In a major development, leading venture capital firm, Andreessen Horowitz (A16z), has entered the growing standoff between federal and state regulators over prediction markets, filing a comment letter on Thursday that supports the Commodity Futures Trading Commission (CFTC) and pushes back hard against state-level attempts to shut down platforms like Kalshi and Polymarket.
The letter was submitted in response to the CFTC’s advance notice of proposed rulemaking on prediction markets. A16z argues that event contracts qualify as swaps under the Commodity Exchange Act, placing them squarely under the CFTC’s exclusive jurisdiction. That federal authority, the firm contends, preempts the patchwork of state gaming laws that have created a regulatory catch-22 for exchanges operating in the space.
“Being forced to deny impartial access to users in states that seek to license or prohibit certain event contracts will likely severely circumscribe available liquidity,” the firm wrote.
State-level enforcement actions have ranged from cease-and-desist letters to criminal charges. The CFTC itself has filed lawsuits against Illinois, Arizona, Connecticut, New York and Wisconsin, arguing those states overstepped by attempting to regulate markets that fall under federal authority.
A16z backed that position, arguing that forcing exchanges to block users based on their state of residence directly conflicts with the CFTC’s mandate to provide impartial access to its markets and services. The firm also warned that strict state regulation of the segment would form a serious barrier to access for users and damage market liquidity.
State attorneys general have argued that platforms offering contracts on sports outcomes and political events are running unlicensed gambling operations. A16z rejected that framing, contending that the CFTC, not state legislatures, holds the authority to define what constitutes gaming under federal commodities law, given the agency’s decades of oversight over event contracts.
On the question of market integrity, the firm put forward several recommendations. It called for prohibited-trader lists covering Event Controllers, defined as those who can influence outcomes. For ambiguous results, it suggested the creation of Determinations Committees staffed by subject-matter experts. Further, a16z also advocated for cross-market surveillance between the CFTC and SEC to prevent manipulation across correlated financial platforms.
The letter also touched on blockchain-based prediction markets, suggesting that while decentralized networks offer regulatory benefits, the CFTC should work with markets to adapt existing rules to the realities of decentralized infrastructure where no single person or group controls operations.
