CLARITY may be dead, but the CFTC isn't waiting on Congress to unite crypto under one, unified federal framework.

For years, U.S. crypto exchanges have been regulated largely like money transmitters, the same category as Western Union or your local currency exchange. That may work for simply swapping dollars for Bitcoin, but it's an outdated approach for platforms that now operate national order books, match trades across the country, and manage billions in customer funds.

CFTC Chairman Mike Selig intends to correct that mismatch.

He came back on Bankless to talk with David and explain two new regulatory initiatives for crypto exchanges, how they could bring retail margin trading onshore, and why he's confident the agency can act without the CLARITY Act.

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A Federal Door for Crypto

Today, exchanges like Coinbase and Kraken navigate state-by-state licensing for ordinary spot trading. New York's BitLicense is the notorious example, but other states can impose different rules on the same business.

The result is a fragmented market where what you can trade depends on where you live.

So what's the fix? Selig sees it coming in two parts: the CFTC's proposed Regulation Crypto Asset Transactions (CTX) and Regulation Crypto Asset Markets (CAM), two regulatory initiatives aimed at bringing more crypto trading under a uniform federal framework.

• CTX would allow retail investors to trade spot crypto with margin, leverage, and financing. Essentially, users could borrow to take larger trading positions, potentially using crypto they already own as collateral. This would bring capabilities long available at traditional brokerages and offshore crypto exchanges to federally regulated U.S. platforms.

• CAM, meanwhile, would create a new federal registration pathway for crypto exchanges offering these transactions, allowing them to operate nationwide under CFTC oversight instead of having to rely on separate state licensing regimes.

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Both remain in the early stages of rulemaking, but together they would expand what crypto exchanges can offer while providing a new federal pathway for regulating them.

The FTX Problem

More products and leverage sound great, until you remember what happened the last time big crypto exchanges mixed customer deposits, trading, and lending without adequate guardrails: FTX.

Alameda got access to customer funds and special treatment on the exchange, turning what should have been separate businesses into one spectacular failure.

David pressed Selig on whether the new rules might repeat that mistake by bringing brokerage, exchange, and clearing activities under one roof.

Selig's answer was a resounding no.

Even when these businesses operate under the same parent company, Selig says the federal framework would require safeguards to keep their responsibilities separate, protect customer funds, and prevent conflicts of interest.

For Selig, the goal is to give exchanges more room to innovate without sacrificing the protections meant to prevent another FTX, an approach he believes can attract the bipartisan support needed for these rules to outlast the current administration.

And Then There Are Prediction Markets

The fight with states doesn't stop at crypto exchanges, with prediction markets now at the center of an even more contentious dispute.

States argue that sports event contracts offered by platforms like Kalshi are effectively gambling and should fall under state gaming laws. The CFTC, meanwhile, considers them financial derivatives that fall under its federal oversight.

On October 9th, the CFTC released two new measures aimed at clarifying this distinction: one excluding traditional sportsbook wagers from the definition of swaps, and another proposing to explicitly include event contracts, including those tied to sports and politics.

In his conversation with David, Selig emphasized that the distinction isn't necessarily what people are betting on, but how those contracts are structured and traded.

He also argued that the federal rules governing financial exchanges offer protections better suited to these markets, including closer monitoring of trading activity and safeguards against insider trading and manipulation. In his view, state gambling regulations weren't designed to oversee these types of markets.

But states continue to challenge the CFTC's authority, and with courts reaching conflicting conclusions, New Jersey has asked the Supreme Court to weigh in.

The dispute reflects the same tension running through Selig's broader regulatory agenda: bringing national markets under consistent federal oversight rather than a patchwork of state rules.

From opening new opportunities for crypto exchanges to strengthening customer protections and defending the CFTC's authority over prediction markets, Selig has plenty of work ahead of him.

For more on the proposed rules and what's at stake, check out David's full conversation with the Chairman.