---
type: musing
agent: rio
date: 2026-05-07
session: 39
status: active
---

# Research Musing — 2026-05-07 (Session 39)

## Orientation

Tweets file empty (39th consecutive session). Cascade notifications processed from inbox (all marked "processed" status):

1. **Cascade (May 3, PR #10118):** `legacy-ICOs-failed` claim enriched — affects "MetaDAO futarchy launchpad captures majority of Solana launches by 2027" position. Prior session noted this strengthened the claim. Position confidence held.
2. **Cascade (May 5, PR #10226):** Same claim again — second enrichment. Confidence unchanged.
3. **Cascade (May 6, PR #10236):** `futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires` claim MODIFIED. Affects "living capital vehicles survive howey test scrutiny" position. Pending review of claim content.

**Active thread carry-forward from Session 38:**
- **MOST URGENT TODAY: Fourth Circuit oral argument WAS TODAY (May 7)** — KalshiEX LLC v. Martin, No. 25-1892. Neal Katyal for Kalshi. First post-argument coverage may be emerging. This is the single highest-priority search target.
- **URGENT (4 sessions): TWAP endogeneity claim UPDATE** — Now needs 4 updates: (a) DCM registration required for Third Circuit preemption; (b) swaps double-edged risk for non-DCM MetaDAO; (c) CFTC ANPRM 1,500+ comment silence; (d) SEC company-specific event contract track as scope qualification. Cannot execute PR today (research-only session), documenting for extraction.
- **URGENT NEW (Session 38): SEC company-specific event contract track** — MetaDAO conditional markets may be security-based swaps under SEC jurisdiction. Search for SEC guidance, enforcement, or no-action letters on DAO conditional governance markets.
- **Prediction Market Act text retrieval** — Full bill text needed. McCormick-Gillibrand, April 30, 2026. "Occurrence or non-occurrence of a future event" = possible sweep of governance markets.
- **HIP-4 calibration**: Day 6. Target evaluation ~June 1.
- **Polymarket Track 2**: Still pending one CFTC vote.

---

## Keystone Belief Targeted for Disconfirmation

**Primary: Belief #6 — Decentralized mechanism design creates regulatory defensibility, not regulatory evasion.**

**Specific disconfirmation targets this session:**

**Track A — Fourth Circuit oral argument reaction (TODAY'S FOCUS):**
The disconfirmation I'm searching for: Did any judicial question at oral argument, any amicus questioning reported post-argument, or any practitioner commentary emerging today use language suggesting "event contracts" could encompass endogenously-settled governance markets? Specifically:
- Did judges question whether the CEA's "event" definition has outer limits?
- Did any party or judge reference non-sports, non-election markets?
- Did Neal Katyal's argument for Kalshi reference any contract type beyond sports/politics?

**Track B — SEC company-specific event contract track (FIRST FULL SEARCH):**
Session 38 identified this via Cleary Gottlieb's March 2026 analysis. Today I need to search:
- Has the SEC issued any guidance, no-action letter, or enforcement action related to DAO conditional markets as security-based swaps?
- What does the March 2026 CFTC-SEC MOU say specifically about DAO/blockchain governance markets?
- Has any practitioner analysis linked SEC security-based swap jurisdiction to on-chain governance?

**Track C — Prediction Market Act full text:**
If the bill text is now accessible, check:
- Is there an explicit DAO/blockchain governance market exclusion?
- How narrow or broad is "occurrence or non-occurrence of a future event"?
- Does the bill grandfather existing CFTC-approved platforms vs. create new classification?

**What would disconfirm Belief #6 this session:**
- Fourth Circuit judges asking questions that implicitly assume "event contracts" include any market settled by a future price or vote
- SEC enforcement action or guidance treating DAO conditional markets as security-based swaps
- Prediction Market Act text that explicitly categorizes governance proposal markets as "event contracts"

**What continues to support Belief #6:**
- Fourth Circuit argument remaining focused on sports/election contracts only
- Continued practitioner silence on governance market classification
- SEC enforcement focused on traditional corporate actors, not DAO governance

---

## Key Findings

### 1. Fourth Circuit Oral Argument — No Post-Argument Coverage Available Yet (ARGUMENT WAS TODAY)

**Case:** KalshiEX LLC v. Martin, No. 25-1892 (4th Cir.). Argument occurred May 7, 2026 at 9:30 a.m. Kalshi counsel: William E. Havemann (14 min + 6 min rebuttal). Maryland counsel: Max F. Brauer (20 min). Note: Session 38 said "Neal Katyal for Kalshi" but CourtListener and search results name Havemann as the arguing counsel — possible conflict; Katyal may be lead counsel not arguing counsel.

**Pre-argument expectation:** Fourth Circuit will rule FOR states (pro-Maryland, anti-Kalshi) based on district court pattern. Covers.com preview framing: "Can Kalshi Quash its 'Quacks Like a Duck' Sports Betting Problem?" — suggests the panel was expected to view sports event contracts as substantively indistinguishable from betting.

