Prediction market platform Kalshi has launched a legal battle against gaming regulators in Nevada and New Jersey after both states issued cease and desist orders demanding the platform stop offering sports-related contracts.

Kalshi claims its contracts are regulated by the Commodity Futures Trading Commission (CFTC), not state-level agencies. The company argues its markets function as swaps between two parties, unlike traditional sportsbooks where the house sets the odds.

Co-founder Tarek Mansour defended the platform’s operations, saying, “Prediction markets are a critical innovation of the 21st century, and like all innovations, they are initially misunderstood.” Kalshi believes it's leading the way in building regulated, compliant markets for event-based forecasting.

The Nevada Gaming Control Board also ordered Kalshi to shut down its election-related contracts—even after a U.S. judge ruled them legal in September 2024. That ruling had cleared the way for such contracts to be traded across the country, making Nevada’s action especially contentious.

Meanwhile, the CFTC appears to be backing away from aggressive enforcement tactics. On February 4, acting director Caroline Pham announced the agency’s shift away from regulation by enforcement. She emphasized a renewed focus on protecting fraud victims and allowing innovation to thrive.

That same day, the CFTC opened a review into Super Bowl contracts offered by Kalshi and Crypto.com. Ultimately, the agency took no action, indicating that the contracts complied with federal derivatives laws.

Kalshi’s lawsuit comes at a critical moment for prediction markets in the U.S., as the clash between federal and state oversight grows more heated—and the future of event-based trading hangs in the balance.