Former U.S. Commodity Futures Trading Commission Chair Gary Gensler has joined a growing list of groups challenging sports prediction markets, arguing in a new court filing that Congress never intended federal derivatives laws to cover sports betting contracts.

According to a filing submitted Thursday to the Sixth Circuit Court of Appeals, Gensler said sports-related event contracts offered by prediction market platforms such as Kalshi do not meet the definition of swaps under the Dodd-Frank Act because they are not designed to hedge economic risk.

The filing adds another voice to an intensifying legal battle over whether sports prediction markets should be regulated by the CFTC or treated as gambling products subject to state gaming laws. Tribal organizations, the Indian Gaming Association, the American Gaming Association, and Better Markets also filed amicus briefs supporting state authority in the case.

At the center of the dispute is a lawsuit Kalshi filed against Ohio after the state challenged the company’s sports-related contracts. A federal judge ruled against Kalshi in March, and the matter is now before the appellate court.

“Congress did not include sports betting contracts within the statutory Dodd-Frank definition of swap,” Gensler wrote in the filing. 

“Such contracts do not fit the CEA’s purpose or the statutory language defining swap, which focus on hedging economic risk. Sports bets are very rarely, if ever, about hedging.”

His filing argued that Congress designed swaps as tools for managing commercial and economic risks rather than for wagering on sporting outcomes.

The latest filing arrives as federal regulators continue shaping rules for prediction markets. Earlier this month, the CFTC proposed a framework that would review event contracts individually rather than banning entire categories of markets. 

As previously reported by crypto.news, the proposal could subject some sports contracts, including markets tied to player injuries and in-game events, to additional scrutiny.

Courts weigh federal authority against state gaming laws

Questions over who controls prediction markets have triggered lawsuits across the country.

Several states, including Ohio, Nevada, New Jersey, Maryland, Montana, and Illinois, have challenged prediction market operators, arguing that some sports contracts function as gambling products and should comply with state licensing, tax, and consumer protection requirements.

Meanwhile, prediction market firms have maintained that their products are permitted under the Commodity Exchange Act and fall under CFTC oversight.

Challenging the regulator’s recent position, Gensler argued that the agency’s interpretation stretches beyond what Congress intended when it expanded derivatives regulation through Dodd-Frank. 

“The CFTC now posits hedging theories for some sports bets that are at best only tenuously connected to reliable hedges of commercial risks,” the filing said. 

“That connection, however, is crucial, as Congress included only those event contracts that hedge risks in a manner similar to a swap and are sufficiently associated with a potential financial, economic, or commercial consequence.”

The agency itself has taken the opposite position. In an amicus brief filed last month, the CFTC argued that event contracts traded on designated contract markets under its supervision should be treated as swaps and remain within federal jurisdiction.

Court decisions have so far produced mixed results. The Third Circuit Court of Appeals ruled in April that New Jersey could not stop prediction markets from operating, while judges on the Ninth Circuit appeared more receptive to arguments from state regulators in a separate case.

Legal uncertainty has persisted even as the CFTC advances a federal rulemaking process. The agency received more than 1,500 public comments by early May and later reported receiving more than 3,000 submissions covering insider trading concerns, prohibited contracts, market safeguards, and questions about regulatory authority.

Industry participants including Kalshi, Polymarket, and venture capital firm Andreessen Horowitz have urged the CFTC to retain sole oversight of prediction markets. State gaming officials from Pennsylvania and Tennessee have argued that sports event contracts resemble sports betting and should not fall under the regulator’s authority.

Tribal groups and gaming industry challenge sports contracts

Separate filings submitted Thursday focused on the impact prediction markets could have on tribal gaming operations and state gambling systems.

According to a brief filed by the Indian Gaming Association and affiliated tribal organizations, sports prediction markets interfere with tribal rights established under the Indian Gaming Regulatory Act because gaming activity on tribal lands is required to benefit tribal communities rather than private companies.

The filing accused Kalshi of operating what it described as unregulated gaming activity across state and tribal jurisdictions while diverting revenue away from governments and tribal entities.

Another brief from the American Gaming Association argued that sports prediction markets and traditional sportsbooks are functionally similar. The group cited a trademark application filed by Kalshi that referenced services related to sports betting and gambling activities.

Better Markets also urged the court to reject the classification of sports prediction markets as swaps, pointing to previous statements in which Kalshi distinguished sports markets from political event contracts.

Emphasizing what he described as Congress’ original intent, Gensler argued that lawmakers never expected federal derivatives laws to replace state sports betting frameworks. 

“Senate Majority Leader Harry Reid of Nevada would never have consented to or passively accepted legislation displacing an activity so critical to his state’s economy and politics by permitting sports betting only under CFTC auspices,” the filing said.

The outcome of the case could have significant implications for the industry. If courts ultimately side with the CFTC, prediction market operators may continue offering event contracts under a federal framework. 

