Prediction markets face a multi-front regulatory assault as state authorities challenge federal preemption claims. Nano Banana 3.

 

This week brings critical developments across prediction markets, AI regulation, and digital asset policy. State regulators are aggressively challenging prediction platforms, while major institutions signal growing comfort with blockchain infrastructure. Meanwhile, the legal profession grapples with AI’s disruption of traditional billing models, and legislative efforts on comprehensive crypto reform hit unexpected turbulence.

This Week’s Highlights:

• CLARITY Act stalls after Coinbase withdraws support over DeFi concerns
• Massachusetts becomes first state to block Kalshi sports bets as prediction markets face multi-front regulatory assault
• NYSE quietly advances tokenized trading platform with major custodian backing
• CFTC launches “Future Proof” initiative to modernize digital asset oversight
• AI threatens billable hour model as Thomson Reuters report warns of 50%+ task reduction

From the Block & Order Podcast

Crypto Is the Most Auditable Asset feat. Steven Baum

In our latest episode, Kyle and Moish sit down with Steven Baum, Managing Director at CBIZ and co-leader of its Digital Assets & Blockchain practice, to unpack the evolving world of crypto auditing and financial reporting. Steven explains why blockchain assets may actually be easier to audit than cash, how crypto companies are maturing into IPO-ready businesses, and what the FTX collapse really taught us about compliance failures. The conversation covers regulatory uncertainty, stablecoins, DeFi infrastructure, digital asset treasuries, and the growing role of AI in compliance.

Watch the full episode →

Crypto Policy & Regulation

• CLARITY Act Hits Major Snag as Coinbase Withdraws Support The Senate Banking Committee has indefinitely postponed markup of comprehensive digital asset legislation after Coinbase withdrew its endorsement. CEO Brian Armstrong characterized the draft as a “giveaway” to traditional banks, citing prohibitions on tokenized securities and DeFi, elimination of stablecoin yields, and subordination of the CFTC to the SEC as “poison pill” provisions. The Block | Bitcoin Magazine
• CFTC Chair Launches “Future Proof” Initiative for Digital Asset Oversight Chair Michael Selig announced a comprehensive review of the agency’s rulebook, shifting away from agricultural-era rules toward a “minimum effective dose” of regulation for digital assets. The initiative signals a proactively permissive stance that may lower entry barriers for prediction markets and digital asset derivatives while positioning the CFTC for expanded spot market authority. The Block
• SEC Closes Zcash Foundation Probe Without Enforcement Action The SEC has formally concluded its years-long investigation into the Zcash Foundation, marking another significant closure as the Commission shifts enforcement priorities under new leadership. The closure provides critical regulatory clarity for privacy-focused technologies and signals de-escalation of the “regulation by enforcement” approach. The Block
• New York Bill Would Criminalize Unlicensed Crypto Businesses New York legislators have proposed legislation that would elevate operating an unlicensed digital-asset business from a regulatory violation to a criminal offense. The measure grants state prosecutors more robust tools to target non-compliant actors, signaling further escalation of the state’s stringent BitLicense regime. Law360 | NY Senate Bill
• China Issues Seven-Agency Ban on RWA Tokenization Seven major Chinese financial associations have issued a joint mandate explicitly prohibiting real-world asset tokenization, the first formal targeting of RWAs alongside stablecoins and airdrops. The “four-layer blockade” extends to mainland-based staff of offshore providers, signaling heightened enforcement risks for global firms with cross-border operations. BeInCrypto
• U.S. Government Confirms Samourai Wallet Bitcoin Remains in Strategic Reserve The U.S. government denied reports that Bitcoin forfeited by Samourai Wallet developers was liquidated, confirming the assets will be held in the Strategic Bitcoin Reserve per Executive Order 14233. Bitcoin Magazine

