CFTC staff on Thursday made it easier for apps to offer prediction markets without registering as brokers, expanding a model already used by Phantom.
The no-action letter lets qualifying “passive software” providers offer access to regulated derivatives, including prediction markets, while receiving a share of trading revenue or charging users transaction-based fees.
They cannot hold customer assets, generate buy or sell signals or control how trades are executed. The relief is temporary and lasts until the CFTC issues a rule or other guidance on broker registration for software developers.
Phantom Was the Test Case
The agency first tested the model with crypto wallet Phantom, which offers prediction markets powered by Kalshi to its more than 20 million users.
The CFTC granted Phantom individual no-action relief in March. Thursday’s letter makes similar relief broadly available to other software providers that meet the agency’s conditions.
“You could use this to put a prediction market basically anywhere,” Aaron Brogan, founder of Brogan Law, told Bloomberg.
Robinhood Shows Why It Matters
Robinhood (NASDAQ:HOOD) generated $156 million from event contracts in the second quarter, more than its $129 million from equities or $100 million from cryptocurrency trading.
More apps offering prediction markets could bring Robinhood more competition for users. But they still need regulated firms to handle customer funds and trading infrastructure.
Robinhood already operates on that side of the market. Its Robinhood Derivatives unit can hold customer funds for derivatives trading, while Rothera, its exchange and clearinghouse joint venture with Susquehanna International Group, contributed $17 million of second-quarter event-contract revenue.
Coinbase Global Inc. (NASDAQ:COIN) occupies a similar position. Its Coinbase Financial Markets subsidiary operates the brokerage behind Coinbase’s U.S. prediction-market offering.
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