gm from the Day One Law team!

It was great to see some of you at ETH Denver! Today’s legal update covers:

• Prediction markets’ jurisdictional battles

• Market structure pressure grows

• Updates from Day One

CFTC on prediction markets: “We’ll see you in court”

Over a dozen ongoing court cases center on whether prediction markets fall under federal commodities law or state gambling frameworks.

Federal regulators like the CFTC have historically treated event contracts as derivatives, but state officials contend that contracts tied to sports outcomes or other real-world events blur the line between financial markets and gaming.

Mid-February, a group of more than 20 Senate Democrats pressed the Commodity Futures Trading Commission (CFTC) not to intervene in the ongoing litigation involving prediction market platforms, escalating a growing jurisdictional clash between federal derivatives regulators and state gaming authorities.

In a letter to CFTC Chair Michael Selig, the lawmakers argued that agency participation in pending lawsuits could undermine state oversight of gambling products and weaken consumer protections. Lawmakers also urged the agency to take a harder stance on contracts involving sports, armed conflict, or terrorism, signaling that congressional scrutiny of prediction markets is expanding beyond traditional crypto policy debates.

A few days later, Chairman Selig posted a video on social media announcing that the CFTC plans to rigorously defend its jurisdiction in court.

That same day, the CFTC filed an amicus brief in a case between crypto.com and the State of Nevada, which centers on whether commodities law preempts state gambling regulation. The CFTC argues that “States cannot invade the CFTC’s exclusive jurisdiction over CFTC-regulated designated contract markets by re-characterizing swaps trading on DCMs as illegal gambling.”

The CFTC has exclusive jurisdiction over U.S. commodity derivatives markets, including event contract markets (i.e., prediction markets). Chairman Selig wrote in a related post that “Congress gave the CFTC comprehensive authority over any contract based on a commodity, and the legal definition of a commodity is very broad.”

Earlier today, the CFTC released an advisory following public release of two enforcement cases involving misuse of nonpublic information and fraud with respect to certain prediction markets.

Day One Law: Jurisdiction is the product risk. If you are building or integrating a prediction market, your primary exposure is not token classification, it is whether your contracts are treated as federally regulated derivatives or state-regulated gaming products. That distinction drives licensing, enforceability, and distribution strategy.

Keep in mind:

• Federal preemption is not settled. Even if the CFTC asserts exclusive jurisdiction, states will continue testing the boundaries, especially for sports, politics, or real-world event contracts. Expect parallel pressure from state AGs and gaming regulators regardless of federal posture.
  

• Category design matters. The closer your contracts look like financial hedging instruments tied to broad economic indicators, the stronger the commodities framing. The more they resemble retail betting markets, the harder the argument. Product structuring decisions now will determine litigation exposure later.
  

• Distribution is the real choke point. Banking rails, marketing channels, app stores, and liquidity providers will react to headline risk before courts resolve doctrine. Counterparty risk management should be built in from day one.

The winners in this category will not be those who assume regulatory clarity arrives. It will be those who structure for ambiguity and survive long enough for clarity to matter. Action items for teams:

1. Map contracts against existing CFTC event contract precedent.

2. Conduct a 50-state gaming overlay analysis before U.S. retail expansion.

3. Pressure test geofencing, KYC segmentation, and affiliate exposure.

4. Structure terms of service and arbitration clauses anticipating regulator-driven litigation.

5. Consider offshore entity segregation if U.S. regulatory posture remains unstable.

Crypto market structure talks intensify

Market structure legislation remains stalled, despite the White House’s attempts to resolve yield issues through a series of meetings between banking executives and crypto trade groups.

In light of banking groups’ push for strict limits on yield, a coalition of crypto advocates led by the Digital Chamber released its own set of legislative principles (Full text here). The paper highlights how the Clarity Act negotiations are increasingly centered on competition between banks and crypto platforms.

Key figures across Washington continue to signal urgency.

• Democratic Senator Mark Warner, a swing-vote on the Senate Banking Committee, said he wants the broader crypto bill to advance.
  

• SEC Chair Paul Atkins warned that failure to pass legislation could leave U.S. markets behind international competitors.
  

• Treasury Secretary Scott Bessent has also urged Congress to send a comprehensive framework to the president’s desk by spring, framing market-structure legislation as critical for stabilizing the sector and providing regulatory certainty.

With White House negotiations ongoing, competing stablecoin proposals circulating and committee action already underway, the next phase of the legislative process seems to hinge on whether lawmakers can reconcile banking-sector concerns with the crypto industry’s push for product flexibility.

Day One Law: Yield is the fault line. The core fight is not about definitions. It is about whether crypto platforms can continue offering yield-bearing products that compete with bank deposit accounts that have traditionally offered near-zero yield. Expect any final bill to heavily condition, cap, or channel yield through regulated intermediaries.

Do not pause product development waiting for Washington. Build assuming constraints tighten in the U.S. and structure entities to ensure the flexibility necessary to operate compliantly in a fragmented regulatory environment. Other action items for founders and operators:

1. Audit current and planned yield mechanics for bank-like characteristics.

2. Model product changes under a “no retail yield” U.S. scenario.

3. Evaluate whether to separate issuance, custody, and frontend distribution across entities.

4. Revisit token warrants, SAFEs, and ecosystem incentive structures to ensure they remain compliant under a stricter regime.

5. Engage early with trade groups shaping legislative language rather than reacting to final drafts.

Day One Law continues to grow 👀 

We’re excited to share that Joe Doll has joined Day One Law as Counsel, strengthening our ability to advise founders navigating complex regulatory, product and growth decisions in crypto. Joe brings deep operator-level experience from Magic Eden, and has perspective and experience that aligns with how we think about building durable businesses from day one.

Founders are increasingly forced to make real-time calls about jurisdiction, product design, and market structure, areas where practical experience matters just as much as black-letter law. Adding Joe to our growing team is a continuation of our focus on pairing technical legal work with strategic advice tailored to teams actually shipping products.

Joe will help our clients with corporate and ecosystem design, token and DAO launches, ecosystem deals, financings, product design, and high-stakes commercial and regulatory matters.

We’re continuing to build Day One as the firm we always wanted to hire: deeply founder-oriented, commercially aggressive, and built for execution. Thanks for joining us. 

That’s it for your update

As always, please reach out if you have questions or just want to riff on what we’re seeing in the market and the implications of any of the above.

Talk soon.

Nick Pullman
Day One Law