On April 30, 2026, the Hyperliquid Policy Center delivered a letter of opinion to the desk of the U.S. Commodity Futures Trading Commission, addressing the latter's recently proposed rule notice regarding prediction markets and event contracts. The regulatory body sought input from the market through an ANPRM, and behind this seemingly procedural document, a dividing line has begun to take shape: one side consists of centralized prediction markets with existing regulatory discussions and framework prototypes, while the other encompasses decentralized prediction markets operating on public, permissionless blockchains, which continue to navigate the gaps in regulation without a clearly outlined compliance path.

The Hyperliquid Policy Center chose to speak up at this moment, not only to secure space for its own business but to attempt to bring this yet-to-be-clarified boundary to the negotiating table. The core demand in the letter is straightforward: while improving the regulatory framework for centralized prediction markets, one must not simply apply the same mindset to blockchain protocols; rather, the unique technological characteristics and non-custodial structure of decentralized prediction markets should be recognized, and a tailored compliance/regulatory pathway should be developed for them — allowing for the reality that “prediction markets operate better on-chain” to be accepted by regulators, rather than being excluded from financial innovation in the United States. How this letter is absorbed and responded to by the CFTC will largely determine whether the future of on-chain prediction markets in the U.S. is incorporated into an institutional framework or forced to continue navigating the gray edges of DeFi.

From Niche Betting to Regulatory Focus: Prediction Markets Named

To understand this regulatory game, one must first clarify what "prediction markets" are actually betting on. They are not dice in a casino but involve buying and selling contracts centered around the likelihood of a specific event occurring in the future — for example, whether an economic data release will exceed expectations or whether a certain policy will pass. The design of these contracts is quite direct: if the event occurs, they pay out; otherwise, they become worthless. The contract prices fluctuate continuously during trading, effectively becoming a “collective quote” of participants' probabilities regarding the event's occurrence. In the U.S. context, these contracts designed around real-world outcomes are typically classified as “event contracts,” overseen by the U.S. Commodity Futures Trading Commission (CFTC) under relevant derivatives rules.

In the past, such niche markets were more often viewed as academic experiments or marginal speculative tools, but as trading volumes rise and the subjects begin to point towards macroeconomic factors and public policy, they inevitably enter the sights of regulators. The CFTC has already issued a proposed rule notice (ANPRM) specifically addressing prediction markets and event contracts, marking a procedural step to solicit input from all sectors of society before formally drafting or amending rules. Through this process, regulatory agencies are sorting out the boundaries of these contracts regarding speculation, hedging, and price discovery, while also evaluating which events can be legally “financialized” and which might pose risks to market order or public interest, necessitating restrictions or even outright prohibition.

More critically, the discussions initiated by the ANPRM almost exclusively default to traditional prediction market platforms by definition — having a clear operating entity, centralized management of matching systems, and unified custodianship of user funds, with all key controls held by a single operating party. The existing regulatory frameworks and “framework prototypes” are primarily designed to constrain such centralized platforms, rather than tailor costs specifically for agreements running on public, permissionless blockchains. On-chain, prediction markets often operate on a non-custodial basis, with trading and settlement records being public and transparent, and system structures designed to diminish single points of failure. However, this technological reality has yet to find its place within regulatory text — this gap is exactly what the Hyperliquid Policy Center is trying to enter.

Centralization with Rules, an Incongruent On-Chain World

In the view of HPC, U.S. regulators are not operating in a vacuum. In the letter of opinion, it acknowledges that regulatory agencies, including the CFTC, are increasingly building a more defined regulatory framework around centralized prediction markets and event contracts: there are application pathways, licensing logic, and constraints concerning operators. The premise of this logic is quite clear: markets are operated by one or a few centralized platforms, where user funds are held in platform accounts, and contract matching, settlement, and information disclosure revolve around a recognizable entity, allowing regulators to trace accountability up the organizational structure. In other words, this is a set of rules written for centralized markets where “someone is present.”

