CFTC Issues First Guidance on Prediction Market Manipulation

CFTC Offers First Guidance on Manipulation in Prediction Markets

The Commodity Futures Trading Commission issued new guidance for prediction markets, asking exchanges to engage with regulators before opening certain markets that might be vulnerable to manipulation and insider trading.

The document released on Thursday offers one of the first official responses from federal regulators to several of the controversies that have swirled around prediction markets as they have exploded in popularity over the past year.

More established exchanges have recently complained that prediction markets have taken advantage of a longstanding regulatory process that allows them to create new financial contracts without explicit regulatory signoff.

Death Trades

“When I get hit up by people in the Middle East who are saying, ‘Hey, we’re looking at Polymarket to decide whether we sleep near the bomb shelter; we look at it every day’ and I’m like, ‘Oh, it’s really that popular over there?’” he added. “That’s very powerful. That’s an undeniable value proposition that did not exist before.”

I guess? There is something particularly dystopian about the idea that:

1. Some countries will bomb other countries.

2. The people doing the bombing will profit from the bombing by insider trading the bombing contracts on prediction markets.

3. This will cause the prediction markets to correctly reflect the probability of bombing, allowing the people getting bombed to avoid being bombed.

Will the marginal effect of the prediction-market trade-on-bombing profit motive be to encourage more bombings, or to save people from bombings?

Do Your Insider Trading Policies Cover The Prediction Markets? Should They?

Prediction markets now offer contracts tied directly to public company events—including stock price movements, earnings call language, regulatory outcomes, corporate announcements, and management decisions. These contracts are typically structured as event-based instruments rather than traditional securities. But for public companies, the practical question is straightforward: If employees are prohibited from trading securities on inside information, can they still bet on it?

The short answer is no—at least where the bet involves material nonpublic information (MNPI) about the employee’s company—but many corporate policies may not yet say so explicitly.

Exxon Joins the Texas Corporate Migrants

Score another corporate transfer for the Lone Star State. Exxon Mobil this week joined a growing wave of companies that are moving their legal homes to Texas as a refuge from plaintiff attorneys and anti-business politicians. […]

Texas last year also enacted a law requiring shareholders to hold at least $1 million in market value, or 3% of voting shares, for six months to offer shareholder resolutions, which could mean fewer environmental, social and governance resolutions. Mr. Woods pointed to shareholder “abuse” of the proxy voting process as one reason for Exxon’s move.

Credit also to Securities and Exchange Commission Chair Paul Atkins for easing rules to make it easier for companies to reincorporate in other states so plaintiff attorneys and their government allies can’t hold them hostage.

Crypto trader lost nearly all of $50 million in one botched DeFi transaction

A crypto user lost roughly $50 million in a single transaction on Thursday after executing a large token swap that triggered massive slippage.

Blockchain data shows that the wallet attempted to swap $50,432,688 aEthUSDT – an interest-bearing token representing Tether’s USDT stablecoin deposited into the Aave decentralized lending protocol on the Ethereum network – for aEthAAVE – similar version of Aave governance tokens – through the CoW Protocol.

The transaction executed with more than 99% slippage due to thin liquidity in the relevant trading pools, leaving the wallet with only about 327 aEthAAVE tokens, worth roughly $36,000 after the trade. The difference of the value was quickly captured by arbitrage traders and network intermediaries.