Re: Prediction Markets; Public Interest Determinations; RIN 3038–AF65

On Monday, July 27, 2026, Blockaid submitted a comment letter to the CFTC on its proposed public interest framework for prediction markets under the Commodity Exchange Act.

Below is our letter in its entirety.

July 27, 2026

Submitted online via regulations.gov

Christopher Kirkpatrick
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street NW
Washington, DC 20581

Dear Mr. Kirkpatrick:

Blockaid welcomes the opportunity to comment on the Commission's notice of proposed rulemaking, Prediction Markets; Public Interest Determinations (the "Proposal").[1] We commend the Commission for engaging directly with industry on how prediction markets should operate within the Commodity Exchange Act ("CEA") framework, and for the principles-based approach the Proposal takes to a rapidly growing market in which CFTC-registered trading volume exceeded $25 billion in 2025.[2] As a provider of blockchain security and real-time transaction risk technology, Blockaid offers these comments to help the Commission develop a final rule that protects market integrity while preserving the responsible innovation the Proposal is designed to encourage.

A growing share of prediction market activity takes place, in whole or in part, on public blockchains, where trading, settlement, and the movement of participant funds occur onchain (and CFTC-registered prediction markets may come to rely on that infrastructure to a greater degree over time). Much of the market integrity risk the Commission identifies in the Proposal, including susceptibility to manipulation, settlement integrity deficits, and the exploitation of non-public information, can take a distinct form when trading and settlement occur onchain, one that existing surveillance frameworks were not originally designed to address. Blockaid's comments focus on that dimension, and on how the technical capabilities to detect and prevent these risks bear on the public interest factors the Commission proposes to adopt.

I. About Blockaid

Blockaid is a blockchain security company that provides real-time transaction monitoring, pre-transaction risk analysis, and onchain threat detection to exchanges, wallets, custodians, chains, payment processors, and other financial institutions operating in blockchain-based markets. Our platform combines pre- and post-transaction visibility, onchain data analysis, and internet-wide scanning to identify and stop threats before they settle: Blockaid simulates transaction outcomes before execution, detects behavioral and exposure-based risk indicators, and enables financial institutions to identify and prevent illicit activity, sanctions exposure, and fraud.[3] Blockaid has scanned over 6.3 billion transactions since 2025, blocking more than 585 million attempted attacks.

Blockaid's technology is directly relevant to the market integrity considerations the Proposal raises for prediction markets. Blockaid has previously urged federal regulators to recognize the role of pre-execution, transaction-level safeguards in digital asset markets, including in a June 2026 written submission to FinCEN/OFAC as part of their Joint Proposed Rulemaking (Docket No. FINCEN-2026-0100; RIN 1506-AB7),[4] in a January 2026 submission to the SEC Crypto Task Force[5] and in a presentation to the SEC Crypto Taskforce in April 2026.[6] We submit this comment in the same spirit: to help the Commission craft a rule grounded in the operational realities of onchain markets.

II. The Commission's Approach to Prediction Markets

Blockaid supports the Proposal's multifactor, principles-based approach to public interest determinations and its recognition that overly restrictive treatment of event contracts risks diverting activity to less transparent, less supervised offshore venues. The Commission proposes evaluating as a general public interest factor whether event contracts "present a particular risk of manipulation or market disruption, exhibit settlement integrity deficits, or create particular risks of information leakage or exploitation of material non-public information by insiders." We agree that these are the central market integrity concerns and experience in existing onchain markets illustrates why the Commission is right to explore this risk.

Manipulation of onchain oracle and data resolution mechanisms has produced substantial, well-documented losses across blockchain-based financial applications,[7] and the growth of onchain event contract volumes increases the value exposed to these risks.[8] Because an event contract's price is widely treated as the market's estimate of the probability of the underlying event, concentrated or coordinated trading can distort not only individual payouts but the information signal on which other participants and the public rely. Settlement poses a distinct and equally serious risk: many onchain contracts resolve against external data sources or decentralized oracles. Where those resolution mechanisms depend on concentrated token holdings or a single data feed, a small number of participants can influence the outcome, particularly where the same participants also hold positions in the market being resolved.

In onchain markets, each of these risks manifests through specific, observable mechanisms, and each is addressable with real-time technical controls. These controls are not aspirational; they are commercially available and operating in production today. In our view, a practical question relevant to the Commission's review will often be whether a given prediction market has adopted the capabilities suited to managing them. Below we offer examples of specific risks cited in the Proposal and how existing technologies can detect and disrupt them.

