Stefan Schropp

Update: The AZ federal court just denied Kalshi's request for a PI, finding (on an open question with split authority) that the Anti-Injunction Act prevents it from enjoining the state proceeding. BUT the key point is this quote from the order: "The AIA does not apply to injunctions issued at the request of the United States or administrative agencies enforcing applicable federal law.” So the AIA won't stand in the way of this 👇motion.

The entire preemption argument is insane to me. Board of Trade of the City of Chicago v. Christie Grain & Stock Co., 198 U.S. 236 (1905) was the first case where we said cash-settled futures were valid financial instruments, which prevented them from getting swept up in old state laws on gambling that covered time bargains and forward contracts. So it’s clear Congress knew that creating a federal regulatory framework took financial instruments out of the hands of state gambling regulators, as it had already done so. Not to mention the slippery slope it unlocks - if based on the topic of a contract, and not its form, the states can overrule the exclusive and subjective authority of the CFTC on classifying an instrument as “gambling” then what draws the line? Can California ban weather markets if they feel rainfall doesn’t have enough economic merit? Can Ohio decide credit default swaps are gambling because they have binary event based outcomes? Can each state create a patch work of regulation for forward dated cash settled corn markets? No, of course not. Subject over form cannot be the basis for the divide, which is exactly why in Dodd-Frank Congress had to expressly outline which matters of subject were banned and give the CFTC subjective authority (“societal good”) guidelines for the remainder. So if it quacks like a duck, but has an engine, and a loud speaker, perhaps it’s not a damn duck! /end of my rage rant

@adamscochran Or, as Kalshi’s counsel made clear on Friday, that a sponsor might hedge the risk that the player they sponsor underperforms…

Heaven forbid that an advertiser hedge on game outcomes that would impact the eyeball on their ads. Or a nearby vendor hedge on a game because getting crushed early means people leave early and don’t come to the bar after. Or the countless other cases! Truly wild they claim no economic benefit.

NEW: CFTC filed a Motion for PI/TRO in Arizona federal court this afternoon, seeking to enjoin the State's criminal enforcement action against Kalshi. CFTC previewed this at the hearing on Kalshi's TRO request Friday, and it does not disappoint. 🧵 below.

And here is the link to the full motion: storage.courtlistener.com/recap/gov.usco…

After the motion was filed, Judge Liburdi set a status conference for 10am pt tomorrow morning. Checking on a public access line and will post it here if I get one, but h/t to DOJ and the CFTC for a very strong brief on a very tight timeline.

“The yield prohibition in the GENIUS Act—and its proposed reinforcement through the CLARITY Act—may be motivated by the concern that competitive stablecoin returns will draw deposits out of the banking system and contract lending. Our model shows that this concern is quantitatively small.”

If you’re working in crypto policy, bookmark this page 👇. There’s work to be done, and @mparker5102 just made you a giant to-do list.

The Third Circuit ruled in Kalshi’s favor. People use prediction markets because they’re more fair, transparent, and reward being right. Free markets work. We should keep them that way. This is a big win for the industry and millions of users.

Appreciate the engagement, and the last question is the key one for me. The CFTC hasn’t prejudged - they just issued a massive ANPRM asking about virtually every aspect of prediction markets including gaming. But the court cases are still moving, and I just don’t think Selig said, or anybody should want, the courts to decide core issues of CFTC authority without hearing from CFTC.

I can appreciate that perspective, but to me it still looks like a switch-up from his confirmation hearing. Excerpt from my write-up of his hearing at the time: — “Many lengthy legal opinions have been written on one word in a statute,” Selig said during his hearing Wednesday. “I would really want the benefit of understanding what the judges think about the issue. This could be one that works its way all the way to the top, so I’ll look to the courts on this issue.” ... Sen. Schiff brought up Thursday’s NFL game between the Buffalo Bills and Houston Texans as an example. If someone bets on the game through a prediction market platform, is that gaming? “It would be irresponsible for me to prejudge that issue,” Selig said, “I will look to the courts.” — I read this as him saying that he doesn't want to weigh in on what contracts qualify as "gaming" under the CEA before the courts. But to me, the CFTC taking a position in an ongoing court case is clearly 'prejudging the issue' because the CFTC is voicing an opinion before the judges do. Selig would probably argue that the CFTC suing states is purely about defending its jurisdiction over futures contracts—but the fact that they're defending their jurisdiction over sports contracts in particular says something. If the CFTC is going to eventually decide that sports contracts are gaming, then why sue to block states from making that determination themselves? Free link to the story I reference above: barrons.com/articles/cftc-…

I don’t understand this. When politicians say “that’s for the voters to decide,” do we expect them not to try to persuade the voters? Chair Selig said it was a question for the courts, and he’s put the question to the courts. What am I missing?

Perhaps we should apply this basic principle to non-custodial p2p blockchain technology

I think the biggest takeaway is the simplicity applied to an otherwise highly-complex issue. In other words, this doesn’t have to be as hard as many are making it out to be: - protect minors from harmful use - keep costs low for consumers by enabling on-site energy generation (consumers get all the upside from added productivity without costs rising) - states have an important role, but shouldn’t be taking the lead + creating a patchwork that makes it impossible for American companies to compete - intellectual property is important. But models have to get smart somehow. Both can be solved for - AI should avoid biases and not be used for censoring free speech or expression

👇Great points here on two critical answers from yesterday's SEC guidance. I'll add that the guidance puts issuers in charge of defining the scope of their managerial efforts, and whether those promises have been satisfied “depends on how the issuer defines” them, not “a general market conception.”