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Prediction markets continue to surge across the United States, but the rapid growth has triggered mounting regulatory pushback. The latest flashpoint comes from Connecticut, where state regulators have issued cease and desist orders to Robinhood, Crypto.com, and Kalshi, accusing all three platforms of offering unlicensed sports betting under the guise of event contracts.
The escalating confrontation highlights a larger national conflict over whether prediction markets should be regulated at the federal level — as Kalshi argues — or fall under state gambling jurisdiction. With more states challenging these platforms and the industry generating billions in volume, this fight is shaping into one of the most defining regulatory battles of the year.
Cease and Desist
Connecticut’s Department of Consumer Protection (DCP) sent formal letters to all three platforms on Wednesday, alleging they were “conducting unlicensed online gambling, more specifically sports wagering.” According to the state, the event contracts available on these platforms function in practice as sports bets, requiring the same licenses as traditional sportsbooks.
DCP Commissioner Bryan Cafferelli said none of the platforms possess a state license, nor would their offerings qualify even if they applied. The agency noted additional violations, including allowing users under age 21 to access markets and potentially placing wagers.
DCP Gaming Director Kris Gilman added sharp criticism, accusing the platforms of “deceptively advertising that their services are legal” and operating outside state regulatory frameworks. According to the agency, the platforms lack critical safeguards including technical standards, data security measures, and oversight over payout integrity — core requirements imposed on licensed sportsbooks.
Connecticut regulators also warned of risks tied to insider betting, manipulation, and the potential for wagers on events with known outcomes, giving certain market participants unfair advantages.
Currently, only DraftKings, FanDuel, and Fanatics are licensed to offer sports wagering in Connecticut, all with strict age and compliance requirements.
Federal vs State
The state’s move immediately triggered a legal response from Kalshi, the most prominent federally regulated prediction market platform. Kalshi told Cointelegraph that it operates as a designated contract market (DCM) under Commodity Futures Trading Commission (CFTC) jurisdiction, making its offerings fundamentally different from state-regulated sportsbooks.
“Kalshi is a regulated, nationwide exchange for real-world events,” a spokesperson said. “We are confident in our legal arguments and have filed suit in federal court.”
Hours later, Kalshi filed a federal complaint challenging Connecticut’s authority. The company argued that the DCP’s actions “intrude upon the federal regulatory framework that Congress established” by treating CFTC-regulated derivatives as illegal gambling.
The lawsuit emphasizes that Kalshi’s contracts — including those tied to sports outcomes — are “lawful under federal law” and subject to exclusive federal oversight. The company claims Connecticut has no legal basis to impose state gambling restrictions on a federally supervised market.
Robinhood and Crypto.com did not immediately respond to media requests.
This case reignites a recurring legal question: Are prediction market contracts a form of gambling or a type of financial derivative? The answer could define the future of an industry now entangled in overlapping state and federal rules.
Wider State Pressure
Connecticut’s action does not stand alone. Prediction markets — especially Kalshi — are facing growing scrutiny across the country, with at least ten U.S. states taking steps to restrict or investigate the platforms.
Recent actions include:
- New York issuing a cease and desist to Kalshi in October, prompting a lawsuit similar to the Connecticut case.
- Massachusetts suing Kalshi in state court in September, asserting state gambling laws apply to event contracts.
- Cease and desist orders issued earlier this year in Arizona, Illinois, Montana, and Ohio.
- Ongoing regulatory disputes in New Jersey, Maryland, and Nevada, where authorities argue the company’s markets overlap with prohibited wagering activity.
The wave of regulatory action reflects the exploding popularity of prediction markets in 2024 and 2025. These platforms — once niche — now attract billions in trading volume monthly, fueled by political events, economic data releases, sports outcomes, and social-trend forecasting.
Industry Growth Surges
Despite regulatory pressure, the sector continues to grow at breakneck speed. Kalshi announced this week that it closed a $1 billion funding round at an $11 billion valuation, following its strongest trading month ever in November.
This surge has drawn the attention not only of traders but also policymakers. Many state regulators view the platforms as effectively offering wagers under a financial-market wrapper, while companies argue they operate within a federally authorized derivatives market.
The core issue remains unresolved: Should event outcomes be treated as commodities subject to CFTC control, or are they wagers subject to state-level gambling oversight?
What Comes Next
The conflict between Connecticut regulators and the three platforms is likely to escalate. Kalshi’s lawsuit could set an influential precedent on whether event contract platforms fall under exclusive federal jurisdiction or whether states retain the authority to block access.
If Kalshi succeeds, it could strengthen the case for prediction markets as federally regulated financial products. If it fails, states may gain expanded powers to restrict or ban such platforms, reshaping the U.S. prediction market landscape.
For now, the Connecticut crackdown adds another high-profile battle to an already intense regulatory year. And with prediction market usage continuing to rise — especially during major political and sports cycles — the fight over jurisdiction is far from over.