Q&A with Katten: Retail Expansion, Super Apps and the Next Phase of Prediction Markets
Prediction markets are experiencing growth like never before. As contracts tied to sports, politics and other real-world events draw more attention, they are also gaining rapid adoption among retail audiences. That shift is raising more complex questions about contract design, consumer protection, market integrity and how existing regulatory frameworks will adapt as these venues scale.
Recent signals from the Commodity Futures Trading Commission suggest that the agency is not backing away from innovation. But they also make clear that innovation will be expected to sit alongside serious diligence around contract construction, surveillance and investor protection.
To explore what this next phase may look like, Eventus Global Head of Regulatory Affairs Joe Schifano sat down with two subject matter experts from Katten Muchin Rosenman LLP:
- Daniel Davis, Partner and Co-Chair, Financial Markets and Regulation, Katten Muchin Rosenman
- Carl Kennedy, Partner and Co-Chair, Financial Markets and Regulation, Katten Muchin Rosenman
The conversation covered the recent direction of the CFTC, the continuing expansion of retail participation in regulated derivatives markets, the rise of the “super app” concept and the practical limits of prediction market innovation as contract types proliferate.
Prediction markets may feel new in their current form, but the core regulatory question is familiar: how do agencies preserve room for innovation while protecting market integrity and participants?
Joe Schifano: Recent CFTC actions – including the commission’s recent staff advisory on prediction markets – seem to offer a clearer picture of how the agency is approaching these markets. Do you see those developments as a sign of where the regulatory framework is headed?
Carl Kennedy: Yes, I do. I see the recent developments as a sign that the CFTC is supportive of these markets, but also focused on making sure they develop in a manner consistent with the obligations imposed on designated contract markets. That means contracts need to be backed by well-researched, diligenced data and offer clear terms and settlement mechanics.
I also think the agency is recognizing that these markets are now drawing in new types of retail participants: not retail participants in the abstract, because retail has existed in derivatives markets for a long time, but participants who may not have prior experience with financial markets. That makes clarity, contract integrity and market integrity all the more important.
Daniel Davis: I agree with that. I’d echo that this is part of a longer arc. Retail participation in CFTC-regulated markets is not new. You saw it with retail foreign exchange, and later with crypto as that market developed more of a retail component. Prediction markets feel like the next stage in that evolution.
So I don’t think the agency is starting from scratch. The question is whether prediction markets present unique features that require additional tailoring. That’s why things like coordination with sports leagues are so notable. The recent MOU with Major League Baseball, for example, reflects the reality that these products can depend on underlying ecosystems with their own integrity concerns and monitoring frameworks.
Sports-related contracts have driven much of the recent attention around prediction markets, accelerating questions about growth, retail participation and regulatory guardrails.
Schifano: It feels fair to call this an explosion of interest, at least over the last six months. Sports are obviously a major driver, but there are other forces at work too. Where do you see that growth going next, and what should regulators be most concerned about as retail participation grows?
Kennedy: Interest in sports has clearly been one of the biggest drivers of recent volume, and politics would probably be close behind. But there are multiple forces contributing to this moment. There’s the fact that a range of operators are entering the space from different starting points – some from financial markets, some from gaming, some from retail brokerage or adjacent areas – and they are bringing large customer bases with them. And there’s also the litigation and public attention, which keeps these markets in the headlines.
As for the CFTC, I think the more impactful recent signal was the advisory. To me, that was a fairly declarative statement that exchanges should be more disciplined around particular categories of contracts, especially where there are meaningful manipulation concerns. Sports was the example, but the logic goes beyond sports.
If a contract is structured around an event where a single person or a very small group can determine the outcome, that raises real questions. The message is not necessarily that such contracts are categorically prohibited, but that exchanges need to do more homework and show, in the contract design and supporting controls, how they have analyzed and mitigated the risk.
Schifano: That’s the crux of it for a lot of people in this space. Surveillance can do a great deal, but it cannot solve for every possible contract design problem after the fact. At some point, the product itself may be too hard to defend.
One of the most important phrases in the current debate is also one of the most deceptively simple: “readily susceptible to manipulation.”
Schifano: “Readily susceptible to manipulation” is a familiar CFTC standard, but how should market participants think of this obligation in practice?
Davis: I think that’s one of the key points. Each one of those words matters. The standard is not whether a contract is susceptible to manipulation in some abstract or hypothetical sense. The standard is whether it is readily susceptible to manipulation. If you can invent a far-fetched scenario in which someone might influence an outcome, that may show susceptibility in the broadest sense, but not necessarily that the contract is readily susceptible to manipulation. There is always going to be line-drawing involved.
