become one of the most critical production factors for AI companies.
Selig's judgment is that as computing power becomes increasingly scarce and economically valuable, the demand for establishing spot, forward, and derivatives markets around computing power will also emerge.
A simple way to understand this is: Currently, when enterprises purchase computing power, they often face issues of price fluctuations, long-term supply, and resource allocation. If more mature and transparent Compute Markets form in the future, price discovery could emerge, similar to energy or other commodity markets, along with risk management through forwards and derivatives.
Selig stated that the CFTC has already collaborated with the US Department of Commerce and, just a week before this speech, issued a request for information on Compute Markets. The next step will be to study a relevant regulatory framework based on market feedback.
This means that what the CFTC refers to as 'AI regulation,' at least for now, is not equivalent to regulating the large models themselves. For a derivatives regulator, a more direct entry point is: When computing power becomes a priced, tradable, and hedgeable economic resource, how should the corresponding financial markets operate.
Third Path: Prediction Markets – Moving Beyond 'Can We Do It?' to 'How Should We Regulate It?'
With the rapid development of platforms like Polymarket and Kalshi, a long-standing question has become increasingly acute: Do contracts on events like sports and politics fall under federally regulated commodity derivatives or should they be subject to state gambling laws?
Selig's stance in this speech is very clear.
His position is that Congress has granted the CFTC exclusive regulatory authority over commodity derivatives on Designated Contract Markets (DCMs); as long as they are legal derivatives, the CFTC will continue to uphold this federal regulatory authority, including defending its jurisdiction in court.
However, he also acknowledges that historically, the CFTC has not established a sufficiently comprehensive regulatory system for event contracts that addresses their specific risks.
Notably, Selig did not simplistically frame the prediction market path as 'deregulation.' On the contrary, in this speech, he outlined a fairly concrete regulatory implementation schedule.
First, the CFTC has proposed amending Rule 40.11.
US law stipulates that the CFTC may restrict Event Contracts involving certain categories, such as war, terrorism, assassination, gaming, and illegal activities, based on the public interest. However, current regulations do not adequately define key concepts like 'gaming' and 'involve,' nor do they establish a complete standard for public interest determinations.
Selig stated that the new Rule 40.11 proposed by the CFTC in June of this year aims to make these standards more specific and establish a case-by-case review mechanism for contracts.
Second, the CFTC has proposed redesigning the data reporting regime for fully collateralized event contracts. In the past, some event contracts long relied on regulatory 'no-action letters' to handle reporting obligations. The CFTC proposed a new regulatory plan in June of this year, aiming to turn this temporary arrangement into a formal, unified reporting system.
Third, and a more noteworthy step for the next phase: Selig indicated that he expects the CFTC will soon propose a series of amendments to CFTC Regulations Part 38 and Part 40 to update the core principles for DCMs and the product listing rules applicable to Event Contracts.
Particularly noteworthy, he explicitly mentioned retail consumer protection, product governance, market design, and incentive programs.
This means that the CFTC's current policy direction for prediction markets is not simply debating 'are prediction markets gambling,' but is entering a more specific second phase: If they are considered regulated financial markets, what listing, governance, reporting, and consumer protection rules should exchanges adhere to?
The Most Intense Moment of the Meeting Also Occurred Over Prediction Markets
Compared to AI, the discourse around prediction markets was clearly more contentious. This divergence directly erupted at the meeting.
CME Group Chairman and CEO Terry Duffy first clearly stated that he is a staunch supporter of the crypto market (supportive since 2017 and pioneering crypto futures on CME) and holds a positive view of AI's application in risk management. However, when the topic shifted to prediction markets, his tone became extremely stern.
Duffy bluntly pointed out the chaos in current prediction markets, mentioning the 'Maduro contract' (related to political events) and the 'presidential teleprompter situation' contract, stating outright that such products clearly have room for manipulation. Additionally, some sports event contracts are not just outcome-based but involve individual performance, making them susceptible to human interference. Listing easily manipulated contracts damages the reputation of the entire industry and runs counter to President Trump's goal of 'making America the capital for crypto.'
Selig directly interrupted Duffy, pointing out that the contracts he cited were not listed within the United States but on overseas platforms.
Kalshi co-founder Luana Lopes Lara directly countered: 'Since we were named, I would like to ask, has CME ever had any market manipulation issues in its history?'
Duffy did not back down: 'If you want to debate, I'm happy to. But I have more people in my regulatory department than you have in your entire company.'
Lara retorted: 'Then perhaps you should learn about efficiency.'
Duffy then delivered a final, highly impactful retort: 'Then perhaps you should learn what a credible market is.'
This debate actually explains precisely why the CFTC is amending its rules. What prediction markets truly need to resolve are which events are suitable as contract underliers, what product review responsibilities exchanges should bear, how to monitor market manipulation and information advantages, and what protections retail users should receive.
What Did This Inaugural Meeting Actually Determine?
The CFTC Innovation Advisory Committee's own duty is to advise the CFTC on issues at the intersection of technology, law, policy, and finance. Committee members' views do not automatically represent the CFTC, nor will discussions from a single meeting directly translate into effective regulations.
Current IAC members span the crypto and traditional financial markets, including representatives from Coinbase, Uniswap Labs, Ripple, Kraken, Gemini, Solana Labs, Chainlink Labs, Polymarket, Kalshi, as well as heads of institutions like CME Group, Nasdaq, Cboe, ICE, DTCC, Franklin Templeton, and Robinhood.
However, viewing this meeting together with Selig's speech makes what the CFTC intends to do next clearer:
Regarding crypto assets, the priority is to await Congressional establishment of a market structure, but simultaneously preparing to study using existing authority to craft the CFTC's own crypto market rules. For AI, attempting to develop computing power into a new commodity market with price discovery and risk hedging functions. For prediction markets, preparing to establish more systematic rules around event contract admission, data reporting, market surveillance, and consumer protection.
These three areas appear quite different, but the regulatory approach the CFTC is presenting is actually consistent.
Selig repeatedly returned to one point in his speech: After financial innovation emerges, rather than waiting for controversy to disappear, it is better to determine the rules for market operation as early as possible.
Therefore, what is truly worth noting about this inaugural IAC meeting is how the existing commodity and derivatives regulatory framework should be extended when the underlying assets of the next generation of financial markets become crypto markets, compute power markets, and prediction markets.
Judging from the roadmap Selig unveiled, the CFTC has decided to start taking action.