If states prevail, platforms could face separate licensing and compliance requirements in every jurisdiction where they operate, with some states potentially pursuing civil or criminal penalties against unregistered operators.

With federal appeals courts issuing conflicting decisions and both regulators and states defending competing interpretations of the law, the dispute appears increasingly likely to reach the U.S. Supreme Court.

The US Securities and Exchange Commission proposal to rescind rules around order protections and price quotes could remove a major legal barrier for tokenized US stocks.

The SEC on Thursday proposed to scrap two rules in its national market system regulations. Rule 611 that bans “trade-throughs,” where a stock order on one exchange can’t be for a worse price than on another, and Rule 610(e) banning exchanges from displaying a bid at the same or higher price than what is available elsewhere.

Galaxy head of research Alex Thorn said the proposal is “one of the biggest unlocks yet for tokenized stocks” as it would remove “one of the biggest structural barriers to tokenized US equities trading in DeFi.”

The SEC has been looking to undo rules that restrict crypto and blockchain technology. It launched “Project Crypto” in August 2025 with the goal of making rules for the use of digital assets and blockchain in US markets.

Source: Alex Thorn

Thorn said that automated market makers (AMM) in crypto, or programs that facilitate trading by pooling assets, can’t comply with trade-through rules as they execute orders against “whatever the pool price is.”

He added that an AMM also can’t stop a trade if a better quote exists elsewhere, meaning any pool in a tokenized stock governed by the current rules “would commit trade-throughs constantly and arguably be an illegal trading center.”

Related: SEC makes digital assets strategic priority through 2030

Prices from AMMs also constantly fluctuate and would also be in constant violation of the rule aiming to guarantee investors get the best price across all platforms, Thorn said.

The SEC is likely to replace the rules with a “best execution” framework, which could permit AMMs under the rules, Thorn said.

The agency put its proposal up for feedback for 60 days, where it will then review responses and may change its proposal in response to comments.

It comes as the SEC was reportedly set to release a plan last month allowing tokenized stock trading, but postponed the plan after officials from stock exchanges raised concerns over how the plan would be executed.

Magazine: Can Robinhood or Kraken’s tokenized stocks ever be truly decentralized?

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Key Highlights

• The Securities and Exchange Commission has put forward a proposal to eliminate Rules 611 and 610(e) from Regulation NMS, regulations that have shaped equity trading in the United States since 2005
• Rule 611 prohibits executing trades at inferior prices compared to the best available market quote; Rule 610(e) restricts locked or crossed quotations
• Alex Thorn from Galaxy Digital characterized this development as “one of the biggest unlocks yet” for tokenized equity trading within decentralized finance
• The structural design of automated market makers makes legal compliance with these regulations impossible, effectively barring tokenized American stocks from decentralized trading venues
• Final implementation of the regulatory change is anticipated in Q1 2027, though temporary exemptions for tokenization pilot programs may arrive earlier

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The Securities and Exchange Commission has unveiled a proposal to dismantle two established stock market regulations that industry analysts argue have prevented tokenized American equities from operating on decentralized finance platforms.

These regulations — identified as 611 and 610(e) within Regulation NMS — were established in 2005. Rule 611 prevents trade execution at prices inferior to the optimal available quote across any trading venue. Rule 610(e) prohibits market venues from displaying quotations that lock or cross against quotes on competing platforms.

Chairman Paul Atkins of the SEC stated the proposal aims to “simplify market structure and reduce costs for market participants while allowing competition, innovation, and other market forces to shape the continuing evolution of our equity markets.”

The public commentary period of 60 days has commenced.

Implications for Decentralized Finance

Alex Thorn, serving as head of research at Galaxy Digital, outlined why these regulations represented an insurmountable obstacle for tokenized equity trading within cryptocurrency markets.

Automated market makers — the algorithmic systems driving decentralized exchanges — function by executing transactions against liquidity pools at current pool-determined prices. These systems lack the capability to query Nasdaq pricing. They cannot suspend a transaction due to superior pricing availability elsewhere. Under the framework of Rule 611, every transaction becomes a regulatory violation.

“Any pool in a tokenized NMS stock would commit trade-throughs constantly and arguably be an illegal trading center,” Thorn explained.

Rule 610(e) presented identical challenges. AMMs perpetually adjust pricing based on transaction flow, resulting in quotes that would regularly lock or cross the National Best Bid and Offer — activity that current regulations mandate exchanges prevent.

Future Developments

Should the regulations be eliminated, the SEC is anticipated to depend on a “best execution” framework under FINRA Rule 5310 instead. This approach is principles-oriented and applies at the broker level, making it compatible with AMM operational models.

Jaret Seiberg, who serves as managing director at TD Cowen’s Washington Research Group, indicated the proposal will likely receive approval. The rule is expected to reach finalization during Q1 2027.

However, Seiberg suggested that tokenization pilot projects may not face delays until that date. He anticipates the SEC will grant early-stage tokenization initiatives exemptive relief from Rule 611 prior to official repeal.

