Can Sports Betting Prediction Markets Pass the ‘Economic Purpose’ Test?

**Dan Berkovitz** (0:00)
The commodity markets are not for entertainment. They're not to foster sports, betting if there's no economic purpose. They're really for fundamental things that matter to the economy. That's a taxpayer-supported agency, and so one would expect that the taxpayers will get something that will support the national economy.

**Renato Mariotti** (0:25)
Welcome to The Policy Protocol, a brand new show from CoinDesk that gives you a bite-size 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 Renato, here's my co-host, Rebecca. Rebecca, what's your hot topic this week?

**Rebecca Rettig** (0:45)
There's so much to choose from, but I think we can't overlook the SpaceX IPO last Friday. It was the largest in history. SpaceX went public on NASDAQ.
I think one of the few really important points about this, one, the amount of demand and the amount of retail demand. SpaceX targeted, I think, around 30 percent for retail. Most huge IPOs only give five to 10 percent. The interesting thing was, it wasn't even enough to go around. There were all these vehicles that sold pre-IPO access to SpaceX and a lot of them were in these SPV vehicles where they ended up not getting the allocation for it and had to refund investors. Binance and others ended up not having access to it. I think Kraken actually was able to give some investors access to the SpaceX IPO, but they only did it at a tiny pro rata sliver. Some of the retail demand was not even able to be met. I think there's a big contrast though, and I know we're going to get to all sorts of purpose questions later. But there was on-chain finance, as we call it now, Trade XYZ, which is on hyperliquid, ran a synthetic perpetual on SpaceX, and so that wasn't backed by any shares, and they gave access to SpaceX perps very early. They started trading really high, maybe in the 200s or something like that. But I think the most interesting thing about the synthetic version of it, was that it ended up, as we got closer and closer to the SpaceX IPO itself, converged somewhere between 150, 160, and 180
Having the price converge around where the SpaceX IPO actually closed the first day, which was a little more than 160, is really interesting, and I think offers a lot to talk about from, are these new types of, I was going to say derivatives, not meaning like actual derivatives, but they are actual derivatives, but are these new types of financial assets really something that offers retail or others things that the traditional vehicles cannot?

**Renato Mariotti** (2:50)
Yeah, look, I think there's legitimate concerns around the level of participation by retail in this IPO. I mean, typically, I think it's closer to 10%. This time it was 30%. As you said, a lot of retail demand on top of that, and that's being met by these derivative products. I think there should be a lot of concern about whether or not, what is pricing looking like here? How is pricing being inflated right now? Ultimately, will retail hold the bag? I mean, I think there's a lot of questions being asked about that, both by the press and in group chats, but also in Capitol Hill. So I think it'll be interesting to see whether or not this impacts our policy towards IPOs going forward and some of these synthetic equity instruments. Yeah.
So my hot topic was Terry Duffy, CME and Perpetuals. I mean, Terry Duffy dropped two atomic bombs this week, Rebecca. I mean, atomic bomb number one, Terry Duffy is the CEO of CME Group, the biggest name traditionally in futures.
And he said after having a long and successful run as CEO of CME Group, he said, I'm going to be leaving very soon. He named his successor and set that up this week. And then he said, okay, on top of that, we're suing the CFTC. And we're suing the CFTC over the topic you and I had a debate on with some great guests from Kalshi. And we had John Lothian on last week about whether or not perpetuals are in fact futures or swaps. He thinks they're swaps. He thinks the CFTC went against its own guidance, went against the Dodd-Frank Act. And as a result, you know, he went on CNBC yesterday and threatened that he's going to be filing a lawsuit today.

**Rebecca Rettig** (4:51)
Yeah. And my response to that is I was also speaking of group chats. Someone said, it's giving Jay Clayton where you have a big lawsuit and then you leave, which is what Jay Clayton did when he was chair of the SEC, sued Ripple and then left.