A federal judge has temporarily blocked Connecticut from taking action against prediction markets platform Kalshi, pausing a fast-moving standoff over whether the company’s event-based contracts fall under federal derivatives law or state gambling rules.
The ruling offers Kalshi brief breathing room while a broader legal fight plays out, one that could shape how states regulate prediction platforms operating under federal oversight.
Pause on enforcement
US District Judge Vernon Oliver ordered the Connecticut Department of Consumer Protection to halt enforcement for now after the agency issued cease-and-desist notices on Dec. 2 to Kalshi, Robinhood and Crypto.com.
Regulators claimed that Kalshi, Crypto.com, and Robinhood were offering unlicensed online gambling by allowing users to trade on sports-related outcomes.
But Kalshi went to court arguing that its event contracts operate as federally regulated derivatives overseen by the Commodity Futures Trading Commission.
Notably, Kalshi has been a designated contract market since 2020, and the company says that status places its products squarely under federal jurisdiction. The platform has also sought emergency relief to prevent the state from disrupting its operations.
Judge Oliver’s order grants that immediate protection. Under the schedule he set, Connecticut must respond to the complaint by Jan. 9, while Kalshi is due to file further arguments by Jan. 30.
The court plans to hold oral arguments in mid-February, setting the stage for a deeper examination of how federal commodities law intersects with state gambling authority.
Did Connecticut overstep its mandate?
Kalshi argues that Connecticut’s actions “intrude upon the federal regulatory framework” governing derivatives markets. The company’s position mirrors its stance in several other legal battles this year, as state regulators attempt to classify event-based contracts as gambling while Kalshi insists they are financial instruments supervised by the CFTC.
The case carries implications for how far states can go in restricting platforms that already hold federal market status.
Kalshi says its markets help users hedge real-world risks by trading on future outcomes, a structure it believes distinguishes the platform from sports betting or online gambling.
Connecticut regulators, however, maintain that contracts tied to sports events fall within their jurisdiction. Their cease-and-desist notice accused Kalshi of facilitating sports wagering without a license, a charge the company vigorously disputes.
Kalshi is facing challenges across the US
Connecticut is only the latest state to challenge Kalshi’s operations. Regulators in Arizona, Illinois, Montana and Ohio have raised similar concerns this year.
In recent months, Kalshi has sued authorities in New York, Massachusetts, New Jersey, Nevada and Maryland, arguing that state efforts amount to regulatory overreach.
Interestingly, the disputes come as Kalshi’s popularity surges. The platform recorded a record monthly trading volume of $4.54 billion in November and recently secured a $1 billion funding round, pushing its valuation to $11 billion.
That rapid growth has intensified state scrutiny and set up a series of courtroom tests likely to influence the future of prediction markets in the United States.
While the company has secured a temporary reprieve in Connecticut, the larger question of whether state regulators or the federal government hold primary authority over event-based contracts remains unresolved.
The upcoming hearings are expected to bring that issue into sharper focus, and the outcome may ripple across the wider landscape of prediction platforms operating under federal oversight.