CFTC Chairman unveils new financial roadmap: crypto, prediction markets, and computing power markets

Written & compiled by: KarenZ, Foresight News

More than a hundred years ago, when futures trading was just emerging, it was also called "gambling" by American politicians.

Now, CFTC Chairman Michael S. Selig has brought up this history again.

On August 20, local time in the United States, at the first meeting of the Innovation Advisory Committee (IAC) of the Commodity Futures Trading Commission (CFTC), Selig spent a considerable amount of time reviewing the history of the futures market: commodity exchanges in the 19th century were besieged by state "anti-gambling" laws, and commodity options were also restricted for a long time, but ultimately, the United States chose to establish a unified federal regulatory framework to allow new financial products to develop under clear rules.

Selig's point is simple: the debates surrounding cryptocurrencies, artificial intelligence, and prediction markets today are, in his view, not entirely new. The real question regulators need to answer is not just "whether to allow innovation," but how to bring innovation into a regulated market framework.

Therefore, at this conference, Selig released its so-called "Roadmap for the New Frontier of Finance" for the first time in a relatively complete manner.

The roadmap has three main lines: Crypto, the AI computing power market, and the prediction market.

One of the most impactful signals for the crypto industry is that Selig still considers Congress passing crypto market structure legislation as the preferred option, but at the same time made it clear that if the relevant legislation continues to stall, the CFTC is prepared to explore using its existing legal authority to establish a regulatory system for the crypto asset market.

First option: If CLARITY remains stalled, the CFTC is prepared to act using its existing privileges.

Crypto was the strongest policy signal in this speech.

Selig began by reiterating Project Crypto, which the CFTC and SEC are jointly developing.

In January of this year, the SEC and CFTC upgraded Project Crypto, originally initiated by the SEC, into a joint project involving both regulatory agencies, hoping to address a core issue that has long plagued the U.S. crypto industry: which crypto assets are securities and which are not, and where the regulatory boundaries of the SEC and CFTC lie.

In March of this year, the two organizations jointly released an explanatory document, classifying Crypto Assets into five categories based on their characteristics and functions: Digital Commodities, Digital Collectibles, Digital Tools, Stablecoins, and Digital Securities. The document explicitly discusses situations where certain Crypto Assets are not classified as securities, and how activities such as Protocol Mining, Protocol Staking, Wrapping, and Airdrop are handled under federal securities laws.

However, for Selig, the explanation from the administrative agencies was not enough.

In his speech, he continued to view Congress's passage of legislation on the structure of the crypto asset market as a more important and lasting solution, and explicitly mentioned the CLARITY Act.

One of the core implications of the CLARITY Act is to further delineate the regulatory boundaries between the SEC and CFTC over the digital asset market through legislation, and to establish a statutory regulatory framework for the relevant market.

What really deserves attention is Selig's "Plan B".

He said that if CLARITY ultimately remains stalled, the CFTC will use its existing authority to begin establishing a regulatory framework for the Crypto Asset market. To this end, he has already instructed CFTC staff to begin working on rule-making proposals.

According to Selig's vision, this scheme may allow existing CFTC registrants and currently unregistered Crypto Exchanges to be designated by the CFTC as a special type of Designated Contract Market (DCM), also known as a "Crypto Asset Market".

These markets may subsequently offer leveraged or margin-based Crypto Asset trading under CFTC regulation and specially designed rules.

The word "may" is crucial here. Selig's original words were that staff had begun exploring rules and that the relevant framework could enable the aforementioned arrangements. Therefore, it cannot be interpreted as "the CFTC has approved the conversion of Crypto Exchanges to DCMs," nor can it be understood as a market access regime that has already taken effect.

In addition, Selig revealed another piece of work that the DeFi industry should pay attention to: he has asked CFTC staff to communicate directly with the developers of Onchain Finance Protocol to study how the developers can provide the relevant protocol in a legal and compliant manner in the United States.

This also does not provide specific exemption criteria or regulatory conditions, but it at least indicates that when the CFTC discusses cryptocurrency regulation, the scope will not be limited to centralized exchanges such as Coinbase and Kraken. On-chain financial protocol developers have also been included in the discussion of the regulatory framework design.

The second approach: Turn GPU computing power into a market that can be priced and hedged.

Compared to Crypto, Selig takes a rather different approach to AI.

The CFTC does not regulate AI models themselves. Selig is targeting another asset behind AI: computing power.

As the demand for high-performance GPUs increases for large model training and inference, computing power has become one of the most important production factors for AI companies.

Selig believes that as computing power becomes increasingly scarce and economically valuable, the demand for spot, forward, and derivative markets surrounding computing power will also emerge.

Simply put, when companies purchase computing power, they often face issues such as price fluctuations, long-term supply, and resource allocation. If a more mature and transparent Compute Market is formed in the future, it may be able to achieve price discovery like the energy or other commodity markets, while managing risks through forward contracts and derivatives.

Selig stated that the CFTC has been working with the U.S. Department of Commerce and released a comment period for Compute Markets a week prior to this speech. The next step will be to study the relevant regulatory framework based on market feedback.

This means that the "AI regulation" mentioned by the CFTC, at least for now, is not equivalent to regulating the large model itself. For a derivatives regulator, its more direct focus is: how should the corresponding financial markets operate once computing power becomes a priced, tradable, and hedging economic resource?

