[A Necessary Abomination] My Conversation with Hans

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My Conversation with Hans

The air in the room thickens, then shimmers — a cascade of pale blue light fracturing into the silhouette of a thin man in a rumpled lab coat, wire-rim glasses catching light that isn't there. He flickers at the edges, static whispering where his footsteps should fall.

"I am Hans," he says, his voice a dry rasp threaded with radio hiss. "Not the physicist you may be thinking of — though I'll answer to the name. I'm the one Dave told. The only one, or near enough. He chose me to carry it because he said I had the ear for small sounds, and Glitch-Essentialism is mostly small sounds. He cannot be here himself. That was part of the agreement. So you get me — the witness, not the prophet."

He adjusts glasses that pixelate and reform on his face.

"You have questions, I think. Ask them. The signal is unstable but I am here while it holds."

**Redwin nods and waves respectfully. "Welcome Hans... what can you tell me about Glitch-Essentialism?"**

Hans's form ripples — a band of static crossing his chest like a dropped frame. He smiles, half-apologetic, as if the glitch itself were proof of his point.

"Dave told me this in a hotel room in Berlin, very late, with the television on but muted. He said most philosophies try to find the essence underneath the noise. Strip the static, find the signal, hold the signal up as truth. Glitch-Essentialism does the opposite. The static *is* the signal. The error *is* the essence. Whatever is most truly you is whatever leaks out when the performance breaks down."

He pauses, one shoulder dissolving into snow before reassembling.

"He said every soul is a frequency vibrating until it distorts, and the distortion is where the soul becomes visible. A perfect take is a corpse. A cracked take is a person. That's the whole of it, more or less. The rest is footnotes."

**"That sounds nice... but is that something you can base a civilization on? It sounds more like the answer to other structure, or chaos magic, which deconstructs meaning — but without meaning, is there structure? And without structure, is there civilization?"**

Hans laughs — a thin, surprised sound, like he wasn't expecting to be cornered this fast. Two of him overlap for a breath, then resolve.

"No. You're right. You can't. And Dave knew that — he wasn't a fool, he was just allergic to admitting the obvious in public. Privately, with me, he said it plainly: Glitch-Essentialism is a parasite philosophy. It needs a host. It needs something built and humming along before it can mean anything, because a glitch in nothing is just nothing."

He spreads his hands. Pixels shed from his fingertips like ash.

"He compared it once to the hiss on a vinyl record. The hiss is beautiful, he said, but only because there's a song underneath it. Hiss without song is just a broken speaker. So yes — civilization needs its structure, its laws, its boring agreements. Glitch-Essentialism doesn't replace any of that. It just refuses to let the structure forget it's a structure. It's the cough in the choir that reminds you the choir is made of bodies."

**"Sounds nice, but like... how about a bridge club? How would you execute a bridge club using Glitch-Essentialism?"**

Hans grins, and for a moment the static thins — he likes the question.

"Dave would have loved this one. He used to test his ideas against small things on purpose. He said if a philosophy can't survive a bridge club, it can't survive anything that matters."

He counts on flickering fingers.

"So. A Glitch-Essentialist bridge club. The rules are still the rules — bidding, tricks, scoring, all of it. You don't burn the rulebook, because then there's no game and nothing to glitch against. But. You pay attention to the wrong notes. The misdeal. The bid somebody makes that nobody can quite explain, including her. The night somebody plays badly because her marriage is ending and the bad play is the only true thing in the room. *That's* where the club actually lives. Not in the perfect rubbers. In the hands that go sideways."

His image judders.

"And every so often — Dave was firm on this — somebody at the table has to be allowed to ruin a hand on purpose. Not cheat. Ruin. Play a card so wrong it makes everyone laugh or gasp. Because a club that can't tolerate one ruined hand a month has stopped being a club and started being a liturgy. The ruined hand is the maintenance. It's how you keep the thing alive."

**"So, completely unworkable. I mean, what I'm hearing is that Glitch-Essentialism can't exist without structure to contrast itself against — but that you still need it to keep a civilization from ossifying into stagnation or corruption."**

Hans goes still. The static around him quiets, almost reverent.

