Federal judge grants relief in kalshi prediction markets clash with Connecticut regulators

A high-stakes legal showdown over Kalshi prediction markets has escalated, as a federal court steps in to pause a contentious enforcement push from Connecticut regulators.

Judge pauses Connecticut gambling order targeting Kalshi

A federal judge has temporarily shielded Kalshi from a Connecticut gambling order, after the state accused the prediction platform of running unlicensed online wagering. The decision offers short-term protection while a broader jurisdictional battle plays out in federal court.

The ruling blocks Connecticut from enforcing its cease-and-desist directive as the legal fight over Kalshi’s regulatory status stretches into early 2026. However, the reprieve is only temporary, with a strict briefing schedule now in place.

Connecticut’s Department of Consumer Protection (DCP) issued cease-and-desist notices on Dec. 2 to Kalshi, Robinhood, and Crypto.com. The agency alleged that each platform was offering unlicensed sports wagering through what it called “online sports event contracts”.

Kalshi argues federal derivatives oversight and CFTC authority

A day after receiving the notice, Kalshi sued the DCP in federal court. The company contends that its event-based contracts are financial derivatives, not gambling products, and therefore sit under the CFTC’s exclusive purview rather than state law.

On Monday, Judge Vernon Oliver ordered the DCP to refrain from taking any enforcement action while the court evaluates Kalshi’s request for temporary relief. Moreover, the judge set a clear timetable for the next phase of the case.

Under the schedule, the DCP must file its response by Jan. 9. Kalshi will then submit additional arguments by Jan. 30, with oral arguments expected in mid-February. That said, the outcome could have implications well beyond Connecticut.

Kalshi, which the Commodity Futures Trading Commission has designated as a federally regulated contract market, began offering event-based contracts nationwide earlier this year. Its markets span sports, weather, and political outcomes, deepening the ongoing cftc jurisdiction dispute over how such products should be classified.

State regulators push back on event contract regulation

The rapid expansion of prediction markets has drawn increasing scrutiny from state authorities. Several regulators argue that Kalshi’s contracts look and function like sports bets, and therefore should be treated as gambling under state statutes.

Kalshi counters that its markets are federally supervised financial instruments, not wagers. According to the company, state crackdowns conflict with the Commodity Exchange Act and improperly intrude on federal event contract regulation overseen by the CFTC.

Connecticut is only the latest venue in a growing series of state regulatory battles. In October, Kalshi sued the New York State Gaming Commission after it issued a similar cease-and-desist order challenging the platform’s operations.

Massachusetts’ attorney general brought the firm to court in September, intensifying the pressure. In addition, Kalshi has filed lawsuits this year against regulators in New Jersey, Nevada, Maryland, and Ohio, accusing each of exceeding their authority over a federally regulated marketplace.

Legal challenges mount across multiple jurisdictions

Legal observers note that these overlapping actions could shape the next phase of U.S. oversight for event-based financial products. However, the litigation also creates uncertainty for traders, brokers, and competing platforms that rely on clear jurisdictional lines between federal and state regulators.

Attorney Daniel Wallach highlighted the stakes in a recent post on Twitter (now X). He cited Kalshi’s complaint, which alleges that state enforcement over sports event contracts is preempted by the Commodity Exchange Act and states that the company “intends to imminently seek an emergency temporary restraining order and preliminary injunction.” This language foreshadowed the emergency relief Kalshi has now secured.

For now, the court-ordered pause allows prediction markets kalshi to continue operating while judges weigh whether federal law fully preempts state-level gambling regimes in this emerging asset class.

Kalshi CNN partnership and major funding boost

Even as it battles regulators, Kalshi is expanding its media footprint and capital base. The company recently announced a high-profile CNN partnership, naming the platform as the network’s official prediction markets partner.

Under the agreement, Kalshi’s real-time market data will feed directly into CNN’s newsroom to inform coverage of politics, economics, and major cultural events. Moreover, the collaboration underscores how mainstream news outlets are increasingly looking to market-based indicators to track sentiment and expectations.

Alongside the media deal, Kalshi closed a $1 billion funding round at an $11 billion valuation. The raise positions the company to scale technology, expand its product set, and fund ongoing prediction market lawsuits as it defends its model across multiple states.

Surging trading volume across prediction platforms

The funding coincides with a sharp rise in prediction markets trading volume across the sector. Citing data from Token Terminal, Kalshi reported record trading volume of $4.54 billion in November, surpassing October’s already elevated $4.49 billion tally.

Kalshi added that weekly volumes now exceed $1 billion, representing growth of more than 1,000% since 2024. However, the firm still faces stiff competition from on-chain platforms that cater to a similar audience of speculative traders and data-driven investors.

Its closest rival, Polymarket, also logged a strong November, with monthly volume reaching $3.76 billion after clearing $3 billion in October. The numbers highlight how fast the broader market for real-world event speculation is scaling.

Institutional interest and liquidity providers emerge

Institutional players are beginning to take notice of these trends. Mike Novogratz‘s Galaxy Digital is in talks with both Polymarket and Kalshi about serving as a liquidity provider, according to recent discussions.

Moreover, the rise of on-chain betting on real-world events is drawing growing interest from both retail traders and Wall Street firms. That said, the ultimate shape of the market will likely depend on how U.S. courts resolve the tension between federal derivatives law and state gambling frameworks.

Outlook for Kalshi and U.S. prediction markets

The temporary injunction in Connecticut provides Kalshi with breathing room as it navigates a complex patchwork of state and federal rules. However, upcoming hearings in early 2026 will be critical in determining whether the platform can rely on a single federal framework.

If courts affirm the Commodity Futures Trading Commission’s exclusive authority over event-based derivatives, platforms like Kalshi could gain a clearer path to nationwide growth. Conversely, if states retain broad enforcement powers, prediction operators may need to adapt their models or withdraw from restrictive jurisdictions.

For the broader ecosystem of Kalshi prediction markets, the Connecticut case, along with parallel disputes in New York, Massachusetts, New Jersey, Nevada, Maryland, and Ohio, will help define how financial innovation in this space coexists with long-standing gambling regulation.