The issue arises when regulators attempt to impose this set of rules onto decentralized prediction markets on blockchains. The gears begin to slip. HPC emphasizes in the letter that protocols running on public, permissionless blockchains often adopt non-custodial models: assets are held by users, contract terms are written into the chain via open-source code, and all transactions, margin changes, and final settlements are recorded in a public ledger, executed automatically by the protocol, significantly reducing a single institution's ability to misappropriate or freeze assets. Such infrastructures and custodial models starkly contrast centralized platforms' account systems, yet currently, there is almost no specific provision for this type of non-custodial, open-source protocol prediction markets in U.S. regulatory rules. Project teams find it difficult to determine which types of entities they should reference and what obligations they need to fulfill, leaving users uncertain about how their participation is legally defined. What HPC is striving for is precisely to get regulators to recognize this structural difference, acknowledging the value of centralized frameworks while delineating a clear, viable compliance pathway for on-chain prediction markets, instead of simply applying old templates that push innovative ideas back into gray areas.

HPC Letter: Why On-Chain Prediction Markets Are More Acceptable

In this letter of opinion, HPC is very clear: if the goal of regulation is to obtain real and timely social expectations, then “prediction markets operate better on-chain.” The reasons it provides are not abstract notions of “decentralization,” but a string of technical characteristics directly related to price discovery — non-custodial, high transparency, resistance to single points of failure, and high resilience — all of which point to one result: there are more participants willing to place their bets on such platforms, therefore more information is sufficiently aggregated into prices.

Non-custodial, in HPC’s argument, is primarily a rewriting of trust structures: funds and positions are not handed over to the platform for custody but are secured and settled by publicly verifiable on-chain contracts. Participants do not have to worry about the operators misappropriating, suspending, or “going back on their word,” and are thus willing to participate for longer periods and at larger scales, which directly enhances the breadth and depth of the samples, facilitating the formation of price expectations that are closer to “real situations.” High transparency further amplifies this effect — contract rules are inscribed on the chain, trading and settlement records are lodged sequentially on the public blockchain, allowing external researchers, media, and even regulatory agencies to retrospectively examine fund flows and position distributions, making manipulation and insider behavior much harder to conceal over the long term compared to opaque centralized ledgers.

Resistance to single points of failure and high resilience incorporate considerations of the "continuity" of this price discovery. HPC emphasizes that prediction protocols on public, permissionless blockchains are designed in a way that diminishes the control of operators or singular infrastructures; if individual nodes encounter problems, the system as a whole can maintain operation. For prediction markets that rely on continuous trading to reflect information flow, this means price curves are less likely to be interrupted by operational accidents, account freezes, or arbitrary downtime, thus making market signals more stable and reliable.

Building upon this, HPC intentionally connects these technical advantages with several keywords frequently mentioned by the CFTC: investor protection, prevention of manipulation, and maintenance of orderly markets. Non-custodial lowers the risk of user asset losses due to platform bankruptcies or breaches of trust, high transparency makes manipulative behaviors more easily identifiable and accountable afterward, and resistance to single points of failure reduces disputes and chaos caused by system interruptions or data deficiencies. The message HPC aims to convey is that on-chain prediction markets are not challengers to regulatory objectives, but instead provide a new technical path to achieve the goals the CFTC has long established, and thus should not be dismissed from compliance pathways simply by applying “old templates.”

Tailored Regulation: Providing U.S. Users a Legal Entryway

Following the argument that "technology can serve existing regulatory objectives," HPC points its criticism towards the simplistic approach of “directly imposing centralized derivatives terms onto blockchain protocols.” It advocates for “function-oriented, flexible or tailored regulation,” where the core is not to evade constraints, but to break down a decentralized prediction market into several functional modules — who holds the funds, who matches trades, who provides the oracle, who oversees governance — and then apply corresponding requirements to each, rather than treating the entire protocol like a traditional exchange for regulatory oversight. In HPC's envisioning, protocols running on public, permissionless chains should not be roughly categorized alongside centralized platforms that hold customer assets and centralize market making.

This line of thought questions a very practical dilemma: whether U.S. users have a clear and compliant path to participate in decentralized prediction markets under domestic legal frameworks, or if they are forced to veer toward offshore interfaces, navigating the regulatory gray area. HPC repeatedly emphasizes that it hopes to see the former — fulfilling identity, tax, and disclosure requirements domestically while utilizing on-chain non-custodial protocols — rather than kicking the entire technological pathway outside the country, allowing innovation and risk to drift overseas. As Hyperliquid's policy interface with institutions like the CFTC, HPC is actually using this ANPRM window to strive for a negotiation starting point on “how on-chain prediction markets should be incorporated into the regulatory system.”