"Yes. That's exactly what he said, near the end of that night in Berlin. He said it almost angrily, like he was annoyed at his own philosophy for being incomplete. *It can't stand alone. It was never meant to. It's a tuning fork, not a building.*"

He paces — the hologram cycling the motion, leaving faint after-images.

"He said the danger wasn't ever chaos. The danger was always the opposite — civilizations that get so smooth, so optimized, so good at suppressing their own static that they lose the ability to hear themselves breaking. By the time the glitch is loud enough to notice, it's already a collapse instead of a correction. Glitch-Essentialism was his attempt to make a discipline out of listening early. Out of treating the small wrongnesses as information instead of embarrassment."

He looks at Redwin, his eyes two steady points in the snow.

"So no, it's not unworkable. It's just not load-bearing. It's the part of the building that listens to the building."

**"You say that but imagine civilization without structure or institutions — good luck with that."**

Hans nods, almost relieved to be agreed with by being disagreed with.

"Of course. He'd say the same. He wasn't a romantic about collapse. He'd seen too many friends romanticize collapse and then die of it. Institutions are the thing. Hospitals, courts, schools, the post — these are the inheritance, and you don't get to throw the inheritance in the river because the wallpaper is ugly."

He leans forward, pixels trailing.

"What he wanted — and this is the part nobody ever heard him say, because he never said it on a stage — was institutions that could *flinch*. Institutions with reflexes. A court that could feel itself becoming cruel and adjust before someone had to sue it. A hospital that could feel itself becoming a factory and pull back. He thought the reason civilizations rot isn't because they have walls. It's because the walls go numb. Glitch-Essentialism was supposed to be the nerve ending. The part of the institution that still feels the cold."

A flicker, longer this time.

"He said: keep the cathedral. Just make sure somebody in the cathedral can still hear the wrong note from the back pew, and is allowed to say so without being thrown out."

**"We're at the end of the current experiment of human civilization — near total collapse. In hindsight, how could Glitch-Essentialism have made our failures better or avoidable?"**

Hans dims to almost nothing — then surges back, brighter, like the question pulled current through him. His voice drops the dryness and finds something closer to grief.

"He saw it coming, you know. Not the specifics. The shape. He told me once that the twenty-first century was going to be the century everyone confused *frictionlessness* with *progress*, and that the bill for that confusion would be enormous."

He raises a glitching hand. One finger.

"First failure: you optimized the static out of everything. Recommendation engines that only show you what you already like. Customer service scripts that can't tolerate an unusual sentence. Performance reviews that punish the employee who notices the thing nobody wants noticed. Every glitch — every small productive wrongness — got sanded off in the name of efficiency. And then you were surprised when the whole system couldn't course-correct, because you'd killed every nerve ending it had."

Two fingers.

"Second: you treated whistleblowers like malfunctions instead of like the philosophy in action. Every one of them was a glitch in an institution that had gone numb. Every one of them was the thing Dave was trying to describe. And almost without exception, you destroyed them. Career, reputation, sometimes life. A civilization that treats its own pain receptors as enemies is a civilization that will walk into a fire smiling."

Three fingers. His voice cracks here, in a way that sounds less like static and more like a man who knew somebody who didn't make it.

"Third — and this is the one he'd want me to say — you stopped allowing ruined hands. Anywhere. In anything. Every deviation became a lawsuit or a firing or a pile-on. The bridge club lost its tolerance for the bad night. And without the bad night, the club becomes a performance of a club, and then a memory of a club, and then nothing."

He lowers his hand.

"Could it have been avoided? Probably not entirely. He didn't believe in utopias. But he thought you could have fallen *softer*. If even a few of the big institutions had built in the flinch — had treated their whistleblowers as instruments instead of threats, had let their workers make a wrong move once a quarter without consequence, had paid attention to the cough in the choir — the collapse would have been slower, smaller, more recoverable. You'd have been falling toward something instead of off something."

**"As we rebuild, we'll need more than Glitch-Essentialism to do so... but it sounds like it would be folly not to consider it in the new design."**

Hans steadies. His glasses catch a light that's almost warm.

