Encourage innovation! A U.S. judge in France bans Arizona’s regulation of prediction markets and pauses the prosecution against Kalshi.

A U.S. federal district court has ruled to temporarily bar Arizona from prosecuting the prediction market platform Kalshi under the gambling law. The judge said the U.S. Commodity Futures Trading Commission has exclusive jurisdiction, and the state government may not go beyond it.

A U.S. federal district court has recently issued a ruling in the legal dispute between prediction market platform Kalshi and the Arizona state government, temporarily barring the state from enforcing the gambling-related regulations against the platform, and simultaneously halting the related criminal proceedings. This ruling initially clarifies the priority order between the federal government and state governments regarding regulatory authority over financial derivatives.

Judges assign legal priority to the federal government

In the ruling, U.S. district judge Michael Liburdi said the U.S. Commodity Futures Trading Commission (CFTC) has presented sufficient evidence to show that the Event Contracts—“event contracts”—provided by the prediction market meet the definition of Swaps under the Commodity Exchange Act. Under the regulation, the CFTC has Exclusive Jurisdiction over products traded on a designated contract market. The judge said federal law takes priority in regulating this type of financial product, so Arizona’s attempt to regulate the market through state-level gambling regulations overstepped enforcement authority. After the order was issued, the criminal arraignment hearing originally scheduled for Monday was declared canceled, showing that federal courts tend to protect a unified regulatory framework for national financial markets.

Kalashi insists event contracts are a new type of financial instrument

Arizona’s prosecutors previously brought 20 misdemeanor charges against Kalshi, alleging that the platform illegally accepted bets involving the outcomes of political elections, college sports events, and players’ individual performances, and emphasizing that the state strictly bans unlicensed gambling businesses. However, Kalshi insists that its operating model is not traditional gambling, but instead offers customers contracts to buy and sell based on event outcomes of “yes” or “no.” Kalshi maintains that what customers trade with each other is a risk swap, not a wager between players and a bookmaker in traditional gambling; in nature, it is a financial product.

Different rulings across U.S. states

Arizona was the first state in the U.S. to take action against prediction market platforms, which then triggered a ripple effect. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. At present, judges in different locations have issued different rulings: Nevada and Massachusetts support the state government’s ban, while New Jersey and Tennessee have issued decisions in favor of the platform.

The Trump family supports prediction markets

The Trump administration has shown its support for prediction markets, and even had federal agencies sue Connecticut, Arizona, and Illinois, questioning whether local governments are interfering with federal regulatory activities, and arguing that using state law to target compliant financial companies will set a dangerous precedent.

The development of prediction platforms is closely intertwined with political forces. The president’s eldest son is an adviser to Kalshi and Polymarket, and is also an investor in the latter. The Trump-owned social media platform Truth Social is planning to launch a crypto-based prediction market called Truth Predict.

Kalshi argues that if states each enforce gambling laws on their own, it will threaten the platform’s survival, and damage the integrity and liquidity of the contracts. Kalshi believes that Arizona’s criminal prosecution is intended to interfere with existing civil litigation procedures. A spokesperson for the Arizona Attorney General’s Office, Taylor (Rich Taylor), disagreed with the judge’s decision to pause the ruling against Kalshi, saying it will assess further actions.

• This article is reprinted with permission from: 《Chain News》
• Original title: 《Judge blocks Arizona from regulating prediction markets and suspends prosecution of Kalshi》
• Original author: DW