The third approach: Market prediction is no longer just about "whether it's possible"; the CFTC is starting to discuss "how it should be regulated."

With the rapid development of platforms such as Polymarket and Kalshi, a long-standing question has become increasingly acute: should contracts for sports, political, and other events be subject to federally regulated commodity derivatives or state betting regulations?

Selig's stance in this speech was very clear.

His position is that Congress has granted the CFTC exclusive regulatory authority over commodity derivatives in Designated Contract Markets (DCMs); as long as they are legal derivatives, the CFTC will continue to uphold this federal regulatory authority, including upholding its jurisdiction in court.

However, he also acknowledged that the CFTC has historically failed to establish a sufficiently comprehensive regulatory framework for event contracts that addresses their specific risks.

It is worth noting that Selig did not simply summarize the roadmap for prediction markets as "deregulation." Instead, he outlined a fairly specific regulatory timeline in this speech.

First, the CFTC has proposed amending Rule 40.11.

U.S. law allows the CFTC to impose restrictions on event contracts involving specific categories such as war, terrorism, assassination, gambling, and illegal activities, based on the public interest. However, current regulations do not adequately define key concepts such as "gaming" and "involvement," nor do they establish comprehensive standards for judging the public interest.

Selig stated that the new Rule 40.11 proposed by the CFTC in June of this year aims to make these standards more specific and establish a case-by-case review mechanism for contracts.

Second, the CFTC has proposed redesigning the data reporting system for fully collateralized event contracts. Previously, some event contracts relied on regulatory "no-action letters" to fulfill reporting obligations. In June of this year, the CFTC proposed a new regulatory framework to transform this temporary arrangement into a formal, unified reporting system.

Third, and this is the next step that deserves more attention: Selig said he expects the CFTC to soon propose a series of amendments to CFTC Regulations Part 38 and Part 40 to update the core DCM principles and product launch rules applicable to Event Contracts.

Of particular note is that he explicitly mentioned retail consumer protection, product governance, market design, and incentive programs.

This means that the CFTC's current policy direction regarding prediction markets is not simply about whether "prediction markets are gambling," but rather it is moving into a more specific second phase: if it is considered a regulated financial market, what listing, governance, reporting, and consumer protection rules should exchanges comply with?

The most heated moment of the meeting also occurred in the prediction market.

Compared to AI, the debate over market prediction is significantly more contentious. This disagreement erupted directly at the conference that day.

CME Group Chairman and CEO Terry Duffy first clearly stated that he is a staunch supporter of the crypto market (having supported it since 2017 and being the first to launch crypto futures on CME), and also holds a positive attitude towards the application of AI in risk management. However, when the topic shifted to prediction markets, his attitude became extremely harsh.

Duffy bluntly pointed out the current chaos in the prediction market, mentioning contracts related to "Maduro contracts" (politically linked) and the "teleprompter situation," stating that these products clearly have room for manipulation. Furthermore, some sports contracts are not only outcome-oriented but also involve individual performance, making them susceptible to human intervention. Listing easily manipulated contracts would damage the reputation of the entire industry, contradicting President Trump's goal of "making America a crypto capital."

Selig interrupted Duffy directly, pointing out that the contract he cited was not launched in the United States, but on an overseas platform.

Kalshi co-founder Luana Lopes Lara directly retorted: "Now that we've been called out, I'd like to ask, has CME ever had any history of market manipulation?"

Duffy retorted without backing down: "If you want to argue, I'd love to. But I have more people in my oversight department than in your entire company."

Lara retorted, "Then maybe you should learn about efficiency."

Duffy then delivered a final, devastating retort: "Then perhaps you should learn what a credible market is."

This debate actually explains why the CFTC is revising its rules. What prediction markets really need to address are which events are suitable as underlying assets for contracts, what product vetting responsibilities exchanges should bear, how to monitor market manipulation and information advantage, and what kind of protection retail users should receive.

What did this first meeting really determine?

The CFTC Innovation Advisory Committee's role is to advise the CFTC on issues at the intersection of technology, law, policy, and finance. The opinions of committee members do not automatically represent the CFTC, nor do they become law simply because of a single meeting.

Currently, IAC members span the crypto and traditional financial markets, including Coinbase, Uniswap Labs, Ripple, Kraken, Gemini, Solana Labs, Chainlink Labs, Polymarket, Kalshi, as well as heads of institutions such as CME Group, Nasdaq, Cboe, ICE, DTCC, Franklin Templeton, and Robinhood.

However, if we consider this meeting in conjunction with Selig's speech, it at least makes it clearer what the CFTC plans to do next:

Regarding crypto assets, the priority is to wait for Congress to establish a market structure, but at the same time, it is preparing to study how to use existing authority to establish its own crypto market rules. In terms of AI, it is trying to develop computing power into a new commodity market with price discovery and risk hedging functions. In terms of prediction markets, it is preparing to establish more systematic rules around event contract access, data reporting, market regulation and consumer protection.

These three things may seem very different, but the regulatory approach given by the CFTC is actually consistent.

In his speech, Selig repeatedly reiterated a point: once financial innovations emerge, it is better to establish market operating rules as soon as possible, rather than waiting for the controversy to disappear.

Therefore, what is truly noteworthy about this first IAC meeting is how the existing regulatory framework for commodities and derivatives should be extended when the next generation of financial markets becomes the crypto market, computing power market, and prediction market.

Judging from the roadmap released by Selig, the CFTC has decided to take action.