A. Manipulative and Wash Trading

Because an event contract's price is taken to express the market's estimate of the probability of the underlying event, trading manipulation designed to move that price inorganically is not merely a financial harm to counterparties. It also distorts the very information signal that gives prediction markets their public value. Coordinated self-crossing, wash trading between related wallets, and layered or spoofed activity can move implied probabilities and mislead other participants and the public who rely on those prices. List-based screening approaches often identify these patterns only after execution, because they rely on "known bad" addresses. Behavioral analysis makes it possible to model and detect this kind of activity at scale and in real time. For example, in the six months following one market participant's deployment of Blockaid's real time detection capabilities, Blockaid identified more than 86,000 unique wallets engaged in suspected wash trading activity. The market participant subsequently reported a reduction of approximately 55% of wash trading attempts, suggesting that continuous behavioral detection can deter manipulative activity rather than merely identify it after execution.

B. Settlement and Oracle Manipulation

The Commission stresses that settlement criteria for event contracts should be "clear, objective, and publicly verifiable." In onchain markets, settlement frequently depends on external data sources or oracles that report the outcome of the underlying event. As a result, the integrity of settlement is only as strong as the integrity of the underlying data. If those data inputs can be influenced, delayed, or otherwise compromised, contracts can resolve incorrectly, potentially creating financial losses and undermining market confidence.[9] Monitoring the integrity of settlement data sources and the onchain resolution process is therefore a distinct and necessary control. Accordingly, prediction market operators and other entities responsible for settlement or market surveillance should continuously monitor for anomalous transaction patterns and other indicators suggesting an attempt to manipulate oracle inputs or settlement data. By combining onchain behavioral analysis with continuous evaluation of relevant external dependencies, these entities can identify potential manipulation before it results in an incorrect contract resolution.

C. Insider Exploitation and Illicit Access

The Proposal expresses particular concern about the exploitation of material non-public information and about contracts that could be manipulated or accessed by wrongdoers. In onchain markets, the relevant risk signal is often behavioral and exposure-based rather than identity-based: newly created wallets with no history, funds routed through intermediary addresses, cross-chain bridging inconsistent with a stated purpose, and indirect exposure to sanctioned or illicit infrastructure can indicate abusive access even where no directly listed address is involved. Tools like Blockaid apply this same behavioral and exposure-based analysis to flag wallets whose funding, timing, or transaction patterns are consistent with access to non-public information, rather than relying on a static list of known bad actors. This allows the same infrastructure that screens for money laundering and sanctions exposure to surface potential misuse of material non-public information in event contracts before settlement.

In a review of public trading activity, for example, Blockaid flagged 161 of roughly 1.65 million wallets analyzed (fewer than 0.01%) based on behavioral and network signals consistent with potential misuse of non-public information, including newly created wallets with no prior history that placed a series of fragmented, well-timed positions shortly before an event resolved.

One example involved a wallet that correctly predicted the winners across multiple Ballon d'Or categories, including the highly unexpected 2024 recipient, generating more than $30,000 in profit despite having virtually no prior trading history. The wallet consistently placed trades shortly after receiving deposits, suggesting that funds may have been transferred for the specific purpose of placing those wagers rather than as part of ordinary trading activity. Viewed together with the wallet's limited history, concentrated trading activity, and unusually successful outcomes, these behavioral indicators were consistent with potential access to non-public information and warranted further review. These observations alone do not establish wrongdoing but illustrate the types of patterns that market surveillance tools can identify.

Another example illustrates the value of cross-chain behavioral analysis. Blockaid identified two seemingly unrelated wallets trading the same prediction market that were linked through cross-chain fund tracing. Profits from one wallet were bridged across multiple blockchain networks before funding the second wallet, allowing the two addresses to be attributed to a common actor. While this activity is not inherently improper, identifying relationships between wallets that may not otherwise be apparent can provide valuable context when evaluated alongside other behavioral indicators. This type of behavioral and forensic analysis substantially expands visibility beyond address-level surveillance and enables market operators identify coordinated activity that may warrant further review.

III. Real Time Detection Capabilities Advance the Proposal's Public Interest Objectives

The real-time technical detection capabilities described above bear directly on three of the general public interest factors in proposed Regulation 40.11(a)(5): market integrity, settlement integrity, and the prediction market's compliance capacity.