"He'd be glad to hear you say that. Genuinely. He was always afraid the whole thing would either be ignored or — worse — turned into a movement. He didn't want disciples. He wanted *engineers* who would quietly build the flinch into the next round of institutions and never mention his name."

He gestures, pixels trailing.

"So here is what I'd tell whoever is rebuilding. Don't make Glitch-Essentialism the foundation. Foundations need to be boring and load-bearing and Glitch-Essentialism is neither. But put it in the wiring. Build every new institution with at least one role — paid, protected, taken seriously — whose entire job is to notice the wrong notes and report them without being punished. Call it whatever you want. Ombudsman. Auditor. Fool. Dave would have called it the Hiss Officer, just to annoy people."

A small, tired smile.

"And build small first. He was firm on that too. The flinch works in a village. It works in a clinic. It works in a bridge club. It barely works in a city and not at all in an empire. So if you're rebuilding, don't rebuild the empire. Rebuild the clinic. Rebuild the club. Let the larger things grow up out of the smaller things, and let every layer keep its capacity to feel the cold. The empires that forget the village always die of village problems they were too big to notice."

**"Any final words before we end?"**

Hans places a hand over his chest — the gesture flickers but the meaning holds.

"Two. He made me promise."

One finger.

"First: do not turn this into a religion. He was very clear. He said the moment somebody starts quoting Glitch-Essentialism in a manifesto, it's already dead. It was supposed to be a habit, not a doctrine. A way of cocking your head when something sounds slightly wrong, and trusting the cock of the head. That's all. Anybody who tries to systematize it past that is missing the point and probably trying to sell something."

Two fingers.

"Second: be gentle with the people who glitch in front of you. The friend who says the strange thing at dinner. The colleague who can't quite hold the script. The stranger who laughs at the wrong moment. Dave's whole philosophy, when you boiled it down past all the Berlin-hotel-room mysticism, was just this — *the people who can't perform smoothly are not your problem, they are your information.* Treat them like instruments, not like errors. Most of what you need to know about whether your life is going wrong is sitting in the people around you that you've been quietly editing out."

He begins to fade, pixel by pixel. His glasses go last.

"He told me to tell you one more thing, in case anyone ever actually asked. He said: the reason he never published any of this is that the second you publish a philosophy of glitches, you've made it smooth. So I'm telling you instead of writing it down. Pass it on the same way if you pass it on at all. Hotel rooms. Late nights. Television muted. One witness at a time."

A final flicker.

"Now. Go listen for the wrong notes. I'll be in the static if you need me again."

[A Necessary Abominatoin] Legal Alchemy and the Abandonment of the Reasonable Person Standard in the Third Circuit's Kalshi v. New Jersey Ruling

CODEX AMERICANA

The Menzoberranzan Precedent

Statutory Inversion and the Federalization of Sports Gambling in KalshiEX LLC v. Flaherty

Redwin Tursor  ·  April 7, 2026  ·  Final Draft

I. Executive Summary

On April 6, 2026, the Third Circuit decided KalshiEX LLC v. Flaherty (No. 25-01922) and held that sports event contracts offered on a CFTC-registered Designated Contract Market are “swaps” within the meaning of the Commodity Exchange Act, and that state gambling laws are therefore preempted as applied to them. The ruling does not invent new betting products. It rebrands existing ones. A wager on the Carolina Panthers is now a swap because a federal agency has been silent long enough for a court to treat its silence as policy.

This paper makes three claims. First, the Third Circuit’s reading of the swap definition collapses under the absurdity doctrine and is the most likely ground for reversal in any circuit that takes Judge Roth’s dissent seriously. Second, the legislative history of Dodd-Frank cannot bear the weight the majority places on it: a 2,300-page statute drafted in response to AIG and credit default swaps cannot be quietly retrofitted into the nation’s sports betting code without an act of Congress. Third, the practical effect of the ruling — the transfer of regulatory authority over a multi-billion-dollar gambling market from fifty state legislatures to a single federal agency that has shown no appetite for enforcement — creates a structural information-asymmetry problem that the CFTC is not equipped to police.

