Encourage innovation! A U.S. judge bans Arizona-regulated prediction markets and suspends prosecution against Kalshi.

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

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

Judges assign legal priority jurisdiction 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”) offered by the prediction market satisfy 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 believes federal law has priority in regulating such financial products, so Arizona’s attempt to regulate the market through state-level gambling regulations went beyond its enforcement authority. After the order was issued, the criminal preliminary hearing scheduled for Monday was canceled, indicating that the federal courts are inclined to protect a unified regulatory framework for national financial markets.

Kalshi insists that 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 wagers involving political election results, college sports events, and players’ individual performances, and emphasizing that the state strictly prohibits unlicensed gambling operations. However, Kalshi insists that its operating model is not traditional gambling, but rather offers customers contracts to buy and sell “yes” or “no” positions based on event outcomes. Kalshi argues that what happens between its customers is a risk swap, not a bet between players and a house as in traditional gambling, and that in nature it is a financial product.

Different rulings across the 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 places have reached different decisions: Nevada and Massachusetts support the state-government ban, while New Jersey and Tennessee have issued rulings in favor of the platform.

The Trump family supports prediction markets

The Trump administration has shown support for prediction markets, even with federal agencies filing lawsuits against Connecticut, Arizona, and Illinois, questioning whether local governments interfere with federal regulatory business. It argues that using state laws to go after compliant financial companies will set a dangerous precedent.

The development of prediction platforms is deeply intertwined with political forces. The eldest son of President Trump serves as an adviser to Kalshi and Polymarket, and is also an investor in the latter. Truth Social, the Trump-owned social media platform, is preparing to launch a cryptocurrency-based prediction market called Truth Predict.

Kalshi argues that if each state enforces its gambling laws independently, it will threaten the platform’s survival and damage the integrity and liquidity of contracts. Kalshi believes Arizona’s criminal prosecution is intended to interfere with existing civil litigation procedures. A spokesperson for the Arizona Attorney General’s Office, Rich Taylor, disagrees with the judge’s stay of the ruling against Kalshi and said it will assess subsequent actions.

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