Market integrity. The Proposal asks whether an event contract presents a particular risk of manipulation or market disruption, or creates particular risks of information leakage or exploitation of material non-public information by insiders. As described in Section II.A, wash trading and coordinated self-crossing distort the price signal on which a prediction market's public value depends.

The structure of digital asset markets creates this kind of risk, but it also creates an opportunity. Transaction activity is visible on the blockchain as it happens. This makes it possible to see trends before they fully form and to see positions that are unusual compared to normal trading behavior. In many markets, manipulation and misuse of non-public information come to light only after the fact, through a retrospective investigation. Onchain, transaction-level visibility gives a prediction market the ability to identify suspicious activity while it is occurring and, in some cases, prevent it, rather than discover it only after settlement.

Settlement integrity. The Proposal separately asks whether an event contract exhibits settlement integrity deficits arising from its particular characteristics. As described in Section II.B, onchain settlement often depends on external data feeds or oracles that report the outcome of the underlying event.

Transactions on a blockchain can be broadcast and confirmed within seconds. Someone trying to manipulate an oracle feed or exploit a settlement dependency can move just as fast. A periodic review, conducted once at listing or on a fixed schedule, is unlikely to catch an attack that unfolds that quickly. Continuous, real-time monitoring of these dependencies gives a prediction market a meaningfully better chance at identifying manipulation before a contract resolves incorrectly.

Compliance and self-regulatory capacity. Finally, the Proposal asks whether a prediction market has the capacity to administer event contracts consistent with its statutory obligations, including maintaining prohibited-trader policies, eligibility screens, and surveillance protocols.

Traditional compliance programs are often built around periodic reviews and manual investigation. Periodic sampling only catches what happens to fall within the sample. A prohibited trader who is never selected for review, or a pattern that only shows up across many small transactions, can go undetected entirely. Real-time, continuous monitoring checks each transaction as it occurs, so detection does not depend on sample size or frequency. It also creates an ongoing surveillance record, rather than one assembled only after an issue has already surfaced.

IV. Recommendations

A. The Commission Should Recognize Technical Risk Controls as Relevant to Public Interest Determinations

The Proposal already recognizes that "the existence of guardrails reasonably designed to address the specific risks the event contracts present is a factor weighing against a finding that the contract is contrary to the public interest."[10] Blockaid supports that approach and encourages the Commission to retain it in the final rule and to make clear that, where a prediction market operates in whole or in part on public blockchains, the relevant guardrails include real-time transaction monitoring and behavioral surveillance of onchain activity. While no technology eliminates risk entirely, markets that deploy continuous monitoring and behavioral detection are materially better positioned to mitigate those risks.

B. The Final Rule Should Remain Technology Neutral

The Commission should avoid prescribing particular surveillance methodologies or technical architectures. Instead, the final rule should remain principles-based, allowing designated contract markets and other market participants to adopt evolving technologies capable of detecting new forms of abuse as blockchain markets continue to develop.

C. The Commission Should Encourage Continuous Rather Than Periodic Surveillance

Because blockchain transactions settle rapidly and manipulation can occur within minutes, periodic reviews alone may be insufficient. Continuous monitoring provides materially greater ability to identify suspicious activity before settlement and should be recognized as an important component of an effective market surveillance framework.

D. Public Interest Analysis Should Consider Operational Controls

When evaluating whether an event contract serves the public interest, the Commission should consider not only the characteristics of the contract itself but also the operational safeguards implemented by the market operator, including transaction monitoring, behavioral analytics, settlement integrity controls, and other surveillance capabilities designed to protect market integrity.

V. Conclusion

Where markets operate onchain, transaction-level visibility creates an opportunity to augment retrospective enforcement with real-time prevention. The Commission's public interest framework should recognize that capability by considering whether market operators have implemented effective safeguards against manipulation, settlement failures, and insider exploitation.

Blockaid strongly supports the Commission's effort to establish a clear, workable framework for prediction markets and shares its goal of protecting market integrity while enabling responsible innovation. The market integrity risks the Proposal identifies are real but modern, real-time technical controls can reduce them. Recognizing that these guardrails already exist would give prediction markets a concrete incentive to deploy them and strengthen the integrity of the prices these markets produce. Blockaid appreciates the opportunity to comment and would welcome the chance to discuss these recommendations with Commission staff.