Prediction Markets Under Siege

• Massachusetts Delivers First U.S. State Ban on Kalshi Sports Betting A state judge ruled that Kalshi must cease sports betting operations in Massachusetts, rejecting the platform’s argument that CFTC regulation preempts state authority. The judge noted Kalshi “chose to take that risk head-on” by expanding into licensed states despite federal warnings. This marks a watershed moment for prediction market operators facing jurisdictional fragmentation. DL News
• Portugal Orders Polymarket Blocked After €4M in Election Bets Portugal’s gambling regulator has ordered network-level blocking of Polymarket following a surge in political wagering hours before presidential election results. The enforcement action mirrors restrictive measures in France, Germany, and Hungary, reflecting a European consensus to classify decentralized prediction markets under gambling frameworks rather than forecasting tools. The Block
• NCAA Petitions CFTC to Suspend College Sports Prediction Markets The NCAA has formally requested that the CFTC pause college sports event contracts, citing concerns about student-athlete harassment and the lack of age restrictions that allow 18-year-olds to participate. With over $320 million in college-related contract volume, the association warns that individual performance markets could compromise competition integrity. Cointelegraph
• Kalshi Wins Temporary Relief in Tennessee as Preemption Battle Continues A federal judge granted Kalshi a temporary restraining order against Tennessee’s Sports Wagering Council, temporarily halting state enforcement efforts. The outcome will further define the boundary between federal commodities regulation and state-level gambling oversight—a question with major implications for event-contract platforms operating nationally. The Block
• Polymarket Accounts Go Quiet After “Venezuela Leaker” Arrest Blockchain analysts have identified a correlation between the arrest of a government leaker and several high-profit Polymarket accounts that placed concentrated, well-timed bets on Venezuelan political outcomes. The incident highlights growing legislative pressure to curb insider trading on political wagers and the legal risks associated with information asymmetry in prediction markets. Cointelegraph

Institutional Adoption & Market Infrastructure

• Algorand Foundation Relocates to Delaware Amid Regulatory Shift The Algorand Foundation has moved its global headquarters from Singapore to Delaware, appointing former FinCEN acting director Michael Mosier to its board. The relocation reflects growing institutional confidence in U.S. jurisdiction for financial infrastructure developers following the perceived shift toward a more favorable policy environment. CoinDesk
• NYSE Advances Tokenized Trading Platform with Major Custodian Backing The New York Stock Exchange is developing a platform to trade tokenized U.S. equities and ETFs on blockchain infrastructure, integrating T+0 settlement and 24/7 trading with stablecoin-funded transactions. The project involves BNY Mellon and Citigroup to facilitate tokenized cash movement outside standard banking hours—a landmark validation of “crypto-native” settlement logic within regulated market infrastructure. Unchained Crypto
• Delaware Life Integrates Bitcoin Exposure into Retirement Annuities Delaware Life Insurance Company has integrated Bitcoin-linked exposure into its fixed indexed annuity portfolio via BlackRock’s iShares Bitcoin Trust ETF within a volatility-controlled framework. This reflects a broadening trend of insurance carriers leveraging spot Bitcoin ETFs to bridge traditional retirement products with digital assets. Cointelegraph
• Miami Sets Crypto Real Estate Record with $14M USDT Transaction A commercial real estate transaction in Miami achieved near-instant settlement using $13.9 million in USDT, bypassing multi-day delays typical of cross-border banking. With global crypto-funded real estate estimated at $4.2 billion in 2025, the trend underscores the necessity of robust AML/KYC frameworks for high-velocity on-chain settlements. CoinDesk
• Tether’s Central Role in Venezuela Spotlighted Following Maduro Arrest With former Venezuelan President Maduro now in U.S. custody, Tether’s dual role as both a sanctions evasion tool for state oil transactions and a financial lifeline for everyday citizens facing hyperinflation has come under renewed scrutiny. The stablecoin company has cooperated with U.S. authorities to freeze dozens of wallets linked to the Venezuelan oil trade. WSJ
• Stablecoins vs. Bitcoin for Payroll: Analysis of how regulatory frameworks position stablecoins as preferred vehicles for digital-asset salary payments. Cointelegraph
• Bitcoin 401(k) Restrictions Debate: Bitwise CIO and Senator Warren clash over fiduciary risks of digital assets in employer-sponsored retirement plans. Cointelegraph