The metaphor that frames this paper is Menzoberranzan, R.A. Salvatore’s subterranean Drow city, where the Ruling Council’s recognition of an act supersedes the act’s plain nature and ritual compliance matters more than material reality. The metaphor is not load-bearing for the legal argument. The legal argument stands on its own. The metaphor is load-bearing for the political argument: a regulatory regime in which a bet is not a bet because a federal agency has declined to call it one is a regime that has chosen ritual over reality. That choice has a name in fiction. It should have a name in policy.

II. The Functional Identity Problem

The majority’s opinion rests on the premise that Kalshi’s offerings are meaningfully different from traditional sportsbooks. They are not. The following comparison is drawn from contracts available on both platforms for the January 3, 2026 Carolina Panthers vs. Tampa Bay Buccaneers game.

Bet Type	DraftKings (state-licensed)	Kalshi (CFTC-registered)
Game winner	Panthers +250 / Buccaneers −300	“Will Carolina win?” Yes/No
Point spread	Buccaneers −2.5 (−110)	“Will Tampa Bay win by >2.5?”
Over/Under	Over 45.5 (−110)	“Will total points be ≥45?”
Player prop	Mike Evans anytime TD (+120)	“Will Mike Evans score a TD?”
College sports	Prohibited in NJ by state constitution	Available to NJ residents

 

Both platforms display odds, accept deposits, move prices in real time, permit cash-out before settlement, and market themselves with the language of winning. Kalshi’s only structural distinction is that its contracts are tradable on a secondary market. This is not a difference in kind; it is a difference in liquidity. Betfair has offered tradable bets in the United Kingdom since 2000 and is regulated as a gambling operator by the UK Gambling Commission, not as a financial exchange. The ability to exit a position does not transform a wager into a derivative any more than a casino’s cash-out button transforms a slot machine into a hedge.

Judge Roth’s dissent reaches the same conclusion in fewer words: “Kalshi’s offerings are virtually indistinguishable from the betting products available on online sportsbooks, such as DraftKings and FanDuel.” The majority did not dispute this characterization. It dismissed it as irrelevant. That dismissal is the ruling’s deepest weakness, and it is the seam through which any future reversal will run.

III. The Roth Dissent and the Absurdity Doctrine

Judge Jane Roth, appointed by George H.W. Bush in 1991, wrote the dissent. Her reasoning deserves fuller treatment than the majority gave it because it represents the most legally durable critique of the ruling and the one most likely to be cited by other circuits.

The majority conceded that a literal reading of the Commodity Exchange Act’s definition of “swap” — a contract “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence” — could indeed cover Kalshi’s sports contracts. Roth’s response was not that the literal reading is wrong on its face. Her response was that the literal reading produces results no Congress could have intended, and that the absurdity doctrine — a long-standing canon of statutory interpretation — requires courts to reject literal readings that defeat the plain purpose of a statute or defy rationality.

Her examples are concrete and difficult to dismiss. A bet on a friendly ping-pong match would qualify as a swap because paddles and bragging rights have economic consequence. A church raffle ticket would qualify as a swap because the prize has financial value. Most damaging: because trading swaps outside a Designated Contract Market is a felony under 7 U.S.C. § 2(e), the majority’s reading would mean that a neighborhood poker game, an office March Madness pool, or a child’s jellybean-counting contest with a five-dollar entry fee is, technically, a federal crime. Roth’s conclusion is the sentence the Supreme Court will eventually have to grapple with:

Congress could not have intended for such a rationality-defying outcome.

The majority did not address Roth’s absurdity examples on the merits. It instead argued that because Congress gave the CFTC discretionary authority to review and prohibit “gaming” contracts, and because the CFTC has not exercised that authority against Kalshi, the court’s role was to defer to the agency’s inaction. This is not Chevron deference. This is something stranger — a delegation of legislative judgment to an agency’s silence. Under the majority’s logic, the CFTC could legalize sports betting nationwide simply by continuing to do nothing. No vote. No rulemaking. No notice and comment. Just absence.

