DEX in the City: Why the Prediction Market Bans Could Just Be Beginning

**TuongVy Le** (0:01)
Hi, everyone, and welcome to DEX in the City, where the wallets are cold and the takes are hot. Before we get going, remember, we're lawyers, but we're not your lawyers. Nothing you hear on DEX in the City is legal or financial advice, and it doesn't create an attorney-client relationship. For the fine print, check unchainedcrypto.com. Before we continue, here's a word from our sponsor.

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**TuongVy Le** (1:07)
I'm your host Vy Le. I'm here with my co-host Jessi Brooks. Joining us today is Ryne Miller, a partner at Morrison and Foerster. Ryne, why don't you give us just a minute of your background and then we can jump right to it.

**Ryne Miller** (1:24)
Sure. Thanks Vy. Thanks Jessi. I'm happy to be on the podcast. So I'm in New York at MoFo in our financial services group. And my practice is largely trading in markets. And so I've worked with over the years, exchanges, brokers, traders, hedge funds, banks, anyone trading anything, whether it's crypto, prediction markets, commodities and derivatives securities. Years ago, I worked at the CFTC, which some people find interesting. I was on the staff there during Dodd-Frank and also was council to the chairman at the time, Gary Gensler. Went to Sullivan and Cromwell in New York for many years and did the commodities and derivatives practice there. Went in-house for a while where I was general council of FTX US, which some people find interesting. And now I'm at MoFo.

**Jessi Brooks** (2:13)
You know, whenever anyone has a CFTC question, you're one of the top people we call. You and Catherine, essentially. So since Catherine came today, we thought who else should come on?

**TuongVy Le** (2:23)
I know you're my go-to also on all things CFTC. And so that actually is one of the reasons we wanted to have you on today because it feels like there's just so, there's been so much coming out of the CFTC last few weeks. Like I really have not been able to keep up things like, you know, they're moving like ahead on perks and prediction markets and all this stuff. So I thought you could start out by just kind of giving us like a rundown of everything that's been happening.

**Ryne Miller** (2:52)
Yeah. Let's jump into what the CFTC has been doing and just to frame it up for your audience. The CFTC had a new chairman confirmed by the Senate. I don't know if I don't remember if it was late last year, early this year, but Michael Selig and he's now the chairman. Historically, the CFTC would have a chairman and several commissioners. Right now they have no other commissioners. None have been nominated, so it's just the chairman. He's there and he's running the agency.
He's really put out a relatively aggressive agenda in terms of wanting to get a lot done and wanting to get a lot of news items on the tape. He's flagged a few priorities. One is cleaning up some of the traditional Dodd-Frank rulemakings, which is the over-the-counter swaps world, not for today. But the other two is really digital assets and then prediction markets. So, let's walk through some of the things that they've been doing. Stylistically and from a tone perspective, there is an intentional transition from regulation by enforcement to regulation by regulation. And what I've seen that mean is they're putting out guidance, they're putting out proposed rules, they're putting out advanced notices of proposed rules, meaning they're giving a signal to the market that we might do a rulemaking on prediction limits, or prediction markets, for example. And give us comments on where we should go with that, where the key issues are. So one of the largest things the CFTC did, and they did this in conjunction with the SEC, was on March 17th, they put out joint interpretive guidance around a token taxonomy. And what it is is, I think for the first time in a real tangible way, a joint agency pronouncement on how we're going to categorize crypto tokens for regulatory purposes. We won't summarize all of it here, but the headline item is most major digital assets are now clearly in the commodity side of the regulatory categorization ledger, which is a level of certainty for market participants that lets you start to build new products, allocate capital with certainty in the United States. And you might say, well, that's been happening for years. Coinbase is not exactly a young company. But what we haven't seen in this space is a lot of the traditional financial services firms really dive in in a tangible way. So you've got the joint CFTC-SEC interpretive guidance on how we're going to categorize tokens. There was a big deal. The CFTC announced an innovation task force on March 24th. And its stated purpose is to look at digital assets, AI, not surprising, and then prediction markets. It's going to be led by the Chairman's staffer, Michael Pasalacua, who joined Chairman Selig from private practice and has taken on a lot of the innovative agenda at the CFTC from the Chairman's staffing side. And it's got the members you would expect from private industry, and they're going to work with the CFTC to figure out what it needs to do from a rulemaking perspective around blockchains, digital assets, and DeFi, if we want to call it DeFi, and then AI, and then prediction markets.