Encourage innovation! A U.S. judge prohibits Arizona from regulating prediction markets and pauses the prosecution of Kalshi

A U.S. federal district court has ruled, temporarily, to bar the state of Arizona from suing the prediction market platform Kalshi under its gambling law. The judge said that the U.S. Commodity Futures Trading Commission has exclusive jurisdiction, and that state governments may not overstep.

In a recent ruling, a U.S. federal district court decided the legal dispute between the 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. The ruling initially clarified the priority order between the federal government and state governments regarding oversight authority over financial derivatives.

Judges assign legal priority jurisdiction to the federal government

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

Kalshi insists Event Contracts are a new type of financial instrument

Arizona prosecutors previously brought 20 misdemeanor charges against Kalshi, alleging that the platform illegally accepted bets involving political election results, college sports events, and players’ individual performances—emphasizing that the state strictly prohibits unlicensed gambling businesses. However, Kalshi insists that its operating model is not traditional gambling, but instead offers clients contract trading for “Yes” or “No” positions on event outcomes. Kalshi insists that what occurs between clients is a risk swap, not a wager between players and a house of the kind found in traditional gambling; in nature, it is a financial product.

Different rulings across U.S. states

Arizona was the first state in the United States to take action against prediction market platforms, which triggered a ripple effect. In addition to Arizona, Kalshi is also facing legal pressure in Utah and Iowa. At present, court rulings vary by location: Nevada and Massachusetts support the states’ injunctions, while New Jersey and Tennessee have issued decisions in favor of the platform.

The Trump family supports prediction markets

The Trump administration has demonstrated a supportive attitude toward prediction markets. Even federal agencies have filed lawsuits against Connecticut, Arizona, and Illinois, questioning whether local governments interfere 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. President Trump’s eldest son serves as an adviser to Kalshi and Polymarket and is also an investor in the latter. Truth Social, the social media platform under Trump’s portfolio, is preparing to launch a crypto-based prediction market called Truth Predict.

Kalshi argues that if each state enforces its gambling laws on its own, it will threaten the platform’s survival and damage the integrity and liquidity of 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, Rich Taylor, disagreed with the judge’s stay of the ruling against Kalshi, saying that it will assess subsequent actions.

• This article is reproduced with authorization from: 《Chain News》
• Original title: 《Judge blocks Arizona from regulating prediction markets, temporarily halts prosecution of Kalshi》
• Original author: DW