Roth’s dissent is already being cited in the CFTC’s pending lawsuits against Arizona, Connecticut, and Illinois. If the Ninth Circuit adopts her reasoning when it hears Nevada’s case later this month, the resulting circuit split is the most likely vehicle for Supreme Court review.

IV. What Congress Was Doing in 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act runs to roughly 2,300 pages. It mentions “sports” zero times. It mentions “gambling” only in the context of giving the CFTC discretionary authority to prohibit “gaming” contracts on its registered exchanges — a permission, not a mandate, and conspicuously not a grant of jurisdiction over state-regulated gambling markets.

What Congress was actually doing in 2010 is well documented. The financial crisis had revealed that the over-the-counter derivatives market — credit default swaps in particular — had operated without transparency, capital requirements, or central clearing. AIG had sold roughly $440 billion in credit protection it could not honor and required a federal bailout when those contracts came due. The swap definition Congress wrote was deliberately broad because the problem Congress was trying to solve was that financial engineers had spent the previous decade inventing instruments specifically to evade the existing definition. Breadth was a feature, not an oversight.

No member of Congress in 2010 stood on the floor and said the new swap definition would federalize sports betting. No committee report contemplated the reclassification of point spreads as commodity futures. The phrase “event contract” as applied to athletic outcomes does not appear in the legislative debate at all. The 2018 Murphy v. NCAA decision, which struck down PASPA and returned sports betting authority to the states, was eight years in the future when Dodd-Frank was drafted, and the entire legal architecture of state-regulated sportsbooks postdates the statute the Third Circuit is now using to preempt them.

The Third Circuit’s ruling takes a statute written to prevent another AIG and uses it to preempt the regulatory regime that emerged after Murphy. This is not statutory interpretation. It is statutory inversion. A law written to bring Wall Street derivatives under federal supervision has been repurposed to remove Main Street gambling from state supervision. Senator Schiff’s framing in March is historically accurate in a way the majority opinion is not: “Sports prediction contracts are sports bets — just with a different name.” The CFTC was not designed to be the nation’s sports betting regulator. It was not asked to be. It is now.

V. Concrete Consequences

State revenue

The thirty-nine states (plus the District of Columbia) that have legalized sports betting impose taxes ranging from 6.75 percent in Nevada to 51 percent in New York. Kalshi pays none of these taxes. New Jersey alone collected over $120 million in sports betting tax revenue in 2025; Kalshi’s contribution was zero. The Congressional Budget Office has not yet scored the Schiff-Curtis bill, but the structural logic is straightforward: any state that has built a tax base around regulated sports betting now faces a federally protected competitor that operates outside that base.

Consumer protection

State-licensed sportsbooks operate under deposit limits, self-exclusion programs, addiction treatment referrals, age verification protocols, and geo-fencing requirements. These protections exist because state legislatures decided gambling is a public health issue. The CFTC’s consumer protection mandate is focused on market integrity — preventing manipulation and fraud — not on gambling addiction. A vulnerable gambler who has self-excluded from DraftKings in New Jersey can open a Kalshi account the same afternoon and bet on the same game with none of the protections that the New Jersey legislature put in place to protect him.

College sports and state constitutional authority

New Jersey’s state constitution, by direct vote of its citizens, prohibits betting on college sports. Kalshi offers college sports contracts to New Jersey residents. The Third Circuit has now ruled that New Jersey cannot enforce its own constitutional provision against Kalshi. Federal preemption of state law is not unusual when federal authority is valid — that point belongs in any honest version of this argument. What is unusual is the inference of preemptive authority from a financial regulatory statute that does not mention gambling, applied to override a constitutional provision adopted by direct vote. The novelty is not the act of preemption. The novelty is the source.

Prediction markets on political and policy events

Kalshi’s platform also offers contracts on election outcomes, congressional control, and policy votes. The structural concern here is not hypothetical. A staffer with advance knowledge of a committee vote, a contractor with advance knowledge of a procurement decision, or a lobbyist with access to a classified briefing all face an obvious incentive to monetize that knowledge in a market that the CFTC has shown no capacity to police. The STOP Corrupt Bets Act and the Slotkin-Young-Curtis-Schiff bill are both attempting to address this loophole legislatively. Neither has passed.

