CFTC wildfire bets: Senators seek limits on prediction-market contracts

CFTC wildfire bets are the focus of a new request from eight Democratic senators, who want the agency to consider restricting prediction-market contracts tied to destructive fires. The August 3 letter does not create a ban, but it puts a direct question before the regulator: whether these contracts belong on U.S.-regulated exchanges at all.

Sens. Adam Schiff and Alex Padilla of California led the letter to CFTC Chair Michael Selig, joined by Jeff Merkley and Ron Wyden of Oregon, Jeanne Shaheen of New Hampshire, Jacky Rosen and Catherine Cortez Masto of Nevada, and Martin Heinrich of New Mexico. They asked for answers by August 14.

The senators asked whether the CFTC is considering a prohibition on wildfire-related event contracts at Designated Contract Markets, or DCMs. The CFTC describes DCMs as exchanges operating under its oversight under the Commodity Exchange Act. The agency says such venues can list new products through self-certification or by seeking CFTC approval.

What did senators ask the CFTC about wildfire bets?

The letter seeks the agency’s plans for contracts offered in the United States and for offshore offerings. It also asks whether contracts based on a wildfire’s duration, the damage it causes, or its growth should be considered in the public interest, and whether the CFTC has guidance or potential enforcement measures concerning them.

Prediction-market event contracts are derivatives that pay based on whether a specified event occurs or on the value of a measurement. The CFTC gives examples including corporate earnings, snowfall and hurricane damage. In practical terms, a contract could be structured around whether a fire burns beyond a certain size or causes a specified amount of damage.

The senators argued that markets tied to active fires could encourage arson or attempts to influence a fire already underway. They also cited public-safety and insider-trading concerns, and objected to people profiting from disasters. Those are concerns raised in the letter, not findings by the CFTC.

The letter cited more than $1.2 million in Polymarket bets connected to the January 2025 Palisades and Eaton fires in Los Angeles. It said the wildfire contracts appeared to have been offered only on Polymarket’s offshore site, while warning that U.S.-based DCMs could seek to list similar products.

That distinction matters. The CFTC’s directory lists QCX LLC, doing business as Polymarket US, as a designated contract market, but that listing does not show that Polymarket US offered wildfire contracts. Kalshi, another designated contract market, told Ars Technica that it does not permit wildfire markets because they create perverse incentives. A Polymarket spokesperson told Ars that the company had no current wildfire markets and had not had them for some time.

Existing CFTC Regulation 40.11 expressly bars event contracts tied to terrorism, assassination, war, gaming or unlawful activity, as well as similar activity that the agency determines is against the public interest. Wildfires are not specifically named in that rule. The senators are asking the CFTC to clarify its approach to wildfire contracts and state what plans it has for offshore offerings.

This story draws on original reporting from Decrypt.