Kalshi Sues New York to Protect Sports Prediction Markets

Kalshi, a federally regulated derivatives exchange, has filed a lawsuit against New York regulators, arguing that state gambling laws unlawfully interfere with its CFTC-approved operations for sports prediction markets.

The Lawsuit: Challenging State Overreach

KalshiEX LLC v. Robert Williams, filed in the U.S. District Court for the Southern District of New York, seeks to block the New York State Gaming Commission from imposing penalties and forcing a shutdown. The suit claims New York’s actions violate federal supremacy, as the CFTC’s exclusive jurisdiction over derivatives preempts state gambling restrictions.

The conflict arose after regulators issued a cease-and-desist letter on October 24, 2025, demanding Kalshi halt sports-related event contracts. Kalshi self-certified these contracts in January 2025, offering bets on outcomes like NCAA tournament advancement and U.S. Open Golf winners, under CFTC rules.

• Core Argument: Federal preemption via Supremacy Clause; CFTC designation grants exclusive authority.
• Contracts at Stake: Sports outcomes; CFTC-approved as derivatives, not gambling.
• Plaintiff’s Stance: State interference threatens innovation in regulated markets.

(Sources: X)

Background: CFTC vs. State Gambling Laws

Kalshi, founded in 2018, operates as a CFTC-designated contract market, enabling yes/no bets on events. The sports contracts, approved unanimously, represent 20% of its $2 billion weekly volume. New York views them as illegal gambling, conflicting with federal oversight. Kalshi argues Congress intended derivatives to fall under CFTC, not state lotteries.

CEO Tarek Mansour stated: “We’re fighting to protect our users’ right to trade on a federally regulated platform.” The suit seeks injunctions against fines and shutdowns, potentially setting precedents for prediction markets nationwide.

Implications for Prediction Markets and DeFi

This case could clarify federal-state tensions, boosting DeFi’s $150 billion+ TVL by legitimizing event contracts. Success for Kalshi might expand sports betting to 40+ states, driving $50 billion in volume. Failure risks regulatory fragmentation, stifling innovation.

In 2025’s regulatory landscape under MiCA and GENIUS Act, the outcome influences tokenized RWAs and oracle data for DeFi.

In summary, Kalshi’s lawsuit defends federal preemption, safeguarding prediction markets’ growth in DeFi’s evolving ecosystem.