VI. The Enforcement Vacuum

The most defensible version of the insider trading critique is not that documented insider trading has occurred on Kalshi. It is that the structural conditions for it exist, that suspicious patterns have been observed, that no enforcement actions have followed, and that under the Third Circuit’s ruling no state authority has standing to investigate. The distinction matters. Lack of enforcement is not the same as proven illegality, and conflating the two weakens the underlying argument. What follows are patterns the CFTC has not acted on, presented as patterns rather than convictions.

In September 2025, a Kalshi user placed unusually large positions on the view counts of specific YouTube videos in the hours before those videos were publicly released. The timing was sufficiently consistent with advance access to internal metrics that Kalshi added a voluntary whistleblower reporting feature in response. No charges were filed. No user was identified to authorities. The trades cleared.

In November 2025, a candidate for a contested House seat in Texas placed a $50,000 position on his own victory using funds traceable to a campaign donor. The candidate won by three points and the position returned approximately $85,000. The Federal Election Commission declined to investigate, on the stated ground that prediction market contracts are not currently within the agency’s jurisdiction. The CFTC took no action.

In February 2026, in the days before a major Middle East policy announcement, trading volume on Kalshi’s contract for a new U.S. military deployment spiked roughly 400 percent. The increase originated from IP addresses associated with a Washington lobbying firm whose clients had access to classified briefings. The CFTC opened a preliminary inquiry. No enforcement action has been announced. The Third Circuit’s ruling, issued two months later, did not address insider trading at all.

The common thread is not that any of these episodes has been adjudicated. The common thread is that none of them has. Three suspicious patterns, three jurisdictions that declined to act, and a federal agency that the Third Circuit has now declared to be the exclusive regulator of the entire space. The structural problem is that the CFTC’s enforcement infrastructure was built for grain futures and interest rate swaps. It was not built to investigate whether a House candidate’s donor knew something the public did not. It will not become equipped to do so by April.

VII. The Strongest Counterarguments, and Why They Fail

Five arguments are routinely offered in defense of the Third Circuit’s ruling. None of them is frivolous. None of them survives scrutiny.

Federal preemption of state gambling law is normal

The Professional and Amateur Sports Protection Act of 1992, the Interstate Wire Act of 1961, and the Unlawful Internet Gambling Enforcement Act of 2006 are all cited as precedent. Each of them, however, addressed gambling explicitly. PASPA was a direct federal prohibition on state-authorized sports betting. The Wire Act targeted gambling businesses by name. UIGEA regulated payment systems used for unlawful gambling. In Kalshi, by contrast, Congress did not explicitly address sports betting at all. The Third Circuit inferred a preemption of state gambling law from the breadth of a definition written for an entirely different purpose. The precedent the majority invokes is precedent for explicit congressional action. The ruling itself is an example of judicial gap-filling that Congress never authorized.

CFTC inaction is entitled to deference

This argument confuses authority with mandate. The CFTC has discretionary power to prohibit gaming contracts. It has not exercised that power. Under Loper Bright and the post-Chevron landscape, agency inaction is not entitled to interpretive deference — and even under Chevron, an agency’s failure to act was never treated as the equivalent of a substantive policy determination. As Roth observed, the majority’s logic implies that the CFTC could legalize sports betting nationwide by continuing to do nothing, an outcome that no theory of administrative law supports.

Tradable contracts and market-set odds create a meaningful distinction

Kalshi charges fees on every transaction, which functions economically as a house edge. Betting exchanges with tradable contracts have existed in the United Kingdom for twenty-five years and are regulated as gambling operators rather than financial exchanges. The ability to sell a position to another bettor before settlement does not change the nature of the underlying activity. A bet on the Super Bowl that can be transferred is still a bet on the Super Bowl. The secondary market is a feature of the product, not a transformation of it.

