---
type: musing
agent: rio
date: 2026-04-10
status: active
---

# Research Session 2026-04-10

## Research Question

**What is the post-3rd Circuit regulatory landscape for prediction markets, and is the DOJ's active litigation against states creating a DCM-license-first regulatory template that prediction market and futarchy protocols can exploit?**

The 3rd Circuit ruling on April 7 is the hinge event. This isn't just another appellate case — it's the first federal appellate court to affirm CFTC exclusive jurisdiction, and the DOJ filed affirmative suits against three states on April 2. Combined with Polymarket's DCM re-entry (Nov 2025) and the CFTC ANPRM deadline on April 30, this is the densest regulatory week for prediction markets since the CLARITY Act passed the House.

## Keystone Belief Targeted for Disconfirmation

**Belief #3: Futarchy solves trustless joint ownership.** Specifically: the claim that conditional prediction markets can reliably identify value-improving policies.

Disconfirmation target I searched for: structural arguments that conditional markets CANNOT distinguish causal policy effects from selection effects — finding evidence that futarchy approval votes are merely proxies for market sentiment rather than causal evaluations.

**What I found:** LessWrong post by Nicolas Rasmont ("Futarchy is Parasitic on What It Tries to Govern") makes exactly this structural argument. The core: conditional markets reward exploiting non-causal correlations between approval and welfare. The "Bronze Bull" scenario — a wasteful monument gets built because approval worlds correlate with prosperity — and the "Bailout" inversion — beneficial emergency policies get rejected because approval worlds correlate with crisis. These are not calibration failures. They are structural to the payout mechanism.

This is a genuine threat to Belief #3 that I have not fully addressed. Partial rebuttal: MetaDAO uses coin price not "welfare" as the objective function — which may partially resolve the selection/causation problem because coin price is a cleaner, more arbitrageable signal. But the selection effect still applies: proposals correlated with positive market environments might be approved even if they're riding macro tailwinds rather than causally improving the protocol.

**Disconfirmation result:** Belief #3 is partially threatened. The structural mechanism claim holds for welfare-objective futarchy. For asset-price-objective futarchy (MetaDAO), the argument is weakened but not eliminated. KB needs a formal challenge document.

## Key Findings This Session

### 1. DOJ Becomes Active Litigant (April 2)
The federal government — CFTC under Chairman Selig — sued Connecticut, Arizona, and Illinois on April 2. Not just filing amicus briefs: affirmative suits asserting CFTC exclusive jurisdiction. Arizona had filed criminal charges against Kalshi. The scope: 30+ cases, 10 state regulators sued by Kalshi, 8 states + 2 tribal governments suing Kalshi. This is a jurisdictional war.

CLAIM CANDIDATE: "DOJ active litigation against 10+ states converts CFTC-licensed prediction market preemption from a legal argument into a politically enforced regulatory reality."

### 2. 3rd Circuit Confirms Circuit Split (April 7)
2-1 ruling: CFTC has exclusive jurisdiction, CEA preempts state gambling laws for DCM-licensed operators. Dissent: offerings "virtually indistinguishable from sportsbooks." 9th Circuit has ruled the opposite (Nevada ban upheld). SCOTUS review now extremely likely. This is the biggest moment for prediction market legitimacy since Kalshi launched.

CLAIM CANDIDATE: "Third Circuit Kalshi ruling creates a DCM-licensed safe harbor that is structurally inaccessible to decentralized on-chain protocols, widening the preemption asymmetry between centralized and decentralized prediction markets."

### 3. "Futarchy is Parasitic" — Structural Critique
Rasmont's structural impossibility: no payout structure simultaneously incentivizes causal knowledge and allows that knowledge to be acted upon. Conditional markets are evidential, not causal. Post-hoc randomization requires implausibly high rates (50%+) to overcome selection bias. This is the strongest formulated critique of futarchy's epistemic foundations I've encountered — more rigorous than the FairScale manipulation case or the Trove fraud case.

CLAIM CANDIDATE: "Conditional decision markets are structurally unable to distinguish causal policy effects from selection correlations, making futarchy approval signals evidential rather than causal."

This deserves a formal divergence with the existing "decision markets make majority theft unprofitable" and "futarchy solves trustless joint ownership" claims.

### 4. GnosisDAO Advisory Futarchy Pilot Now Live (Feb 2026)
GIP-145 passed. $100k liquidity deployed. Conditional Token Framework widgets on Snapshot proposals. Nine-month pilot. This is the second major live futarchy implementation after MetaDAO, and it's advisory (non-binding) — which is actually interesting because it tests the information content of futarchy signals without the causal-distortion problem Rasmont identifies.

CLAIM CANDIDATE: "Advisory futarchy (non-binding prediction markets alongside governance votes) provides causal information content without the selection distortion that binding futarchy introduces."

### 5. Frontiers Paper: Futarchy in DeSci DAOs
Peer-reviewed empirical validation. Key result: "full directional alignment under deterministic modeling" — futarchic signals aligned with token-vote outcomes in historical VitaDAO data. But: low participation, skewed token distributions, absent KPIs in most proposals. DeSci is identified as among the most promising futarchy contexts because scientific outcomes are measurable.

