Hey all, Liam here!

Looking around financial markets these days, dozens of places where a crisis seems most ripe.

AI wrappers. Lulabus. Digital asset treasury companies. 

However, exiting CFTC Commissioner Kristin N. Johnson also devoted her farewell address earlier this month to warn about another corner of the market that hasn’t been reined in.

“We have too few guardrails and too little visibility into the prediction landscape,” she told colleagues on September 3. 

To be clear, she isn’t calling prediction markets the next global financial crisis or FTX. But she spent an enormous amount of time taking the audience through each of those collapses and how they could’ve been avoided with more sensible rulemaking. 

And, hopefully, protect retail customers along the way.

As prediction markets allow many retail customers to bet on political outcomes and, in some cases, use substantial leverage, Johnson is urging the CFTC to take a firm position on how exactly these types of markets operate.  

But are these markets really large enough to spark the next global financial meltdown? Not really.

The total open interest — or the total amount of money being bet right now on a specific outcome — across Kalshi, Polymarket, and Limitless is less than $300 million, according to Polymarket Analytics.

The Great Recession saw world governments bail out major banks to the tune of $1.6 trillion by 2017, according to the International Monetary Fund.

It’s a long shot that prediction markets bring the global economy to a grinding halt anytime soon. 

Still, the staying power of placing bets on anything from sex toys hitting the court of a WNBA floor to whether US President Donald Trump fires the chair of the Federal Reserve can’t be denied. 

There’s also an argument to be made that some of the most powerful people in the world are keen on seeing these businesses thrive. 

Donald Trump Jr., the president’s 47-year-old son, now has a stake in both Polymarket and Kalshi. 

Perhaps the lesson Johnson is making is that it pays to take a closer look at some of these businesses before they’re ever able to spoil an economy. 

In other words: Measure twice, cut once.

ICYMI

• Trump’s $4.1bn WLFI windfall throws coming crypto regulation into doubt

  Analysts, lobbyists and pro-industry players are now weighing the effects of a $4.1 billion windfall for the President on future crypto rulemaking.

• Trump boys’ American Bitcoin mining company hits a rocky start
  Hot out of the market open, trading for the Trump family’s new Bitcoin mining firm, American Bitcoin Corp., suffered more than five trading halts on the Nasdaq. The reason? Serious volatility.

• Banking lobbies eye revisions to stablecoin rules as Congress returns
  First, Bitcoin sought to displace banks. Then, the crypto industry needed the banking industry for access to traditional financial services. Now, well, they’re fighting again over a “loophole” in newly passed stablecoin rules.

Story of the Week

Trump’s $4.1bn WLFI windfall throws coming crypto regulation into doubt

Passing even more favourable crypto legislation may be a whole lot harder after the Trump family’s latest cryptocurrency, WLFI, hit the market. They’re all paper gains, but the US President is suddenly another $4.1 billion richer.

Now, analysts suggest this may make passing new rules for the industry a problematic task for lawmakers.

Post of the Week

A new collaboration between the SEC and the CFTC will see many in the industry concerned about delays in any market structure legislation relieved. At least, that’s according to Lee Reiners, a lecturing fellow at Duke University and financial regulation expert.

DL News is an independent news organisation that provides original, in-depth reporting on the largely misunderstood world of cryptocurrency and decentralised finance. From original stories to investigations, our journalism is accurate, honest and responsible.

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