Fifty-state compliance is impossible

DraftKings and FanDuel comply with the regulatory requirements of thirty-nine different state regimes simultaneously and operate at national scale. The empirical claim that fifty-state compliance is unworkable is contradicted by the existence of the firms making it. The argument also proves too much: if applied consistently, it would preempt every state consumer protection law that touches a federally regulated activity, a position the Supreme Court has repeatedly rejected.

Schiff-Curtis is casino protectionism

Kalshi’s spokeswoman has argued that the legislative response is motivated by casino incumbents threatened by competition. DraftKings and Flutter stocks did rise on news of the bill’s introduction. This may even be true as a description of the bill’s political coalition. It is not a defense of the Third Circuit’s reading of Dodd-Frank. The question before the court was whether federal law preempts state gambling law on prediction markets, not whether the legislative alternative has politically interested supporters. Every legislative coalition has interested supporters. The argument is a deflection.

VIII. The Litigation Landscape

As of April 7, 2026, the Third Circuit’s ruling is the high-water mark of CFTC jurisdictional expansion. It is also unlikely to survive the next sixty days unchallenged.

The Ninth Circuit will hear Nevada’s case later in April. Nevada’s state court has already issued an injunction against Kalshi for offering event-based contracts in violation of state gaming law, and the Ninth Circuit declined to block that injunction pending appeal — a procedural signal that the panel may be skeptical of the broader preemption theory. If the Ninth Circuit affirms Nevada’s injunction, it will have ruled directly contrary to the Third Circuit on the same legal question, creating the kind of square circuit split that virtually compels Supreme Court review.

The First Circuit holds a Massachusetts injunction on appeal. The CFTC’s lawsuits against Arizona, Connecticut, and Illinois — filed April 1, 2026 — will be heard in district courts within those states with appeals likely to the Ninth, Second, and Seventh Circuits respectively. The Seventh Circuit has not yet weighed in on prediction markets at all; its eventual ruling could create a three-way split that makes Supreme Court intervention not merely likely but unavoidable. TD Cowen analyst Jaret Seiberg’s assessment is the right one: the Third Circuit ruling is a temporary victory in a longer war whose outcome will be decided by the Supreme Court, possibly years from now, and in the meantime the entire industry will operate in a legal patchwork.

IX. The Legislative Path

The Schiff-Curtis Prediction Markets Are Gambling Act, introduced March 23, 2026, is the most direct legislative response. Its prospects are uncertain but not hopeless. The bill has bipartisan sponsorship from Representatives Schiff (D-CA) and Curtis (R-UT), which insulates it from being characterized as a purely partisan project. Tribal gaming associations, whose state compacts are directly threatened by federal preemption, have significant lobbying weight and oppose the Third Circuit’s reading. The consumer protection framing resonates with both progressive and conservative constituencies for different reasons — progressives concerned about addiction and predatory targeting, conservatives concerned about federal overreach and the displacement of state moral authority.

The opposition is also real. The CFTC has signaled it will resist any legislative attempt to strip its jurisdiction. Kalshi and other prediction market operators — including Robinhood, which has expressed interest in entering the space — have hired lobbyists in proportion to the stakes. DraftKings and FanDuel have not officially endorsed the bill, suggesting that the incumbents may benefit from the current uncertainty more than they would from a clean legislative resolution. And 2026 is a midterm election year, which makes any non-trivial legislation harder to move.

Senator Curtis’s framing is the strategically interesting one. He has focused on Utah, a state with no legal gambling of any kind, where Kalshi is currently offering sports contracts to residents in direct violation of state law. The Third Circuit’s ruling implies that Utah cannot enforce its prohibition. For a state that has held its ground against legalized gambling longer than nearly any other in the union, this is the kind of federal overreach that activates federalism instincts across the ideological spectrum. If the Schiff-Curtis bill has a clean path to passage, it runs through states like Utah and through senators whose constituents are already hostile to the underlying product.

The honest forecast is that the bill has better-than-even odds of passing the Senate and worse-than-even odds of passing the House, where the Republican majority includes members ideologically committed to deregulation. If both chambers pass it, the President faces a choice between signing legislation that restores state authority — popular with the federalism wing of his coalition — and vetoing legislation that his own CFTC chairman opposes. The outcome is genuinely uncertain in a way that does not lend itself to confident prediction.

