Cat Named Louie

[David Kuhn @gr8day4this]

There's a test for this. Let E₀ = company's MC as equity-only, no token. Let E₁ + T = combined value of equity + token in dual structure. If E₁ + T > E₀, the token added value, & whatever discount you'd apply for the weaker legal claim is already reflected in T, & the structure still came out ahead.

Conservation of value would support your position if the token just re-sliced the same cash flows, but an automated buy/burn is a programmatic, non-discretionary claim on protocol fees (a stream equity only captures in intermediated form, net of entity-level tax and management discretion). The pie isn't fixed.

Fair to argue the market overpays for T. But that's just a pricing issue.

[David Kuhn @gr8day4this]

This is right, and I'd add the piece that's usually missing: most tokens aren't financeable because the issuer retains discretionary control over the exact economics a lender would rely on: supply, fork rights, governance, fee switches.

From https://t.co/YcTitjtSjq on p23:

"Tier 3 is appropriate for protocols… whose tokens are used as collateral in DeFi lending markets, where the financeability rationale... applies directly."

BTC and ETH clear that bar by rough consensus. HYPE and BNB clear it via credible value accrual + some constraints on founder discretion. Expanding collateral beyond that handful of tokens means issuers have to actually bind themselves, not just promise buybacks.

[David Kuhn @gr8day4this]

@sam_mcquill is right that Rice v. Chicago Board of Trade (1947) doesn't resolve what exchanges can permissibly offer — it's about federal preemption of conflicting state regulation once jurisdiction attaches, not about permissible product scope.

But that's actually @BrianQuintenz's implicit point. As @FormerCFTCGC made clear, once sports event contracts are "commonly known to the trade as a swap" under CEA § 1a(47)(A)(iv) (which is now, since DCMs list them as swaps, FCMs offer them as swaps, and DCOs clear them accordingly) federal jurisdiction attaches independently, and Rice preemption follows. Jurisdiction and permissibility are different questions. Rice answers the first even if it doesn't answer the second. (https://t.co/sVPbxNyFit, fn. 9)

The permissibility question is where Christie (1905) comes in. Justice Holmes tolerated speculation because it served legitimate commercial purposes - risk transfer and price discovery in underlying markets. Speculation detached from those purposes shaded into wagering. That functional distinction is the doctrinal through-line from 1905 to the CEA to today's event contract debate.

Sportsbooks are natural commercial hedgers, and their investors will eventually force them into liquid prediction markets to offset tail risk (to smooth earnings & increase valuation multiples). The harder issue is liquidity, not doctrine, b/c commercial hedgers are typically last to arrive in developing derivatives markets. Confusing infancy with incapacity is the analytical error the economic-purpose inquiry needs to avoid. (https://t.co/Zr823mzc3M)

[Zumbah @zumbah]

@apoorveth https://t.co/5qAA3ylGbG

technical in a different way if you are into these things

[David Kuhn @gr8day4this]

here's something I've been working on that isn't public yet -

crypto's dual equity/token structure recreates ground lease subordination without any of the protections ground lease law spent 50 years developing. token holders are in the same economic position as a leasehold lender. ground lease doctrine solved this. tokens haven't.

translated it into an 18-issue design framework tied to the March 2026 SEC/CFTC release. dropped interactive version at https://t.co/j7FFPVprkv. early look for @zumbah.

paper: https://t.co/rsX7W78CYt

[David Kuhn @gr8day4this]

@apoorveth appreciate the early signal @zumbah - haven't officially dropped this yet so the timing is good to know there's appetite. full interactive framework at https://t.co/VnvSXYZ5Go.

paper: https://t.co/trmjqk1FiV

[David Kuhn @gr8day4this]

The Schiff-Curtis bill rests on one legal claim: sports event contracts lack economic purpose because no one hedges them today.

That's never been the standard for any other derivative.

Derivatives law asks whether a contract CAN support risk transfer once the market matures — not whether it does on day one.

Sportsbooks warehouse hundreds of millions in event exposure. That's a real commercial hedging use case.

I built the framework (interactive model and paper). https://t.co/LcfWCOsQOu

[David Kuhn @gr8day4this]

The "consumer protection" framing also fails on the merits.

Derivatives law has never required commercial hedgers to show up on day one. Speculators arrive first. Hedgers follow once there's enough liquidity.

Holding prediction markets to a standard no other derivatives market has ever met isn't consumer protection. It's incumbent protection with a legal gloss.

I modeled what sportsbook hedging looks like once liquidity matures: https://t.co/LcfWCOsQOu

[Cat Named Louie @LongboatsKey]

a practical guide for prediction market regulators 👇

[David Kuhn @gr8day4this]

The legal standard has never been "show me the hedgers."
It's "can this contract support risk transfer once the market matures?"
Letting states impose a stricter test on prediction markets than applies to any other derivatives market isn't principled federalism. It's regulatory capture dressed up as consumer protection.
Paper: https://t.co/LcfWCOsQOu
Simulator: https://t.co/C1IUTLywN9

[David Kuhn @gr8day4this]

States are trying to kill prediction markets by arguing they're illegal gambling.
Courts are making a mess of it — splitting hairs between "events" and "outcomes," producing inconsistent results across jurisdictions.
The whole debate is focused on the wrong legal question. 🧵

[David Kuhn @gr8day4this]

The legal standard has never been "show me the hedgers."
It's "can this contract support risk transfer once the market matures?"
Letting states impose a stricter test on prediction markets than applies to any other derivatives market isn't principled federalism. It's regulatory capture dressed up as consumer protection.
Paper: https://t.co/LcfWCOsQOu
Simulator: https://t.co/C1IUTLywN9

[David Kuhn @gr8day4this]

https://t.co/X9GgJXqHyN

[David Kuhn @gr8day4this]

@VitalikButerin just wrote about this. there are simple doctrinal paths to solve the problem and distinguish between economically meaningful hedging (risk transfer) vs gambling (risk creation).

[David Kuhn @gr8day4this]

Everyone arguing whether prediction markets are “derivatives or gambling” is glossing over the real legal issue.

Do these contracts transfer risk or just create it?

Article: https://t.co/3tvS6UVdRC

Thread:

1/10

[David Kuhn @gr8day4this]

@ceterispar1bus @0xShual This debate makes more sense if we treat tokens like a junior tranche. Once subordination is explicit, markets can do the rest.
part 2: https://t.co/jVo56V7ahU
part 1: https://t.co/EpgkKT1exR

[David Kuhn @gr8day4this]

Control-based decentralization is a good starting point for crypto regulation.

It rightly shifts focus from labels and disclosures to who has power over value after capital is committed.

Read more in Part II of "Tokens are Leases" here: https://t.co/wM3jZTgOsR

1/8

[David Kuhn @gr8day4this]

https://t.co/jl8XaNB8Wk

[_gabrielShapir0 @lex_node]

probably the most interesting analogy I've seen for the token/equity relationship

[David Kuhn @gr8day4this]

https://t.co/gujD3d8MSa

[onlylarping @onlylarping]

What do $KARATE's Up Only Gamers say?

Curious as well, though I have my own opinions.