The CFTC privately informed Kalshi that it may soon sue, alleging that dozens of its new products were not declared in compliance with regulations. Kalshi said it was just a delivery defect and was already being processed. (Preliminary summary: CFTC is tough on the court! Kalshi must resume trading nationwide within 30 days, otherwise written explanation) (Background supplement: Many states in the United States block Kalshi, CFTC supports the headwind: the prediction market regulatory war has begun) The U.S. Commodity Futures Trading Commission (CFTC) has privately informed Kalshi, the leader of the prediction market, that it may soon file a lawsuit over the application process before its new product is put on the shelves. This undisclosed enforcement action was first revealed by an exclusive report on November 10; people familiar with the matter pointed out that the CFTC is pursuing whether Kalshi failed to truthfully declare dozens of new products in preparation as required. The entire investigation has lasted for several months. The CFTC’s private notice means that formal charges may be filed in the short term, but it may also end in a settlement. Kalshi spokesperson Elisabeth Diana stated that the dispute was a "defective delivery involving a small number of contracts, many of which did not actually come online at all" and emphasized that the company "is already dealing with this issue." Kalshi has always maintained that his listings are traditional derivatives, not bets; a CFTC spokesman did not immediately respond to a request for comment. The core of the controversy lies in the long-standing "self-certification" mechanism of the U.S. futures exchange. According to current rules, designated contract markets regulated by the CFTC can have the contracts listed for trading as soon as the next day without waiting for the CFTC's prior approval as long as they issue documents to prove that the new product meets relevant requirements (including not being susceptible to manipulation). This fast lane allows prediction market players to launch new products extremely quickly, but it also leaves regulatory agencies often forced to make remedial measures after the fact. As early as July 24 this year, the CFTC issued new self-certification regulations, which clearly require operators to no longer use "broad template certification" to cram a large number of possible contract variants into a single delivery, on the grounds that this approach will make it difficult for the competent authorities to determine whether individual contracts are compliant. The investigation attracted attention because it came at a time when prediction markets were at their peak. Since Trump was elected president, the size of the prediction market has expanded rapidly. The valuations of the two leading companies, Kalshi and Polymarket, have reached US$40 billion and US$21 billion respectively. Their rapid expansion of product lines in areas such as politics, sports, and economic events is largely due to the relatively friendly attitude of the CFTC in recent years. But the tide is changing in Washington. After the Democratic Party's victory in the midterm elections, they are ready to strengthen supervision of the industry in the next Congress; the CFTC, led by Michael Selig, on the one hand supports the prediction market in lawsuits with officials from multiple states, and on the other hand, it also turns its finger on the industry itself. Polymarket is also under investigation for its implementation of the 2022 settlement agreement. The focus includes whether it violated its commitments back then and failed to exclude U.S. users from overseas platforms. Terry Duffy, chief executive of the Chicago Mercantile Exchange (CME), also warned earlier this year that a large number of prediction market contracts were at risk of manipulation and should not be released easily. Intriguingly, Kalshi is still siding with the CFTC. On November 9, six companies including Kalshi and Coinbase submitted an amicus brief to the court, supporting the CFTC’s regulatory stance on “individual stock-linked perpetual contracts,” creating a delicate situation of “supporting while being investigated.” Market Impact and Follow-up Observations The significance of this investigation is not just a ticket that may fall on Kalshi. Self-certification is a key design for maintaining the speed of innovation in the U.S. derivatives market. Once the CFTC tightens the identification standards of this channel through enforcement actions, it will be affected by the pace of new product launches in the entire prediction market and event contract industry. For Kalshi, which has a valuation of US$40 billion, increased regulatory uncertainty will also be directly reflected in its competition with Polymarket and investors’ evaluation of its compliance risks. There are two subsequent observation points. First, whether the CFTC will formally sue and end with a settlement, or just a warning, will determine the strength of this wave of enforcement; if it does enter into litigation, this will be the first time that the CFTC targets the reporting operations of the leading prediction market. Once the standards are set, other players will inevitably have to look back and review their own submission processes. Second, the CFTC asserts exclusive jurisdiction over prediction markets while imposing fines on operators. This stance may make Kalshi’s “federal priority” defense in multi-state gambling law lawsuits more difficult, and the jurisdictional battle with states is expected to continue to heat up. Related reports Polymarket’s annualized revenue exceeds US$1.8 billion! U.S. business boosts revenue, sports trading drives growth Is accurate midterm election betting not an insider? The on-chain record reveals the two-year gambling history of a major player. The probability of Huida Huang Renxun stepping down is soaring: Polymarket 16.5% before the end of the year, Kalshi 60% before 2028. The CFTC will take action on Kalshi! Dozens of new products were not declared in compliance with regulations. This article was first published in BlockTempo, the most influential blockchain news media.