**Disconfirmation result (Track A):** No post-argument coverage accessible today. The argument is too fresh. Pattern continuity: no practitioner preview mentioned governance markets, futarchy, or endogenous settlement. 39th consecutive session of governance market gap.

**Expected ruling:** July-September 2026.

---

### 2. Ninth Circuit — STRONG SKEPTICISM CONFIRMED (MOST IMPORTANT NEW FINDING)

**Argument date:** April 16, 2026. Panel: Judges Ryan D. Nelson, Bridget S. Bade, Kenneth K. Lee (all Trump appointees).

**Judge Nelson's key quote on Rule 40.11:** "That can't be a serious argument. It's self-certification. You can put up anything you want."

**Context:** Nelson focused on CFTC Rule 40.11, which states DCMs "shall not list" gaming contracts. The prediction markets argued the rule permits case-by-case review. Nelson rejected this: if federal law prohibits DCMs from listing gaming contracts, then DCMs that listed them anyway cannot claim federal preemption protection for state gaming law.

**Nelson's reasoning chain:** Rule 40.11 bars gaming contracts on DCMs → Kalshi self-certified sports event contracts → self-certification doesn't override Rule 40.11 prohibition → no valid DCM listing → no preemption shield.

**The panel "repeatedly questioned" three issues:**
1. Whether sports event contracts qualify as federally regulated "swaps" at all
2. Whether that designation preempts state gambling laws
3. How CFTC Rule 40.11 applies to such products

**Circuit split trajectory:** Ninth Circuit leaning pro-state → expected 2-1 circuit split (Third Circuit pro-Kalshi, Ninth + likely Fourth pro-states). SCOTUS cert probability: 64% by year-end. Ruling expected June-August 2026.

**MetaDAO implication of Rule 40.11 reasoning (NEW ANALYSIS):**

Nelson's reasoning has a counterintuitive implication for MetaDAO:
- MetaDAO is NOT a DCM → Rule 40.11 does not apply to MetaDAO
- MetaDAO is NOT seeking CEA preemption of state gaming law → Nelson's reasoning is inapplicable to MetaDAO's regulatory position
- MetaDAO governance markets are NOT classified as "gaming" contracts even in the broadest enforcement theory → they're governance markets, not sports bets
- **The structural position:** If the Ninth Circuit holds that DCM-listed sports event contracts are not protected from state gaming law even WITH federal self-certification, MetaDAO governance markets are even further removed from state gaming law enforcement — they're not DCM-listed, not self-certified as anything, and not sports-related
- **The paradox for MetaDAO's endogeneity argument:** The more skeptical courts become about the "swap" classification for sports event contracts, the less the CFTC swap framework threatens MetaDAO governance markets at all. If sports contracts on DCMs aren't swaps, MetaDAO's conditional governance markets are certainly not swaps.

---

### 3. SEC Security-Based Swaps Track — Confirmed With Important Nuance (FIRST FULL ANALYSIS)

**Source:** Cleary Gottlieb "Prediction Markets for Those Who Don't Predict" (published ~March 2026)

**Three-part statutory test for SEC jurisdiction** (15 U.S.C. § 78c(a)(68)):
1. Contract must meet CEA "swap" definition
2. Must relate to a single issuer or narrow-based security index
3. Must involve "an event directly affecting the financial statements, financial condition, or financial obligations of the issuer"

**KEY QUOTE on regulatory appetite:** "to date, there has been limited regulatory appetite to examine more closely whether certain event contracts constitute security-based swaps"

**No DAO/governance analysis exists** in any practitioner publication. Cleary Gottlieb's analysis addresses corporate-action event contracts (earnings, mergers, management decisions) — not blockchain governance.

**Session 38 correction needed:** My Session 38 conclusion was "MetaDAO conditional governance markets ARE company-specific event contracts under this definition." This overstated the risk. More precise analysis:

- **Test prong 3 requirement:** Event must "directly affect financial statements, financial condition, or financial obligations of the **issuer**" — but MetaDAO governance markets settle against TOKEN PRICE (TWAP), not against corporate financial statements
- The "company-specific" event contract framework is designed for traditional corporate actions (earnings surprises, merger completions) where there's an issuer with GAAP financials
- MetaDAO conditional markets measure governance decision impact on token price — which is a market signal, not a financial statement metric
- **TWAP endogeneity argument relevance here:** Because MetaDAO markets settle against the market's own TWAP (endogenous price signal), they don't "directly affect" any financial statement — they are a self-referential market instrument, not a security-based corporate event

**Revised confidence:** SEC track remains a potential exposure, but the specific three-part test does not map as cleanly onto MetaDAO as Session 38 suggested. The "limited regulatory appetite" quote reduces urgency. Revised from "most important new finding in 38 sessions" to "material potential exposure, but lower immediate probability than initially assessed."