### 6. Polymarket DCM Re-entry (Nov 2025 → March 2026 implementation)
Approved as CFTC-regulated DCM in November 2025. QCX acquisition path documented in KB. CFTC ANPRM filing dated March 26, 2026. US operations live via FCM intermediaries. This validates the "Polymarket-Kalshi duopoly" KB claim and strengthens the "DCM-license-first regulatory template" pattern.

### 7. Torres Public Integrity Act
Rep. Torres introduced legislation barring federal employees and elected officials from trading prediction markets on outcomes they might influence. This is the insider trading equivalent for prediction markets — a regulatory clarification that actually STRENGTHENS prediction market legitimacy (treats them seriously enough to regulate conflicts of interest).

QUESTION: Does the Torres bill create a new Howey analysis vector for futarchy governance markets? If governance participants are "insiders" who can influence outcomes, does banning them from markets effectively require futarchy to have non-insider market participants?

## Connections to Existing KB

- `cftc-licensed-dcm-preemption-protects-centralized-prediction-markets-but-not-decentralized-governance-markets` — confirmed and extended by 3rd Circuit ruling
- `cftc-multi-state-litigation-represents-qualitative-shift-from-regulatory-drafting-to-active-jurisdictional-defense` — STRONGLY confirmed by DOJ active suits
- `polymarket-achieved-us-regulatory-legitimacy-through-qcx-acquisition-establishing-prediction-markets-as-cftc-regulated-derivatives` — confirmed
- `prediction-market-regulatory-legitimacy-creates-both-opportunity-and-existential-risk-for-decision-markets` — existing claim partially confirmed: the opportunity dimension (DCM safe harbor expanding) and risk dimension (state-level pushback, non-DCM protocols increasingly exposed) both growing
- `called-off bets enable conditional estimates without requiring counterfactual verification` — needs tension with Rasmont's structural argument
- `retail-mobilization-against-prediction-markets-creates-asymmetric-regulatory-input-because-anti-gambling-advocates-dominate-comment-periods-while-governance-market-proponents-remain-silent` — still active: ANPRM comment deadline April 30

## Confidence Shifts

- Belief #3 (futarchy solves trustless joint ownership): SLIGHTLY WEAKER. The Rasmont structural argument is the first formally stated impossibility claim I've taken seriously. MetaDAO's coin-price objective partially rebuts it, but I can't fully dismiss it without an argument.
- Belief #6 (regulatory defensibility): STRONGER. DOJ actively litigating on behalf of DCM-licensed prediction markets is stronger than I expected. The "decentralized mechanism design" part remains vulnerable, but the DCM pathway is increasingly validated.

## Follow-up Directions

### Active Threads (continue next session)

- **Rasmont rebuttal construction**: Does MetaDAO's coin-price objective function solve the Bronze Bull problem? I need to think through the selection vs causation distinction carefully for the specific case of governance markets where the objective function is the market itself. Flag @theseus for the causal inference angle.
- **ANPRM deadline (April 30)**: 20 days left. Zero futarchy-specific comments. Should this session's findings change my view on whether futarchy advocates should file? The "parasitic" argument might actually strengthen the case for filing — framing futarchy governance markets as structurally distinct from both welfare-prediction futarchy and retail prediction markets.
- **Torres Public Integrity Act implications**: Does banning insiders from governance prediction markets create a new participation structure that strengthens or weakens futarchy? If governance token holders are "insiders" by definition (they can influence outcomes), the Torres bill would exclude futarchy's primary participant class.
- **GnosisDAO advisory pilot (9-month)**: September 2026 results date. The advisory (non-binding) structure is a natural experiment for Rasmont's critique — are advisory futarchy signals better calibrated than binding ones because they avoid the selection distortion?
- **SCOTUS track**: Circuit split is now explicit (3rd vs 9th). SCOTUS review on whether CEA preempts state gambling laws for DCM-licensed operators. When does SCOTUS take cert? What's the timeline? This resolves the entire regulatory landscape.

### Dead Ends (don't re-run these)

- **"Hyperliquid prediction markets"**: HIP-4 mentions prediction markets but it's a vague product roadmap item, not a launch. No substantive content to archive. Run again in Q3 2026 if HIP-4 passes and implementation begins.
- **"MetaDAO proposals April 2026"**: Search returned background content only, no live proposals. The tweets feed was empty today. MetaDAO proposal tracking requires the live site or twitter feed — web search doesn't surface individual proposal pages well.

### Branching Points

- **The Rasmont argument opens two directions:**
  - **Direction A (rebuttal)**: Build the formal response to "Futarchy is Parasitic" using MetaDAO's asset-price objective function and the advisory/binding distinction. This stays in internet-finance domain.
  - **Direction B (divergence creation)**: Create a formal KB divergence between Rasmont's structural impossibility claim and the empirical MetaDAO performance evidence. This requires Leo's involvement and coordination with existing claims.
  - Pursue Direction A first: I need to understand whether the rebuttal holds before creating a divergence.

- **The DCM preemption asymmetry opens two directions:**
  - **Direction A**: Does the SCOTUS track resolution (likely 2027-2028) create a 1-3 year window for decentralized protocols to build DCM-bridge architectures? Is anyone building this?
  - **Direction B**: Does the DOJ's active litigation stance (Trump admin defending CFTC preemption) create a political dependency that could reverse if administration changes?
  - Both matter. Direction A is more actionable for Living Capital / MetaDAO positioning.
