Are Crypto Perpetuals Futures or Swaps? Kalshi vs. John Lothian

**Udesh Jha** (0:00)
Kalshi has always believed in regulation first. We didn't take the shortcut, we didn't go offshore, we have built surveillance teams, we've built a leverage model, we've built all the protection controls, pre-trade, post-trade in our exchange, to make sure that these perpetuals are handled exactly the same way as any other future are.

**Rebecca Rettig** (0:27)
Welcome to the Policy Protocol, a new show from CoinDesk that gives you a bite-sized overview of all the happenings in crypto law and policy from the past week. This is your espresso shot of everything you need to know to be in the know. I'm Rebecca, one of your hosts, and I'm here with my co-host, Renato.
Renato, what a news week. It is hard to pick a hot topic of the week. We have Citi doing tokenized equities. We have the SEC putting out a Notice of Proposed Rulemaking around Reg NMS, which I'm sure is going to have implications for the innovation exemption. We have Jay Clayton moving from the SDNY to be DNI. But what's your hot topic of the week?

**Renato Mariotti** (1:10)
Well, look, my hot topic of the week has to be the CFTC's Notice of Proposed Rulemaking, revamping regulation 40.11, which is that really important regulation regarding prediction markets, event contracts that people are really focused on. There had been in the past categorical bans essentially, effectively on certain types of event contracts, whether it was politics or gaming or things like that. And now the commission is taking a very different approach. Now only the full commission can initiate a public interest review, and they have to do it within 10 days of a contract going live. So if a contract goes live, they've got to act. The full commission has to act within 10 days. And if they don't, their silence basically means that your contract goes forward. So it's very industry friendly. It's going to allow a lot of contracts to go forward. There's a lot of other guidance in there.
Things like they don't favor war contracts, but do favor generally more mainstream sports outcome contracts. So just a lot in the weeds there, but it's super important in a really hot growing area.

**Rebecca Rettig** (2:24)
That's right. I think the other thing to take away from the rulemaking, first of all, it's 267 pages. These rulemakings are usually very, very long. So thank you to Claude for whoever needs something who doesn't want to go through a 267 page rulemaking. But it doesn't also ban sports. It does give contours around sports and the way they're thinking about it. But sports event contracts are still going to be permitted going forward. While they are seeking comment on the rule on this, I think we can say that the current debates and current battles going on in the federal and state courts around whether sports contracts can be regulated at the federal level by the CFTC or by the state gaming regulators will not be foreclosed by this rulemaking. We'll still see them going on. My hot topic of the week, no surprise to anyone, is that there was a huge industry letter signed by more than 60 CEOs including Brian Armstrong, Jack Dorsey of Block, my own CEO of Jito Labs, Lucas Bruder, and many others in support of the Blockchain Regulatory Certainty Act or the BRCA. This is, as many have heard me say on this show many times, this is the piece of legislation that says non-controlling software developers, developers who build software that does not take control, not just custody but control of user assets, do not have to register as a money transmitter. The real question is, why is this important? It's because the criminal statute, Section 1960, that brings criminal charges against people for failing to register as a money transmitter and thus comply with the Bank Secrecy Act was used a lot of times in the prior administration. It is one of the charges being levied against Roman Storm in the currently pending case in the Southern District of New York.
So having a statute that makes it clear that you don't have to register as a money transmitter when you don't take control is really important for bringing innovation back on shore. Interestingly, there was a new criminal complaint that came out, I believe this morning or certainly this week, that actually brings charges against a centralized mixer.
And it brings it not under 1960, but under 1956, which is a money laundering charge. Very different than failing to register as a money transmitter. And so it is notable because there's been a lot of charged discussions around the BRCA with respect to clarity about whether the BRCA takes away tools for law enforcement by saying you don't have to register under 1960 And I think this indictment makes really clear that prosecutors feel like they still have tools to be able to go after people who do take custody and have control over user assets from a money laundering perspective. I think there's a really great post which will put in the show notes from Ari Redbord, who is a dear friend of our show, but also a former federal prosecutor that makes the same point.