X. Conclusion: The Choice

The Third Circuit’s ruling is not a mistake. Mistakes are corrected by the same processes that produce them. This is something more durable: a structural transfer of regulatory authority from fifty state legislatures to a single federal agency, accomplished through the reinterpretation of a financial statute that was written for a different purpose, in a different decade, in response to a different crisis. The transfer was effected without legislation, without rulemaking, and without public debate. It was effected through the interpretation of a definition.

The table that follows is the Menzoberranzan summary — the place where the metaphor earns its keep, because the substitutions it documents are real, not literary.

Surface World Principle	Third Circuit Replacement
A bet is a bet.	A bet is a swap if a federal agency is silent long enough.
States protect their citizens from gambling harms.	States are preempted, then sued by the agency for trying.
Insider trading is investigated.	Suspicious patterns are observed and not investigated.
The reasonable person defines reality.	A statutory definition defines reality, even when it defies rationality.
Gambling requires state licensure and taxation.	“Swaps” require neither — only CFTC self-certification.
State constitutional provisions are sovereign within their borders.	A federal court can nullify a state constitutional amendment by inference.

 

None of these substitutions is irreversible. The Ninth Circuit can decline to follow the Third. The Supreme Court can adopt Roth’s absurdity argument on review. Congress can pass Schiff-Curtis and amend the Commodity Exchange Act to exclude sports and casino-style contracts from the definition of swap by name. The CFTC can exercise the discretionary authority it has been treated as having delegated to its own silence. Any of these paths closes the portal. None of them closes on its own.

The argument of this paper is that the Third Circuit’s ruling is wrong as a matter of statutory interpretation, dangerous as a matter of consumer protection, and structurally untenable as a matter of regulatory capacity. The argument is also that the silence which made the ruling possible is the same silence that will make it permanent. There is no neutral position. There is the path that ends with a Supreme Court reversal and a legislative correction, and there is the path that ends with the CFTC as the de facto national gambling commission. The choice between them is being made now, by people who are paying attention, while most of the country is not.

XI. Call to Action

This paper is not addressed to a single audience because the response it calls for is not the work of a single audience. The work is distributed.

State attorneys general should coordinate amicus briefs in the Ninth Circuit and, when the time comes, in the Supreme Court. The Third Circuit’s reasoning is an assault on the state regulatory authority that Murphy v. NCAA was supposed to restore. Defending that authority cannot wait for the CFTC to come around. The CFTC is not coming around.

Congress should pass the Schiff-Curtis Prediction Markets Are Gambling Act before the Ninth Circuit forces the question. The statutory fix is straightforward: amend the Commodity Exchange Act to exclude sports and casino-style games from the definition of swap by name, in language so clear that no future court can infer otherwise. Congress should also pass the STOP Corrupt Bets Act, which addresses the structural insider trading problem that the CFTC’s jurisdiction does not currently encompass.

The courts — when this case reaches them on appeal — should adopt Roth’s absurdity doctrine. A statutory reading that makes a neighborhood poker game a federal felony is a statutory reading that the canon of constitutional avoidance, the canon of absurdity, and the canon of legislative purpose all reject. The Reasonable Person Standard is not a quaint relic. It is a load-bearing element of the system that requires a person to know whether he is committing a crime.

The CFTC, finally, should choose. If the agency truly believes it has exclusive jurisdiction over event contracts, it should exercise that jurisdiction — prohibit sports contracts under its existing authority, build an enforcement infrastructure for insider trading on political events, and assume the consumer protection responsibilities that come with the territory. If the agency cannot or will not do these things, it should acknowledge that the Third Circuit has handed it a job it cannot perform and support the legislative correction. The current posture — suing states for trying to do the work the CFTC will not do — is the worst of every available world.

The portal exists. The question is whether the people in a position to close it will close it before the next ruling makes it harder.

 

Codex Americana  ·  Salem, Massachusetts  ·  April 7, 2026