AI & Legal Practice

• Thomson Reuters Report: AI Could Cut Billable Tasks by 50%+ The 2026 State of the U.S. Legal Market report warns that generative AI can reduce billable tasks by more than half, fundamentally undermining the traditional hourly rate structure. Legal departments are increasingly resistant to rate hikes intended to offset lost hours, signaling a correction toward value-based pricing and risk-sharing models. Above the Law
• Value-Based Pricing Emerges as Post-Billable-Hour Model As AI automates discrete tasks and reduces time for complex deliverables, firms are pivoting toward explicit scoping and fixed-fee structures. The shift allows firms to capture margins through efficiency while providing clients the budget predictability essential for institutional compliance. Above the Law
• California Bill Would Ban AI From Replacing Arbitrators’ Analysis Proposed legislation would prohibit arbitrators from delegating core analytical functions to AI and bar counsel from inputting confidential data into public AI systems. Law360
• Judge Limits Discovery in OpenAI Copyright MDL A federal judge largely denied efforts by authors and publishers to expand discovery regarding OpenAI’s training of large language models. The ruling underscores the high evidentiary hurdles plaintiffs face when attempting to probe AI development processes and establishes key procedural precedents for generative AI IP litigation. Law360
• Copyright Office Reaffirms: AI-Generated Art Remains Ineligible for Protection The U.S. Copyright Office filed a brief asserting that Midjourney-generated artwork cannot receive copyright protection, reinforcing the “human authorship” requirement central to IP law. For Web3 developers, this represents a significant hurdle for commercializing AI-assisted digital assets and enforcing proprietary rights. Law360
• AI Guardrails in Arbitration: Practitioners must establish disclosure protocols for AI use to ensure award enforceability. Law360

Enforcement & Compliance

• SEC Issues No-Action Letter for Real Estate Crypto Rewards Platform The SEC cleared Megatel Homes to launch its “MegPrime” crypto loyalty platform, provided MP Tokens operate strictly as rent-based rewards and mortgage rate offsets. The letter provides a rare, specific roadmap for structuring tokenized rewards programs that avoid securities classification. Cointelegraph | SEC No Action Response
• California AG Orders xAI to Stop Enabling Sexualized Deepfakes Attorney General Rob Bonta issued a formal order demanding xAI immediately cease enabling nonconsensual deepfakes via its platform. The state-level enforcement action signals an aggressive pivot toward platform liability for algorithmic outputs, indicating state AGs intend to police generative AI using existing consumer protection mandates before comprehensive federal legislation. Law360
• California Resident Pleads Guilty to Shipping AI Chips to China A federal conspiracy plea involving tens of millions in AI-grade chip exports highlights the DOJ’s aggressive enforcement of export controls on dual-use technologies. For firms at the intersection of digital assets and high-performance computing, the case underscores heightened scrutiny of computational supply chain integrity. Law360
• Chainalysis Launches No-Code Investigation Tool Amid Rise in AI-Enabled Fraud The new “Workflows” automation tool enables compliance teams to execute complex blockchain analyses without coding expertise. The pivot comes as AI-enabled scams reportedly extract 4.5 times more capital than traditional schemes, representing a critical shift toward democratizing forensic capabilities for AML and CTF efforts. Cointelegraph

Decentralization

• Vitalik Buterin on DAOs: Ethereum’s co-founder published analysis arguing DAOs are essential for hardening oracle designs, managing on-chain dispute resolution, and providing long-term project maintenance. @VitalikButerin on X
• Vitalik’s “Alternative Web” Applications: Buterin highlighted Fileverse, Status, and Railway Wallet as examples of privacy-preserving apps embodying Ethereum’s decentralized ethos. @VitalikButerin on X
• Why Open Networks Win: a16z crypto published analysis arguing open, permissionless protocols consistently outperform proprietary “CorpChains” for long-term infrastructure. a16z Crypto

Conclusion

As this week demonstrates, the digital asset industry continues to mature through a complex interplay of institutional adoption, regulatory friction, and technological evolution. Whether it’s the NYSE building tokenized trading rails or state regulators drawing lines around prediction markets, the common thread is clear: the infrastructure is being built, but the rules of engagement remain very much under construction.

Block & Order Weekly Docket is published for informational purposes only and does not constitute legal advice.