The CFTC Has Now Sued Five States Over Prediction Markets; Monthly Volume Has Hit $20 Billion
In 2026 the Commodity Futures Trading Commission has filed federal preemption suits against Arizona, Illinois, Connecticut, New York and Minnesota in defense of its exclusive jurisdiction over CFTC-licensed event-contract exchanges. Monthly platform volume has grown from $1.2B in early 2025 to over $20B today.
The Commodity Futures Trading Commission has now sued five states in 2026 to block enforcement of state-level restrictions on prediction-market platforms: Arizona, Illinois, Connecticut, New York, and Minnesota. The Minnesota suit, filed May 20 in the District of Minnesota, is the most aggressive of the five because the underlying statute (SF 4760) makes platform operation a felony rather than imposing a civil penalty. The New York suit was filed days after the state alleged that Coinbase and Gemini were violating its gambling laws by listing event contracts. All five complaints ask the courts to declare that state gambling laws are "unconstitutional and invalid" if applied to derivatives listed on a CFTC-regulated Designated Contract Market.
The agency already has one preliminary-injunction win to point to. On May 5, 2026, US District Judge Michael Liburdi granted the CFTC a preliminary injunction barring Arizona AG Kris Mayes from prosecuting Kalshi under state gambling laws. Liburdi found three independent grounds for preemption: field preemption (the CFTC has exclusive jurisdiction over DCM derivatives under the Commodity Exchange Act), conflict preemption (state enforcement obstructs the regulatory regime Congress designed), and impossibility preemption (CFTC rules require open access while Arizona's statute criminalizes unlicensed wagering). The same reasoning is now driving the agency's four other state cases. At least fifteen state legislatures introduced prediction-market bills in 2026; how the courts rule on the first five suits will determine whether the rest of those bills move.
The states are not backing down. Minnesota State Representative Emma Greenman, who introduced SF 4760, told Salon the law "stops companies like Kalshi and Polymarket from offering bets in Minnesota on the outcome of events like sports, wars and political outcomes under the guise of 'prediction markets,'" and argued Minnesota "has had the authority to regulate gaming and gambling since we were a territory." AG Keith Ellison was sharper, calling prediction markets "designed to be addictive" and accusing them of "prey[ing] especially on young people and low-income folks. They help the ultra-rich get richer and the rest of us get poorer." Both lines preview the state's strongest argument: this is a gambling statute (where the state has traditional primary authority), not a securities statute (where the CFTC has primacy). The Wisconsin AG's separate lawsuit against the platforms themselves (filed April 2026) was followed by a CFTC counter-suit against Wisconsin on April 28, bringing the total number of states in active federal-preemption litigation to six when Wisconsin is counted.
Volume growth is the backdrop that explains why this fight matters now and not three years ago. In early 2025 combined monthly prediction-market trading averaged around $1.2 billion. As of this writing, monthly trades exceed $20 billion. That is a roughly 17x growth in eighteen months. With volume have come repeat insider-trading incidents: the April arrest of US Army Master Sergeant Gannon Ken Van Dyke for trading roughly $400,000 in profits on Polymarket Maduro-operation markets using classified intelligence; a recent New York Times investigation flagging more than 80 Polymarket wallets with timing patterns consistent with advance information on Iran-strike markets; and, this week, Kalshi suspending a MrBeast video editor who showed "near-perfect trading success" on markets tied to videos his employer was about to publish. The Donald Trump Jr. ties matter to the politics of the federal position but not to the underlying law: Trump Jr. is a strategic advisor to Kalshi and has invested in Polymarket through 1789 Capital, his venture firm. The Trump-led CFTC argues those connections are irrelevant to its jurisdictional claim, which rests on statutes Congress passed long before either company existed. Kalshi spokesperson Elizabeth Diana put the industry's case bluntly: "States can't ban federally regulated exchanges because doing so is a blatant violation of the constitution and federal law." Whether that holds up across all five active suits will be settled in federal court between now and the end of 2026.
Operators mentioned in this article
CFTC-regulated Kalshi
First fully CFTC-regulated US event-contract exchange.
Crypto / On-chain Polymarket
USDC-settled on Polygon. Largest prediction market by volume.
Broker (Embedded Contracts) Robinhood
Consumer brokerage offering embedded event contracts. Fastest-growing retail prediction market platform in the US.
Recent updates
Kalshi's Parlays Drive Back-to-Back $5B Days — and Hand Critics Their Strongest Argument
Kalshi traded a record $5.33 billion on November 7 and $5.36 billion on November 8, with multi-leg parlay-style 'combos' making up roughly 75% of both days' volume. Its 30-day volume topped $100 billion. But the parlay dominance cuts against the platform's legal defense: parlays are a quintessential sportsbook product, and the American Gaming Association has told the Second Circuit that parlays make up about two-thirds of Kalshi's volume and should be treated as sports bets. The implied house edge on 10-plus-leg combos is around 25%, undercutting the argument that these are neutral financial instruments rather than gambling.
Cruz Bill Would Require State or Tribal Approval for Sports Contracts — a Bipartisan Legislative Threat Emerges
Senator Ted Cruz, who chairs the Senate Commerce Committee, is preparing a bill that would bar federally regulated prediction markets from offering gambling-tied event contracts, including sports, unless a state or tribal government authorizes them. It would not ban the contracts nationwide but would require platforms to obtain approval jurisdiction by jurisdiction, resembling state-by-state sportsbook regulation. The proposal arrives as Democrats take control of both chambers after the midterms, creating a potential bipartisan reckoning: a Republican committee chair and a newly skeptical Democratic majority both eyeing restrictions on a sector that had relied on federal protection.
CFTC Tells Platforms to Stop Geofencing States — Directly Colliding With State Court Orders
The CFTC issued an interpretation on November 5 of its 'impartial access' core principle, telling regulated exchanges including Kalshi and Polymarket to drop state-by-state geographic blocks within 30 days or explain why they cannot. The demand collides head-on with existing state court orders that require the platforms to geofence: Washington ordered Kalshi to geofence in August, and Michigan ordered it to use licensed geolocation to block the state in September, with a $500,000 daily fine for violations. Chairman Michael Selig framed the interpretation as a uniformity requirement. The platforms are now caught between a federal demand to unblock states and state court orders to block them.