Prediction Markets and US Law: How Regulation Separates Kalshi and Polymarket

A prediction market lets you buy a contract that pays out if a specific event happens.

For example, a contract is worth $1 if a candidate wins and nothing if they lose. If it trades at 62 cents, that price is meant to reflect roughly a 62% chance.

Buyers and sellers set that price, which is why supporters describe these platforms as trading and critics describe them as betting. Courts are now deciding which label applies to sports contracts.

The two companies dealt with US regulators in different ways from the start.

Kalshi asked regulators for permission before launching. The CFTC, the federal agency that oversees futures and similar financial contracts, approved Kalshi as a regulated exchange in November 2020. Its US event contracts later went live under that license.

Polymarket started as a crypto-based platform and ran its markets without registering with the CFTC. The agency ordered it to pay a $1.4 million penalty in January 2022 for offering event contracts outside federal rules. Polymarket settled the case and agreed to close those markets.

Within weeks, it also blocked US residents from placing trades, so Americans could still browse the site without being able to trade.

More than three years later, Polymarket found its way back in two steps.

• In July 2025, it acquired QCEX, which owned a licensed US exchange and clearinghouse, for $112 million. A clearinghouse is the back office that settles trades and makes sure winning contracts get paid.

• In November 2025, the CFTC changed Polymarket US's license to let futures brokers handle customer trades, the same kind of firms used for futures trading.

That approval covers the US business, Polymarket US, which operates separately from Polymarket's international site.

The CFTC and the Securities and Exchange Commission, better known as the SEC, oversee different kinds of US trading. These exchanges fall on the CFTC side, under a federal law called the Commodity Exchange Act, which covers futures and similar contracts.

The CFTC applied that law in its 2022 case against Polymarket, classifying the platform's event contracts as swaps, a type of financial contract covered by the Act. Under that label, only a registered exchange could offer them, and Polymarket was not one.

Oversight of crypto tokens is a separate debate. Congress has considered a bill to divide it between the SEC and the CFTC, covered in Mercuryo's CLARITY Act explainer. It failed to advance in the Senate in September 2026, when a vote to start debating it fell short. Kalshi and Polymarket US stay under the CFTC either way.

A federal license decides which agency supervises an exchange. It leaves open whether a state can still treat a sports contract as illegal gambling and shut it down for local residents.

Tennessee put that question to the test in January 2026, when its sports betting regulator ordered Kalshi, Polymarket and Crypto.com to cancel open contracts held by state residents and refund their deposits, even though those contracts sat on CFTC-licensed exchanges.

The companies have pushed back in court. After New Mexico sued Kalshi in June 2026, Polymarket US filed its own suit against New Mexico's attorney general and state gaming officials on June 30, 2026, arguing that federal law blocks state enforcement. Kalshi's cases against New Jersey and Nevada went further, reaching federal appeals courts.

Those two appeals landed in different circuits, the regional federal appeals courts one level below the Supreme Court. Both ruled at an early stage, before either case reached a final decision, and they came out on opposite sides.

In April 2026, the Third Circuit ruled 2-1 to keep New Jersey from enforcing its gambling laws against Kalshi for now. The majority said Kalshi had a reasonable chance of proving that federal law overrides state law here, what lawyers call preemption.

In August 2026, the Ninth Circuit declined to keep blocking Nevada. It concluded that Kalshi's sports contracts are likely not swaps, the kind of financial contract federal law covers. Nevada can therefore treat them as sports betting while the case continues.

When two circuits answer the same question in opposite ways, lawyers call it a circuit split. A CFTC spokesman said the Nevada ruling created a conflict that "calls out for resolution” by the Supreme Court. New Jersey officials have already asked the justices to step in, but the Court has not yet decided whether to take the case.

These platforms have grown fast. Combined monthly global volume on Kalshi and Polymarket International grew from under $5 billion in September 2025 to about $24 billion in April 2026, according to Pew Research Center. Sports make up a large share of that activity, and sports contracts are a major focus of those state challenges.

For Kalshi, the exposure is direct. Sports made up 80% of Kalshi's trading volume from mid-2024 to early May 2026, according to the same Pew analysis. Pew's topic breakdown for Polymarket covers the international platform, so it does not show how much Polymarket US depends on sports.

Some parts of this story are clear by now, while others still depend on the courts.

Settled

• Kalshi and Polymarket US both run federally licensed exchanges, and the CFTC supervises them.

• American customers reach Polymarket US through regulated brokers.

Still open

• Whether states can apply gambling law to sports contracts on those exchanges.

• Whether the Supreme Court will step in and settle the split.

Until those questions are answered, access to sports contracts may depend on the state you live in, and that picture can change quickly.

That makes the general question of whether prediction markets are legal less useful than two narrower ones. First, whether the contract you want sits on a CFTC-licensed exchange, which is what puts it under federal rules at all. Second, whether your state has moved against that kind of contract, since sports contracts draw the bulk of the enforcement so far.

The signal worth following is the Supreme Court. If the justices take one of these cases, their answer would settle the question in every state at once, and until they do, each new state action and appeals ruling only moves the line in one place.

Are prediction markets legal in the US? Exchanges licensed by the CFTC can offer event contracts under federal rules. Whether states can ban their sports contracts as gambling remains disputed, and two US appeals courts have disagreed.

Is Kalshi legal? Kalshi has held CFTC approval since 2020. Its sports contracts face state challenges. One appeals court ruled for Kalshi against New Jersey, while another sided with Nevada.

Is Polymarket legal in the US? Polymarket bought QCEX, which owned a licensed US exchange, in July 2025. In November 2025, the CFTC let its US business, Polymarket US, serve Americans through regulated brokers. Like Kalshi, it faces state pushback over sports contracts.

Why was Polymarket blocked in the US? In 2022, the CFTC fined Polymarket $1.4 million for offering event contracts without registering. After the settlement, the platform blocked US residents from trading.

Are prediction markets gambling or trading? Courts are deciding that question. One appeals court said Kalshi was likely to win its argument that federal law protects its contracts. Another concluded its sports contracts are probably bets that states can regulate.

Does the SEC regulate prediction markets? Kalshi and Polymarket US are supervised by the CFTC, the regulator for futures and similar contracts. The SEC oversees stocks and other securities.