US prediction markets face critical legal showdown over federal and state regulation clashes

As prediction markets expand into mainstream finance with event contracts linked to elections and sports, US regulators and courts grapple with whether federal oversight or state laws should prevai...

Prediction markets have moved from a niche corner of derivatives trading into the centre of a widening regulatory fight in the United States. The dispute has sharpened as platforms have expanded event contracts tied to elections, sporting contests and other real-world outcomes, forcing regulators to confront whether these products should be treated as commodities, futures or gambling. The CFTC has said event-contract listings have surged sharply in recent years, rising from only a handful a year in the period from 2006 to 2020 to more than 1,600 certified listings in 2025, underlining how quickly the market has evolved. The agency’s own proposal in March 2026 also signalled that questions about prediction markets are now squarely on its agenda.

At the centre of the legal battle is a deceptively technical rule: Core Principle 2. For designated contract markets, the CFTC requires impartial access for members and traders, a standard intended to prevent discrimination and support fair competition. In practice, that requirement has become a powerful argument for prediction-market operators who say they cannot selectively block users in one state while offering the same contracts nationwide without running into federal compliance problems. The CFTC’s own guidance on DCM registration and its framework for contract listing show how heavily these platforms are expected to be regulated once they are approved.

That argument has gained traction in some courts and met resistance in others. In Nevada, a federal judge accepted Kalshi’s claim that it faced a serious conflict between state gaming law and federal access rules, describing the company as being caught between legal liability on one side and potential harm from the CFTC on the other. A separate challenge brought by Crypto.com in Nevada raised a similar impossibility theory, while the Tennessee court has also been receptive to the view that a platform cannot easily comply with both state restrictions and the CFTC’s impartial-access mandate. By contrast, a Maryland federal court found that the federal core principles and state gaming laws could operate together, pointing out that a properly licensed operator could satisfy both regimes.

The CFTC itself has recently added weight to the argument advanced by the platforms. In an amicus brief filed in February 2026 in support of Crypto.com, the agency said that if a state bans a contract, a DCM cannot deliver the impartial national access required by Core Principle 2. That position was echoed by CFTC chairman Michael Selig in a Wall Street Journal opinion piece arguing that states were encroaching on prediction markets and that federal oversight should remain the governing framework. The agency’s own proposed rulemaking has also asked the public to comment on what impartial access should mean in practice, suggesting the regulator is still shaping its view.

What happens next could decide whether prediction markets become firmly established as federally regulated financial products or remain trapped between competing legal regimes. If courts decide that a DCM cannot comply with both federal obligations and state gambling restrictions, the practical result would be a strong federal shield over event contracts and a much narrower role for state law. If the opposite view prevails, platforms may have to pursue a patchwork of state approvals or withdraw certain contracts altogether. Either way, Core Principle 2 has become the most consequential lever in the broader struggle over who gets to police this fast-growing market.

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Source: Noah Wire Services