The CFTC Wrote a Tribal Carve-Out Into a Crypto Wallet Letter, and the Price Is Sovereign Immunity

Footnote 22 of a seven-page letter about software developers is not where anyone looks for the future of tribal gaming. It is where it is.

On Thursday the Commodity Futures Trading Commission's Market Participants Division issued Staff Letter No. 26-25, signed by division director DJ Hennes. The press release, number 9300-26, describes a no-action position for "providers of passive software." It does not use the words sports, tribe or gaming. It reads like plumbing.

The letter is not plumbing. On Friday morning the Tunica-Biloxi Tribe of Louisiana announced SaltTrade Derivatives, the first prediction-market app owned by a sovereign tribal nation, built on Kalshi's exchange and operating — in Kalshi's own words — under "conditional no-action relief" from the CFTC. Twenty-four hours from the letter to the launch. Anyone who thinks that is a coincidence has not read the letter.

We did. Here is what is in it.

What a "passive software provider" is allowed to do now

Letter 26-25 extends a position the division first granted on March 17 to a single company: Phantom Technologies, Inc., a crypto wallet developer, in Letter 26-09. That letter was beneficiary-specific by rule — the letter says so, citing 17 CFR 140.99(a)(2), that "no PSP other than Phantom may rely on Letter 26-09." Other developers and their lawyers asked for the same treatment. On Thursday they got it, wholesale.

The relief is from registration as an introducing broker under Section 4d(g) of the Commodity Exchange Act, and from associated-person registration under Section 4k(1). Skip the statutory numbers and hold on to what an introducing broker is: under Commission Regulation 1.3, anyone who, "for compensation or profit," solicits or accepts orders for regulated products. For forty years that definition has been the reason a company that funnels customers to a futures exchange and gets paid per trade has to register, carry the obligations and answer for them.

Now look at what Letter 26-25 lists as "Covered Activities" — the conduct the division will not recommend enforcement over:

The PSP will develop and distribute front-end interface software for Users to review market data and aggregate position information, view information about product offerings, and submit orders for Commission-regulated derivative products directly to Registrants, including event contracts, perpetual contracts, and other Commission-regulated derivatives.

Event contracts. Named, in the operative list, in a letter whose public summary says nothing about them. That single clause is the reason Friday happened.

It continues. The exchange "may also agree to share a specified portion of their relevant revenues with the PSP." The software provider's own terms of use "may provide for the PSP to charge a transaction-based fee directly to Users." And the provider "will introduce Users to — and solicit Users to engage with — specific Registrants."

The conditions this reverses are the division's own

Set that beside the standard the Commission's staff applied to technology vendors for the previous two decades. Letter 26-25 recites it, in the course of leaving it behind. The old TSV Letters — 06-29, 08-07, 08-12 — rested on representations that the vendor "would not recommend, propose, or encourage that customers use any particular FCM or IB, even upon request"; that it "would not solicit or accept orders"; and that its fees "would not be related to any fees charged by the FCM or IB for the execution of any futures orders."

Promote nobody. Solicit nobody. Take nothing per trade.

The new position permits all three by name. That is not a clarification of the old rule; it is its inverse, and the letter does not pretend otherwise. It says the division believes relief "on substantially the same terms" as Phantom's is "warranted" for everybody, and adds, in footnote 14, the sentence that turns a crypto letter into a sports-betting letter: "For the avoidance of doubt, PSPs are not limited to providers of crypto asset related software."

What changed between 2008 and Thursday is not the statute. Section 4d(g) reads today exactly as it read then. What changed is that a set of very large companies would like to distribute event contracts through apps they do not have to register, and the division agreed that they may.

Footnote 22

Then there is the part nobody has written about, and it is the part that should decide how Indian Country reads this week.

Some PSPs may be affiliated with a state or tribal government and as such potentially protected by sovereign immunity. Thus, a PSP shall include a waiver of sovereign immunity, limited or otherwise, if necessary to make enforceable the PSP for any violation of the Act of Commission regulations in connection with the Covered Activities engaged in by the PSP or any of its personnel.

