Paradigm Files Amicus Brief in Support of KalshiEx Congressional Control Contract Case vs. the CFTC

February 5, 2024 | Rodrigo Seira

Paradigm Files Amicus Brief in Support of KalshiEx Congressional Control Contract Case vs. the CFTC

Last week, Paradigm filed an amicus brief supporting Kalshi’s lawsuit against the CFTC, which stemmed from the Commission’s disapproval of the listing of a prediction market on the outcome of this year’s Congressional elections—specifically, on which party controls each chamber of Congress.

Through our amicus program and the Policy Lab, Paradigm has been an fierce industry champion on the frontlines of crypto regulation. While Kalshi isn’t a crypto company, we felt compelled to intervene in this case because we believe that prediction markets are one of the potentially revolutionary use cases for crypto. Moreover, event contracts on Congressional control would provide crypto companies with important information to guide their corporate strategies and provide them a useful tool to hedge regulatory risk.

A lot rides on U.S. Congressional elections: countless pieces of legislation, spending provisions, and confirmations of executive and judicial nominees become more (or less) likely. The uncertainty of these potential outcomes creates risks for businesses and individuals. Take for example an entrepreneur who is building a crypto startup in the U.S. The likelihood that Congress will pass legislation that will impact the viability of U.S.-based crypto startups is directly affected by which party is in control of Congress, or whether the government is divided. Which party controls Congress will also have a direct impact on the confirmation of key administration officials, including the Chairs of the CFTC and SEC. A crypto entrepreneur may therefore want to buy an event contract that pays out depending on which party takes control of Congress in order to hedge its regulatory risk. Moreover, when market participants hedge substantial sums on a particular event contract, the general public—even to those who never join the market—gets valuable real-time information.

For these reasons, allowing Congressional control contracts is in the public interest and the court should overrule the CFTC’s prohibition of these contracts.