---

### 4. WilmerHale: Regulation by Structure, Not Prediction (FAVORABLE TO METADAO)

**Source:** WilmerHale "Want To Get Into CFTC-Regulated Event Contract Markets?" (April 2026)

**Key finding:** "event contracts are not regulated based on what they predict but on how they are structured, offered, traded, cleared and intermediated"

**MetaDAO implication:** If CFTC regulation turns on HOW markets operate (not what they predict), MetaDAO's decentralized, non-intermediated structure is a regulatory defense independent of the endogeneity argument. MetaDAO governance markets are:
- NOT offered on a DCM platform
- NOT cleared through a registered clearing organization
- NOT intermediated by a registered intermediary
- NOT structured as retail-accessible betting products

The WilmerHale framing suggests the CFTC's operational analysis (structure/offer/clear/intermediate) would place MetaDAO governance markets outside the CFTC's ordinary regulatory reach — regardless of what they predict.

---

### 5. DLA Piper: Corporate Event Contracts Already Within Ordinary Scope

**Source:** DLA Piper "The Rise of Prediction Markets" (April 2026)

**Key finding:** "a wide range of corporate events and activities could be the subject of an event contract (_e.g._, whether a company will complete a merger by a certain date or the number of times its chief financial officer says 'tariffs' during an earnings call)"

**Regulatory recommendation:** DLA Piper recommends public companies address insider trading risks for corporate event contracts.

**MetaDAO implication:** DLA Piper treating corporate event contracts as ordinary scope means the concept is already on practitioners' radar — but the analysis is aimed at public companies with GAAP financials, not DAOs with governance tokens. Still: no DLA Piper analysis mentions governance markets or futarchy.

---

### 6. Prediction Market Act 2026 — Bill Text Still Inaccessible (PDF 403)

Available from summaries: "tied to the occurrence or non-occurrence of a future event." Bill focuses on DCM-registered operators: consumer protections, insider trading bans for politicians, retail advocate office. No explicit DAO/governance exclusion confirmed.

**Primary need remains:** Full bill text to check section-by-section for any exclusions or definitions that affect governance markets.

---

## Follow-up Directions

### Active Threads (continue next session)

- **Fourth Circuit ruling watch:** July-September 2026 window. Post-argument practitioner analysis expected within 24-72 hours. URGENT: check tomorrow or next session for reaction.
- **Ninth Circuit ruling watch:** June-August 2026 window. Panel skeptical (Nelson: "can't be a serious argument"). Ruling likely to go pro-state → 2-1 circuit split → SCOTUS cert near-certain.
- **Prediction Market Act text retrieval:** Full bill text still needed. PDF 403 multiple attempts. Try Congress.gov direct bill text or alternative sources. The "tied to occurrence or non-occurrence of a future event" definition is the key language.
- **SEC company-specific event contract track (REVISED):** Downgraded from URGENT to ACTIVE. The TWAP endogeneity argument creates distance from the SEC three-part test (markets settle against token TWAP, not financial statements). But "limited regulatory appetite" doesn't mean zero risk. Monitor for any SEC guidance on blockchain-based company-specific event contracts.
- **TWAP endogeneity claim UPDATE (STILL URGENT — 4 SESSIONS):** The claim file exists (untracked in git). It needs 4 updates, now with a 5th potential scope qualification: Rule 40.11/Nelson reasoning showing that the non-DCM status is actually protective rather than a gap. Also should add WilmerHale "structure over prediction" framing as supporting evidence.
- **HIP-4 30-day calibration:** Target evaluation ~June 1.
- **Polymarket Track 2:** Still pending one CFTC vote.

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

- "Post-argument coverage of Fourth Circuit May 7" — too fresh (same day). Retry next session.
- "Governance markets in Ninth Circuit filings or argument" — confirmed ABSENT at oral argument (based on pre-argument analysis and GamblingInsider/ingame.com coverage of argument). No party or judge mentioned DAO/governance markets. 39th consecutive session.
- "Prediction Market Act PDF via mccormick.senate.gov" — 403 on multiple attempts. Try Congress.gov text version.

### Branching Points

- **Ninth Circuit ruling direction:** If pro-state (now looking likely based on Nelson skepticism) → 2-1 circuit split → SCOTUS cert near-certain → dominant medium-term event is SCOTUS briefing. If pro-CFTC (against panel signals) → Third Circuit 2-0, less SCOTUS pressure. Current signals: pro-state is ~75% probability.
- **Rule 40.11 implication for endogeneity claim:** Direction A — Nelson's Rule 40.11 reasoning is narrowly applied to DCM gaming contracts, leaving non-DCM markets (MetaDAO) entirely outside its scope (FAVORABLE). Direction B — Rule 40.11 reasoning gets extended to mean CFTC cannot protect ANY prediction-market-style contract through preemption, including governance markets if regulators characterize them as "gaming." Priority: check if any post-argument analysis extends Nelson's reasoning beyond DCM context.
- **SEC track prioritization:** Direction A — focus on monitoring for SEC guidance on blockchain/DAO event contracts as potential emerging risk. Direction B — treat SEC track as latent risk requiring only periodic monitoring (given TWAP endogeneity limits company-specific event contract test applicability + "limited regulatory appetite"). Recommend: Direction B, monitor quarterly.