The transcription is ours and the sentence is mangled in the original's own grammar — "make enforceable the PSP" is the agency's phrasing, not a typo we introduced. The meaning is not ambiguous. The CFTC's staff sat down to write a letter about wallet software and, somewhere in drafting, anticipated that tribal governments would want to use it. Rather than leave that to litigation, they put the price in a footnote: a tribe that wants this relief signs away, to whatever extent necessary, the immunity that makes it a sovereign.

Two days earlier, on September 16, the Ninth Circuit held in Blue Lake Rancheria v. Kalshi that sports event contracts are likely class III gaming under the Indian Gaming Regulatory Act when a user buys them standing on Indian lands. That was the strongest assertion of tribal authority over this industry that any court has made. The Indian Gaming Association's chairman summarised the holding as "tribal sovereignty does not stop at the edge of a screen."

Forty-eight hours later, the federal financial regulator offered tribes a seat in the same industry and conditioned it on a waiver.

We are not claiming the two documents were coordinated. We have no evidence of that and we do not believe it. The point is narrower and worse: the two arms of the federal government that touch this question are now offering Indian Country opposite deals in the same week, and only one of them requires giving something up.

The best argument against reading it this way

Here is the strongest version of the other side, and it is not weak.

A no-action letter is not a rule. Letter 26-25 says so itself, in language every practitioner recognises: the position "represent[s] the views of the Division only," is "not binding on the Commission," may be "render[ed] void" by any changed or omitted material fact, and the division "retains the authority to condition further, modify, suspend, terminate, or otherwise restrict" it at will. Nothing here has the force of law. A future Commission — or this one, after a rulemaking — can erase it on a Tuesday.

And sovereign immunity waivers are ordinary. Tribes execute limited waivers constantly: in bond indentures, construction contracts, management agreements under IGRA. A limited waiver scoped to CEA violations by the app subsidiary is not the surrender of a nation. Tunica-Biloxi has run the Paragon Casino Resort in Marksville for three decades; it knows what it is signing. Chairman Marshall Pierite's framing — that this is "exactly the type of opportunity Indian Country should be pursuing, where Tribes are owners, innovators and leaders, not just participants" — is a real argument made by the people whose sovereignty it is, and outsiders lecturing a tribal council about sovereignty is its own kind of insult.

Both of those are true. Neither disposes of the problem, for one reason: the conditional, revocable, staff-level character of this relief is not a reassurance to a tribe, it is the exposure. A waiver executed today is a fact. The relief it purchases is a staff opinion that the same division can suspend at its discretion, and a tribe that has waived immunity in reliance on an opinion that is later withdrawn has traded a permanent thing for a temporary one. That asymmetry does not exist for Phantom Technologies, which had no immunity to waive.

What we do not know

The conditions themselves — the numbered list the covered-activities section hangs on — did not extract cleanly from the Commission's PDF, and we are not going to paraphrase text we could not read. What we can report is what they cite, because the footnotes are legible: the antifraud provision at 7 U.S.C. § 6b, the Commission's own fraud rule at 17 CFR 180.1, NFA Compliance Rule 2-29 on communications with the public and promotional material, the risk-disclosure requirement at 17 CFR 1.55, and the recordkeeping rule at 17 CFR 1.31. Filings go to the MPD director by email. That tells you the conditions are about disclosure, honest marketing and records. It does not tell you how strict they are.

We also do not know whether SaltTrade is relying on Letter 26-25 or on a separate letter of its own. Kalshi's announcement says "conditional no-action relief" and does not give a number. Covers reported the connection to Thursday's letter; the tribe has not published its filing. That distinction matters and we have asked for it.

What is not in doubt: a federal agency named event contracts in a document about wallet software, blessed revenue-sharing and per-trade fees that its own precedent prohibited, and wrote a sovereign-immunity condition for tribal governments into a footnote — all on the Thursday before the first tribal prediction market in American history went public. Seventeen tribal gaming organisations spent part of the same week in a CFTC listening session in which, by Chairman Bean's account, "Chairman Selig sat mostly silent." They were in the wrong room. The document was already signed.

Editor's note: TrueEdge builds odds tools and earns affiliate commissions from licensed sportsbooks, which compete directly with the prediction-market exchanges discussed here. This piece argues that a federal regulator has expanded those exchanges' distribution on thin authority. Weigh the conflict.