A builder’s case for standardizing the layer everyone is fighting over.
The CFTC is about to decide which event contracts it will treat as derivatives and which it will leave to state gambling regulators. The visible fight is over contracts traditionally managed by sportsbooks and other venues, but the consequences of that decision reach much further than sports gambling.
How do the sportsbooks feel?
Unsurprisingly, the largest sportsbooks don’t want competition from Kalshi, Polymarket, and the others. They’ve invested a lot to get where they are, and part of that is the commitment to hand over a huge portion of their revenue in state taxes.
For example, if a sportsbook has a 51% gross margin in NY—meaning they have $51 left after expenses for every $100 of revenue—how much do you think they take home in earnings?
That was a trick question. NY has a 51% revenue tax, so the answer is zero. NY (and Rhode Island and New Hampshire) take most of what you make off the top. It’s not that bad everywhere, but the blended national is around 25% of revenue. How do you compete with someone who sidesteps that tax entirely by offering the same product through a different regulatory modality?
You don’t. If the CFTC prevails and the competition is inevitable, the sportsbooks pivot to the exchange model because the economics give them no choice. Sporttrade already did. Others will follow.
But that’s only going to impact sports gambling, right?
Maybe at first. But I’m less focused on that side of the fight. I’m more concerned with the implications for event contracts in traditional finance—or more specifically, clearing.
Right now, every prediction market and event contract exchange clears for itself. That means they define what contracts are available and keep track of who holds what. You can’t trade those contracts outside of their US exchanges, and there’s no enforcement of standardization. You can’t net positions across venues to free up collateral, and the settlement definitions can vary enough that the “same” event resolves differently on different exchanges.
The way I see it, there are three outcomes for the future of event contract clearing, and they hinge on the CFTC gambling showdown.
Scenario 1: The CFTC regulates all event contracts
The first scenario is the one I’ve been outlining—the CFTC retains dominion over all event contracts and the mass pivot of gambling venues into exchanges actually happens. The space becomes substantially fragmented and everyone fights to protect their own walled garden. This likely leads into a period of specialization and consolidation from which a handful of major players emerge.
Liquidity providers have to allocate capital across venues, so they specialize on venues and domains and overall depth thins out—wider spreads, fewer markets, or both. And the same event listed on multiple venues with different settlement criteria is exactly the basis risk problem from a moment ago, multiplied across every event that matters. The category becomes harder to use precisely where it should be easiest.
Scenario 2: No near-term clarity
There’s also a no-op case where the regulatory framework doesn’t anchor. The CFTC might not decide for a long time, or it might make decisions that don’t survive the next administration, or it might be overridden by courts or Congress. These might seem like significantly different paths, but I think they lead to the same outcome.
Infrastructure investment requires regulatory clarity that nobody can commit to. Each venue keeps building its own clearer, walled garden incentives win by default, and the cross-venue fragmentation gets baked in further as a handful of large players entrench. This is probably the most likely outcome from where we sit today. The CFTC has more pressing concerns than event contract structure, and the political fights around sports may consume bandwidth without resolving the underlying question.
Scenario 3: The CFTC draws a principled line
The third scenario is the one I’d pick if I could. The CFTC draws a principled line based on economic utility rather than category. Contracts pass a bona fide hedger test—there’s a real commercial counterparty with exposure to the event independent of the prediction market—or they don’t. Pure speculation products get ceded to whatever framework actually fits them. The principle is universal, and applied consistently it sorts the category clean.
When that happens, the conditions for shared infrastructure exist. The standardizable subset is coherent, and the constituencies that benefit from consolidation actually have something to push for.
The brokerages are the first group. Schwab, Fidelity, and the rest run their futures and options operations on the assumption that the instrument is a standard and the venue is interchangeable. They aren’t going to be happy distributing event contracts where every venue’s product is its own thing. Two major futures exchanges with overlapping contracts is already pushing it, so ten venues each running their own “Fed cuts in July” would be a different magnitude of problem.
There’s also a categorical issue underneath the structural one. Legit retail brokerages have stayed firmly on the financial products side of the line for decades and aren’t going to distribute something that reads as gambling-adjacent to their customer base. They’ve told me so directly. The principled line in Scenario 3 is what makes the category palatable for their distribution in the first place. As real liquidity develops, I expect they’ll demand fungibility as the price of integrating at scale.
The liquidity providers are the other group. A market maker today runs a fragmented book with collateral on every venue, no netting across, no defined relationships between contracts that obviously move together. A standardized set fixes both halves: capital scales across the market, and exposure can be hedged against the structure of the market rather than against disconnected line items.
My suggested solution will not be a surprise for options traders: a consolidated clearer.
What consolidated clearing did for options
It’s not a theoretical concept. The options world built one in the early 1970s.
The Options Clearing Corporation sits behind every listed equity option in the US. It issues the contracts, guarantees every trade, and—the part that matters here—owns the standardized definitions. A given call is the same instrument wherever you bought it, because it’s the same contract cleared in the same place. It’s fungible.
This opens up a world of opportunity to trade across venues, net positions against each other, and simplify all the layers that sit on top. On the other hand, it commoditizes what the existing prediction markets do, meaning that they’d be limited to competing on things like execution, fees, and tools. They may not like that.
Where I land
I’ll say plainly where I land. I build in this space and I’m not neutral about it. I want standardization to make my life easier, but I also sincerely believe it will be better for the industry.
Last week I wrote about this category’s deeper demand problem, that it needs a real counterparty to the hedgers, and that a discretionary closed-end fund could package that exposure for retail. That’s not a competing argument. That was about demand, this is about plumbing. A fund putting retail capital to work across these markets is exactly the kind of participant that needs standardized contracts to operate. Demand gives the market a reason to exist; standardization is what makes it work once it does.
The case against me
The case against me has one sharp version worth admitting. Right now an exchange can list a market on almost anything in a day or two—a breaking story, an obscure data print, a one-off cultural question—because the CFTC’s self-certification regime lets new contracts go live with minimal review.
Standardization is the opposite: agreed definitions, agreed resolution sources, an onboarding process. You’d be trading away the thing this category is genuinely best at—speed.
My answer is that it was never all-or-nothing. The standardizable core can clear on shared rails while the long tail of spin-it-up-overnight markets stays as fast and proprietary as it is now. You can standardize where it pays and still keep the fast lane open.
What I’m watching
The Clearing Company is a live bet that the shared clearer outcome is coming. The CFTC’s handling of sports is the test of whether it’s willing to draw a principled line. The liquidity providers and brokerages are the real representatives of supply and demand that need to be won over.
I’m not a fan of hyperbole, but at this point I think the long-term event contract success is standardization or bust.