We saw similar discussions during the early growth of crypto derivatives. The agency focused heavily on the depth and breadth of the underlying market, the robustness of pricing inputs and whether the structure made manipulation meaningfully harder. The same dynamic applies here. The narrower the event, the fewer the people involved and the tighter the conditions around the outcome, the more likely the CFTC is going to push exchanges to justify why that product belongs on a regulated market.
There’s also a broader historical point. Since the Commodity Futures Modernization Act, the system has relied on self-certification rather than front-end approval of every contract. That framework was designed to promote innovation. The tradeoff is that exchanges have a real obligation to do the diligence themselves.
As product categories converge and customer expectations change, prediction markets are also becoming part of a larger structural conversation: whether users will increasingly expect a single interface for trading, investing and gaming activities.
Schifano: That brings us to the “super app” idea. How real is that as a regulatory and market-structure concept?
Kennedy: I think it’s very real. You’re already seeing entities offer multiple forms of access through a single front end, whether that means sports-related activity, prediction markets, crypto or other financial products. That convergence is already happening commercially. The positive version of that story is harmonization: institutions offering different regulated products through one app, with the agencies working more closely together and trying to reduce unnecessary friction.
But the more products you place in one environment, the more important it becomes to think about integrity across that environment. The challenge is not just one market. It’s the volume of data sources and the cross-market relationships that have to be understood.
Davis: And that’s not entirely new either. The CFTC has always had to think about derivatives in relation to the things they reference. It often does not have plenary authority over the underlying activity, but it absolutely cares when conduct in one market affects the pricing or integrity of another. That’s been true in traditional derivatives and in crypto, and it will be true here as well.
What changes in prediction markets is the mix of external stakeholders and data inputs. In sports, for example, leagues have their own integrity interests and monitoring tools. That creates a potentially useful source of coordination that may not exist in the same way for other products.
As prediction markets move closer to mainstream retail distribution, the structure of access is becoming more important. That includes a familiar but increasingly relevant question: what happens as more market operators explore direct-to-retail models rather than relying on traditional intermediary frameworks?
Schifano: One related issue that seems increasingly relevant here is disintermediation – specifically, the prospect of designated contract markets going more directly to retail rather than relying on the traditional IB/FCM structure. Is that part of the super app discussion, or is it really a separate debate?
Davis: I think it is part of the discussion. More broadly, it is part of an ongoing conversation about market structure and customer protection. The traditional framework was built with intermediaries in mind, and those intermediaries provide important protections to the market and to customers. At the same time, there are already more disintermediated models in certain parts of the CFTC landscape, so this is not a purely theoretical question.
What matters is that any move toward a more direct-access model will keep consumer protection front and center. Whether the structure is more intermediated, more disintermediated or some hybrid of the two, the Commission is going to focus on whether the safeguards around those products are robust enough for broader retail participation.
Looking ahead, prediction market participants and operators may benefit from building credible best practices in alignment with regulatory signals before the next wave of scrutiny arrives.
Schifano: So how does all of this manifest over time? Through examinations, enforcement, education, industry standards – all of the above?
Kennedy: Probably all the above. But ideally, it would also involve the industry coming together and developing best practices. That is one of the strengths of a principles-based regime. Core principles can remain stable while the practical controls and technologies evolve.
Traditional markets offer a good precedent. Certain behaviors are plainly prohibited, but the surveillance tools and operating standards used to detect them have become established industry practice over time. I could see prediction markets moving in that direction as well, with exchanges, vendors and other stakeholders converging around what good supervision looks like.
Our thanks to Carl and Daniel for their time and perspective. For additional commentary and resources from Eventus on market and product evolution, explore our blog or request a demo.
Note: As prediction markets continue to mature within an evolving U.S. regulatory framework, industry coordination around integrity and best practices is becoming increasingly important. Carl Kennedy, who is actively leading efforts to launch the Information Markets Association (IMA), is helping to catalyze that coordination, and Joe Schifano at Eventus has been working with him to support broader awareness of the initiative. Grounded in a mission to promote transparent, well-functioning, and trusted markets, the IMA represents a timely and necessary step toward aligning industry participants around shared standards before more formal regulatory expectations fully take shape. Please reach out to Carl or Joe directly to learn more about the IMA.