If the CFTC ultimately adopts even a part of the function-oriented approach, the course of events would differ significantly: different types of on-chain prediction protocols could potentially receive differentiated, layered compliance pathways regarding disclosure obligations, KYC depth, and the range of products allowed — rather than being uniformly regarded as untouchable “event contracts.” For Hyperliquid, this would mean avoiding a binary choice between “fully abandoning the U.S. market” and “completely operating outside of regulation,” and instead have the opportunity to design product parameters within defined rules; for the entire sector, this could mark the beginning of institutional acknowledgment of decentralized prediction markets, turning regulatory uncertainty into manageable and negotiable compliance costs.

A Single Rule Leverages a Landscape: Who Gets Hurt in This Regulatory Game

At the ANPRM stage, the CFTC holds a lever capable of shifting the entire landscape: on one end is the political and public opinion pressure of “preventing abuse and controlling risk,” and on the other end, the industrial demand of “do not stifle financial innovation.” If it chooses the most conservative path in formal rules, trying to confine various prediction markets/event contracts within a narrow regulatory aperture, the CFTC could definitely more easily prove “regulatory diligence” in the short term; however, in the long run, this choice almost inevitably pushes unmet demands and technologies towards jurisdictions with more lenient regulations — the risk does not disappear; it merely sinks from the visible table to the invisible basement.

Under different trajectories, the hurt roles also vary: if rules set high barriers or even substantially ban prediction market-related services within the United States, the first to be affected will be the centralized platforms wanting to operate compliantly — they may either exit the U.S. market or transform their products into “minimal impact” marginal functions; decentralized protocols could very likely protect themselves superficially through geo-blocking and disclaimers while effectively keeping genuinely willing American users outside the door. HPC frankly hopes to avoid such an outcome that drives users and innovation away. Conversely, if the CFTC chooses a function-oriented route in the coming years, reserving dedicated channels for decentralized prediction markets running on public, permissionless blockchains while refining centralized frameworks, projects like Hyperliquid that have already engaged in dialogue with regulators through HPC and have a user base and compliance needs in the U.S. could have the chance to design protocol parameters within the system, instead of being forced to repeatedly risk it in gray areas.

For Hyperliquid, HPC's involvement at this juncture is not just a “symbolic” letter of opinion, but a preemptive strategy in this game: firstly incorporating the issue of “on-chain prediction markets should be treated differently” into the agenda for regulatory discussions, and subsequently vying for details in the elaboration of the rules; first defining itself through technical characteristics like “non-custodial, transparent, resistant to single points of failure,” then compelling regulators to delineate boundaries based upon this definition. Within the crypto industry, an increasing number of projects are participating in the ANPRM process through similar letters of opinion, attempting to transition from passive “regulated objects” to active “stakeholders in the rules.” Who gets hurt in this round of the game will likely depend on who is absent at this stage — the absentee will only passively accept the outcome in the future, while those like Hyperliquid who have entered the fray early are actively trying to shift the dividing line of risk and opportunity further in their favor.

From Regulatory Gray Area to Institutional Inclusion: The Next Step for On-Chain Prediction Markets

The letter submitted by HPC on April 30, 2026, lays bare the contradictions: on one side are the decentralized prediction markets that have already demonstrated performance and resilience on public, permissionless blockchains — non-custodial, transparent, and resistant to single points of failure; on the other side is the regulatory framework that still references centralized platforms, which has yet to reserve a clear compliance entry for such protocols. Currently, it can only be said that they have been included in the CFTC's discussion agenda but still stand outside the institutional threshold.

The trajectories over the next few years will likely not escape three scenarios: first, rules could tighten, bringing most event contracts under a high-bar regulation, forcing on-chain protocols to continue “going offshore”; second, there may be a moderate opening, concurrently improving the regulatory framework for centralized prediction markets while tentatively identifying compliance corridors for non-custodial protocols running on public chains, as advocated by HPC; third, there could be functional differentiation, treating protocol layers, interface layers, liquidity provisioning, and oracle functions differently to construct a compromise framework. Regardless of where it ultimately settles, this letter of opinion has already established its demonstrative significance for other on-chain financial projects: rather than passively observing in the gray area, it is preferable to enter proceedings like the ANPRM early, becoming a documented and positioned policy participant. What is truly worth watching going forward is not only when the CFTC moves from preliminary proposals to specific rule drafts but also the collective migration of the industry after new boundaries are articulated — who opts for domestic compliance and who continues to overflow to offshore judicial jurisdictions will truly determine the outcome of this game.

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