This regulatory proposal forms part of the SEC’s comprehensive “Project Crypto” initiative, introduced in August 2025, designed to establish more definitive regulations for digital assets and blockchain technology within American markets.

Thorn observed that additional obstacles persist, including exchange registration requirements, clearance and settlement protocols, and regulations not designed for decentralized trading environments. He indicated these matters may be resolved through an upcoming SEC “innovation exemption.”

The SEC had previously planned to unveil a tokenized stock trading framework last month but postponed the release following objections from stock exchanges regarding execution concerns.

Blockchain-based prediction markets have recently emerged as the go-to-place for investors to bet on the SpaceX IPO, offering a decentralized alternative to traditional pre-IPO markets. Unlike private equity deals that require accreditation and high minimums, these onchain markets are accessible to retail investors with minimal capital, creating 24/7 price discovery on IPO odds.

At Wednesday’s level near $157, SPCX implied only a roughly 16% premium to the $135 IPO price, down from about 60% when the contract briefly traded near $216 in May. At $183, the implied premium is back near 36%.

Other shadow markets are now pointing the same way. Bloomberg reported Friday that IG International derivatives implied a SpaceX valuation of about $2.4 trillion, more than 35% above the $1.77 trillion valuation set by the IPO price.

Elsewhere, Polymarket traders put 70% odds on SpaceX closing its first trading day above $2 trillion.

The reversal comes as pre-IPO SPCX has shown caution in the market, falling by about 30% over the past few weeks. It suggested traders still expected SpaceX to trade above the offer price, but not at the explosive premium implied by the bookbuild. And Friday’s bounce now says that discount is closing.

“To put the argument in the plainest real-world terms: Senate Majority Leader Harry Reid of Nevada would never have consented to or passively accepted legislation displacing an activity so critical to his state’s economy and politics by permitting sports betting only under CFTC auspices,” Gensler’s brief said.

Courts have so far been split; some have ruled in favor of prediction market providers, while others have ruled in favor of states.

The Third Circuit Court of Appeals ruled in April that the state of New Jersey could not shut down prediction markets, but panel of the Ninth Circuit Court of Appeals seemed more inclined to rule for the states.

It is likely that the Supreme Court will ultimately take up the issue, and Congress is also poking around.

Amicus briefs

The CFTC, currently helmed by Chair Mike Selig, filed its own amicus brief in this case last month, arguing that any event contract traded by a designated contract market overseen by the regulator is a swap.

Congress’ definition of a swap was broad and the language in the statutes allows for the CFTC-regulated firms to offer their products, the regulator’s filing said.

Genler’s brief disagreed.

“The CFTC now posits hedging theories for some sports bets that are at best only tenuously connected to reliable hedges of commercial risks. That connection, however, is crucial, as Congress included only those event contracts that hedge risks in a manner similar to a swap and are sufficiently ‘associated with a potential financial, economic, or commercial consequence,’” Gensler’s brief said.

SpaceX priced its initial public offering at $135 a share and starts trading on the Nasdaq on Friday under the ticker SPCX. The $75 billion raise is the largest IPO in history. It values the company near $1.75 trillion and puts Musk on track to become the world’s first trillionaire.

Demand topped $250 billion, with retail orders alone above $100 billion.

Crypto took the cue higher. Bitcoin rose about 1.6% to roughly $63,550 and is now green on the week, per CoinDesk data, recovering the ground it lost in the early-June selloff. Solana added 3%, XRP and dogecoin each rose 2.3%, and Hyperliquid bounced 7.6% on the day.

Dogecoin barely stood out. It rose 2.3%, in line with the broad market. The token has spent years jumping on Musk and SpaceX headlines, and this was the biggest SpaceX event ever.

The real signal comes when SPCX prints its first trade. A strong debut confirms the risk-on turn, while a weak one tests it.

XRP bounced sharply from last week’s selloff, reclaiming $1.14 on its strongest volume in weeks. Buyers pushed the token through resistance near $1.12 and kept buying into the close, a change from the short-lived rebounds that have repeatedly faded since February.

The next test sits higher up, as every major recovery this year has stalled before reaching the $1.20-$1.25 area.

News Background

• Ripple said Bitso’s MXN-backed stablecoin MXNB will launch on the XRP Ledger and integrate with its Payments on Decentralized Exchange infrastructure, expanding regulated cross-border settlement between the U.S. and Mexico.

• Ripple’s RLUSD and Bitso’s MXNB are designed to provide on-chain dollar and peso liquidity for enterprise payment flows, adding another institutional use case for XRPL infrastructure.

• The initiative builds around XRPL’s Permissioned DEX, a framework aimed at regulated financial participants rather than retail users.

Price Action Summary

• XRP rose from $1.1080 to $1.1442 during the 24-hour session, gaining 3.3%.

• The key move came during the June 11 17:00 UTC session, when volume surged to 120.2 million XRP, more than 160% above average, pushing price through resistance near $1.1220.