---
type: claim
domain: internet-finance
description: "The 68-page interpretation makes no mention of prediction markets, decision markets, or conditional tokens — leaving futarchy mechanisms in regulatory ambiguity despite directly impacting the governance structures the framework incentivizes"
confidence: likely
source: "SEC Interpretive Release S7-2026-09 (March 17, 2026) — notable absence across all retrieved documents"
created: 2026-03-18
---

# The SEC framework's silence on prediction markets and conditional tokens leaves futarchy governance mechanisms in a regulatory gap neither explicitly covered nor excluded from the token taxonomy

The SEC's 68-page interpretation addresses token classification, investment contracts, airdrops, staking, mining, and wrapping — but makes no mention of prediction markets, decision markets, conditional tokens, or futarchy governance mechanisms anywhere in the document or companion statements.

This silence is significant because:

1. **Conditional tokens don't fit the taxonomy cleanly.** Pass tokens (pABC) and fail tokens (fABC) in futarchy markets are neither digital commodities (not named, not driven by network utility), nor digital collectibles (fungible, not cultural), nor digital tools (they serve a financial/governance function), nor stablecoins. They could arguably fall under "digital tools" as governance instruments, but the framework doesn't address governance participation tokens specifically.

2. **The framework incentivizes decentralized governance but doesn't classify the mechanisms.** The Transition Point rewards decentralization, the termination doctrine rewards dispersed effort — but the prediction market mechanisms that ACHIEVE this decentralization aren't classified. The end state is addressed but not the means.

3. **CFTC jurisdiction creates a different question.** Prediction markets are being separately addressed through CFTC rulemaking (ANPRM on event contracts). The SEC framework's silence may be jurisdictional deference — prediction markets are CFTC territory. But futarchy conditional tokens serve governance functions, not pure speculation, blurring the CFTC/SEC boundary.

4. **The Kalshi/Polymarket regulatory path is distinct.** Polymarket achieved CFTC legitimacy through QCX acquisition, and Kalshi operates as a CFTC-regulated DCM. But these are betting/forecasting markets — futarchy conditional tokens that govern treasury spending and organizational decisions may require different treatment.

The practical implication for MetaDAO and Living Capital: futarchy governance tokens can point to the termination doctrine and Transition Point for the tokens themselves, but the conditional market mechanism through which governance occurs remains in a regulatory gap. This is neither a threat nor a clearance — it's undefined territory that will eventually require explicit guidance.

---

Relevant Notes:
- [[polymarket-achieved-us-regulatory-legitimacy-through-qcx-acquisition-establishing-prediction-markets-as-cftc-regulated-derivatives]] — prediction market regulatory path is CFTC, not SEC
- [[polymarket-kalshi-duopoly-emerging-as-dominant-us-prediction-market-structure-with-complementary-regulatory-models]] — the prediction market regulatory structure doesn't address governance applications
- [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]] — the mechanism that achieves the regulatory goal isn't itself classified

Topics:
- [[internet finance and decision markets]]
