Launchy Regulatory Roundup #81 - Federal, State Target Prediction Markets Insiders

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Welcome to our 81st edition of the regulatory roundup. If you know anybody who would benefit from this content, please help us spread the word!

In Today's Edition:

• Headline: Federal, State Target Prediction Markets Insiders 👀 

• Global Legal Roundup

• Case Study: Court Rejects Crypto Dev Safe Harbor 🔎 

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HEADLINE

Federal, State Target Prediction Markets Insiders

State of play: Bipartisan lawmakers and state governments are closing in on prediction market insider trading, introducing legislation and executive orders to bar officials from profiting on nonpublic information.

• The PREDICT Act bars Congress members, the president, federal employees, and their families from trading contracts tied to political or policy outcomes.

• Violators face a civil fine of 10% of the transaction value and full forfeiture of profits to the US Treasury.

• California Governor Newsom issued an executive order barring state appointees from using confidential information to bet on prediction markets.

• Onchain analysis flagged accounts with over 90% success rates on military event bets, netting nearly $1M in profits with no confirmed link to officials.

• Kalshi and Polymarket have both tightened restrictions and surveillance tools, as the CFTC moves to establish clearer federal rules for the sector.

What’s Next: The PREDICT Act heads to a Congressional vote as the CFTC pushes toward federal rules, with more states likely to follow California's lead.

Why it Matters: With Kalshi and Polymarket surpassing $20B in combined monthly volume, unchecked insider activity turns prediction markets from forecasting tools into extraction mechanisms for officials with nonpublic information.

Our Take: Enforcement is the real question. Fines only work if violations are detected, and 90%-plus success rates with no confirmed official link signals a gap between what's happening and what's provable.

GLOBAL LEGAL ROUNDUP

America:

• 🇺🇲 Sen. Warren targets Bitmain-Trump family ties.

• 🇺🇲 White House clears path for crypto in 401(k) market.

• 🇺🇲 Coinbase declines to support updated Clarity Act draft.

• 🇺🇲 Crypto frustration boils over as stablecoin fight stalls bill.

• 🇺🇲 Stand With Crypto launches voter hub, endorses candidates.

• 🇺🇲 David Sacks leaves post to go to broader White House tech role.

• 🇺🇲 Nvidia faces certified class action over crypto revenue disclosures.

• 🇺🇸 CFTC forms new task force to shape crypto, AI and prediction markets.

• 🇨🇦 Canadaproposes crypto political donation ban.

• 🇧🇷 Brazil passes law allowing seized crypto to be used for public security.

Europe:

• 🇬🇧 UK’s Starmer backs pause on crypto political donations.

APAC:

• 🇦🇺 Binance fined $6.9M over compliance and onboarding failures.

• 🇯🇵 Japan’s financial watchdog flags KuCoin for OTC derivatives transactions.

CASE STUDY

Court Rejects Crypto Dev Safe Harbor

State of play: A Texas court dismissed crypto developer Michael Lewellen's lawsuit seeking preemptive legal protection for his non-custodial software, leaving a significant regulatory gap unresolved for builders in the space.

• Lewellen sued to block fed money transmitter laws on his non-custodial crowdfunding software, arguing compliance was impossible due to its privacy features.

• Chief Judge O'Connor dismissed the case, ruling Lewellen failed to show a substantial prosecution threat under the DOJ's memo on unwitting violations.

• The dismissal was without prejudice, leaving room to refile if enforcement threats grow.

• Coin Center argued the DOJ memo offers no real protection, citing active Tornado Cash and Samourai Wallet prosecutions.

• Lewellen is pushing Congress to pass the Blockchain Regulatory Certainty Act to exempt non-custodial developers from money transmitter rules.

Our Take: The dismissal exposes a core problem: a non-binding DOJ memo is being treated as a substitute for actual legal clarity. Non-custodial developers remain in a gray zone where the rules are unwritten and the consequences are criminal.

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