gm from the Day One Law team!

Great to see so many of you in Miami. Safe travels home. Today’s legal update includes:

• Market structure legislation

• Latest in prediction markets

• Why you need to be careful (Section 1960)

Banks get yield compromise, market structure keeps moving

Speaking of battles, the legislative war over stablecoin yield has remained ongoing since January. We might get a result soon, as the crypto industry and lawmakers both are calling for Congress to advance the CLARITY Act as soon as next week. The main thing you should know:

“The proposal bans crypto companies from offering yield-like rewards for holding stablecoins (a win for the banks) but allows rewards if users spend or use stablecoins (a win for consumers).”

What’s next? If it really is settled, the Banking Committee will need to hold a markup hearing before reconciling this version with the separate, commodities-focused version in the Agriculture Committee. We’ll keep you updated.

What the CFTC’s Arizona win means for prediction markets.

On April 10, 2026, a U.S. District judge granted the CFTC’s request for a temporary restraining order in its suit against Arizona, temporarily blocking the state from enforcing its gambling laws through criminal or civil actions tied to event contracts listed on CFTC-regulated designated contract markets.

The immediate target was Arizona’s criminal case against Kalshi, which the state had charged in March with operating an unlicensed gambling business and engaging in prohibited election wagering, after previously sending cease-and-desist letters over sports- and politics-related contracts.

That is the clearest sign yet of how the CFTC under Chairman Mike Selig has moved to defend the agency’s jurisdiction. As Selig put it when the CFTC sought emergency relief in Arizona, “The CFTC is committed to vigorously defending its exclusive authority over prediction markets.”

Arizona is only one front in a broader prediction-markets litigation campaign. On April 2, the CFTC sued Arizona, Connecticut, and Illinois, seeking declarations that federal law gives it exclusive authority over event contracts and permanent injunctions blocking those states from enforcing preempted laws against CFTC-registered markets.

Earlier this week, the Massachusetts Supreme Judicial Court heard arguments from both Kalshi and the State. It’s the latest example of the ongoing legal battles that could determine the CFTC’s jurisdiction here and whether prediction markets can offer events contracts tied to sports, which reports suggest accounts for upwards of 80 percent of their revenue.

State regulators, tribes, and gaming interests argue the agency is stretching derivatives law to displace traditional state gambling oversight, while the CFTC says a patchwork of state rules would undermine a national swaps market. Both have points.

You should know:

• Regulatory center of gravity is shifting federal, not state. The CFTC is asserting exclusive jurisdiction aggressively. If they win, compliant prediction markets will consolidate under federal oversight, reducing state-by-state friction.

• Short-term: litigation risk is real, not theoretical. Even with CFTC backing, operators and counterparties can still get pulled into state enforcement actions. Budget for legal exposure and operational disruption.

• Revenue concentration is a vulnerability. If ~80% of volume is tied to sports/event contracts, any adverse ruling on “gaming vs derivatives” classification materially impacts business models.

Action items:

1. Map product offering to “event contract” vs “gambling” characterization

2. Confirm exchange/market structure aligns with CFTC-regulated venues

3. Tighten geofencing and user access controls

4. Revisit disclosures and risk factors for investors and users

Deal implication: Investors will diligence regulatory positioning heavily. Expect this to show up in reps, covenants, and potentially valuation discounts.

Software developer liability & money transmission laws

As you know, our goal at Day One Law is to put founders first. Unfortunately, several founders of on-chain, privacy-preserving software have been charged with running unlicensed money transmission businesses in the U.S. Those charges have a maximum of a five-year prison sentence, which the Department of Justice had sought under the Biden Administration.

If you want to understand what’s happened to developers of Tornado Cash and other tools, this episode of the Law of Code podcast is worth a listen. (Apple, Spotify, YouTube). We’re also available to explain how the risks have evolved over the years and the specifics of your business. 

You should know: The DOJ theory remains the core risk. The government continues to pursue the position that writing or deploying certain on-chain software can constitute operating an unlicensed money transmission business.

“Code is speech” is not a shield in practice. Courts are not consistently accepting that argument where there is perceived facilitation of financial flows, especially with privacy tools.

Facts matter more than ideology. Key risk drivers:

• Degree of control over the protocol

• Ongoing involvement post-deployment

• Fee capture or economic benefit

• Ability to upgrade, pause, or influence usage

Action items:

1. Document decentralization posture and governance clearly

2. Minimize retained control where possible or be explicit about it

3. Avoid ambiguous “we don’t control it” narratives if not fully true

4. Assess whether any component could be framed as “custodial” or intermediary-like

5. Align public statements, docs, and actual architecture

1. Consider offshore dev entities + clear separation from any U.S. touchpoints

2. Separate protocol development from any frontend or commercial layer

3. Evaluate whether token design or fee flows create additional regulatory hooks

Deal implication. This is a gating issue for institutional capital. Expect:

• Enhanced diligence on dev team conduct and architecture

• Side letters or covenants around compliance posture

• Potential exclusion of certain contributors from cap table/token allocations

That’s it for your legal 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