The debate over prediction markets raises a broader question that matters whenever technology creates a new market structure: regulation should reflect how a system actually functions, the relationships among its participants, and the risks it creates. Not simply what it resembles at first glance.

Event contracts traded on Kalshi are structured as federally regulated derivatives. Market participants trade contracts with one another through Kalshi’s regulated exchange, rather than placing wagers against Kalshi as the house. That structure is meaningfully different from the traditional sportsbook model, in which the sportsbook generally accepts the customer’s wager and manages the resulting exposure. Different structures create different relationships, incentives, and risks, and those differences matter for regulation.

Kalshi is a CFTC-designated contract market, and the CFTC has taken a clear position regarding its regulatory authority over the markets Kalshi operates. The Commission has stated that event contracts traded on Kalshi fall within its exclusive jurisdiction and has recently taken extraordinary steps to defend that jurisdiction against state efforts to apply gambling laws to federally regulated prediction markets. The CFTC’s position reflects a fundamental feature of the federal derivatives regime: nationally regulated derivatives markets should not be subject to a patchwork of conflicting state regulatory regimes.

That principle resonates with ZeroMesh’s own regulatory experience. In 2025, ZeroMesh sought no-action relief from the SEC regarding certain programmatic transfers of 2Z, the token powering the ZeroMesh network. For us, the no-action letter process demonstrated the value of regulators engaging deeply with novel technology and understanding how a system actually functions before determining how existing law applies. As Commissioner Hester Peirce observed in connection with the ZeroMesh letter, regulators should engage with innovators, understand their models, and apply their statutory mandates with precision (1).

Innovation and effective regulation are not opposing goals. The strongest regulatory frameworks recognize genuine differences in market structure while addressing the risks those structures actually create. Prediction markets should be evaluated on that basis: for what they are, not simply for what they may resemble.

(1):   https://www.sec.gov/newsroom/speeches-statements/peirce-092925-deep-statement-doublezero-no-action-letter