Prediction-market platforms have entered a contested legal phase that will shape their operating model and market access. The outcome matters for liquidity, product design and how traders hedge politically sensitive or sports-related exposures.
Operators have pushed the question into federal courts. Kalshi launched litigation in late 2025 and secured judicial relief blocking some state enforcement, and appeals remain pending in the federal circuit. Polymarket, which settled with federal authorities in 2022 and exited the U.S., received CFTC clearance in september 2025 to return and is planning a U.S. relaunch focused on sports markets.
Coinbase filed suits in december 2025 against several states that attempted to regulate prediction markets as gambling, adopting a legal posture that mirrors Kalshi’s federal-preemption argument.
Regulatory actors have also moved: states such as Massachusetts and Nevada pursued enforcement or sought injunctions in late 2025; judicial determinations tied to those efforts were expected in january 2026.
The NCAA filed a formal petition in january e 2026 seeking suspension of collegiate prediction markets over integrity and consumer-protection concerns, amplifying sector sensitivity around sports products.
CFTC posture, market integrity and the core disputes
The Commodity Futures Trading Commission has taken a pragmatic, if cautious, approach. In late 2025 the agency expanded engagement with industry via an Innovation Advisory Committee and granted no-action relief to some platforms, signaling willingness to regulate compliant exchanges as Designated Contract Markets under the Commodity Exchange Act.
At the same time, historical enforcement actions (e.g., prior actions against Polymarket and earlier firms) underscore the CFTC’s focus on manipulation, insider trading and fraud prevention.
The debate breaks down into three operational fault lines: whether event contracts are financial derivatives or gambling; whether federal law preempts state gaming statutes; and how to mitigate manipulation and insider-information risk. Classification decides the rulebook for disclosure, surveillance and participant protections—factors that materially affect open interest, market-making and hedging practices.
For traders and treasury managers the immediate operational implications are clear: product availability and counterparty risk will depend on court outcomes and CFTC guidance. Liquidity could rotate toward platforms that secure federal authorization, while assets tied to contested markets could see sudden de-risking.
The legal resolution will either consolidate prediction markets under a federal derivatives regime or leave them fragmented across state gambling frameworks—an outcome that will determine whether the sector can realize projected growth to roughly $95,5 billion by 2035 and how trading desks must adapt risk controls and product strategies.
