Key Insights:
- Polymarket argues that exclusive CFTC oversight should override state gambling laws governing event-based prediction markets nationwide.
- State courts remain divided on whether prediction contracts qualify as financial derivatives or regulated gambling products.
- Rapid market growth continues despite escalating legal scrutiny across multiple U.S. jurisdictions.
Polymarket has filed a federal lawsuit against Massachusetts, intensifying a national dispute over who holds authority to regulate event-based prediction markets.
The company argues that Congress granted exclusive oversight of event contracts to the Commodity Futures Trading Commission, leaving states without power to intervene independently.
In a statement released Monday, Polymarket chief legal officer Neal Kumar confirmed the filing, stressing that the issue involves national markets requiring federal adjudication. Kumar warned that state-led crackdowns threaten innovation, adding that legal actions by Massachusetts and Nevada do not alter established federal commodities law.
Polymarket Federal Authority Lawsuit Against Massachusetts
The lawsuit seeks to block potential enforcement actions by Massachusetts Attorney General Andrea Campbell and state gaming regulators targeting prediction market operations. Polymarket argues that, state action inappropriately intervenes with federally regulated derivatives markets, which places legal ambiguity on platforms that conduct their activities in more than one jurisdiction.
The petition occurred after a Massachusetts court ruled that a competitor platform, Kalshi, be stopped in offering contracts related to sports, without licensing its operations with the state. Judge Barry-Smith made a decision that the contracts of sports events were subject to the regulations of the Massachusetts betting laws, putting the interests of the masses in the first place, the state regulations, and the state finances.
State Court Rulings Intensify Market Regulation Debate
Kalshi also would have appealed to the ruling but was not successful in getting a stay, giving the platform 30 days to prevent Massachusetts users’ sports markets. Other states have also reported similar resistance, with the courts of Nevada prohibiting Polymarket on the basis of conflicts with state sports wagering systems, to sell sports contracts.
In Nevada, judges stated that prediction market legalization would weaken current betting rules that would safeguard consumers and integrity of licensing.Analysts note that at least eight states, including New York, Illinois, and Ohio, have adopted measures restricting sports-linked prediction markets.
Prediction Markets Expand Despite Regulatory Headwinds
Although there has been increased legal pressure, prediction markets have expanded at a rapid rate both on the retail level and institutional capital across various platforms. According to data provided by Dune Analytics, the trading volumes recorded per week were the highest in January, at an all-time high of $3.7 billion, surpassing all the peaks of the market activity.
According to Messari research, Polymarket and Kalshi had almost equal volumes, even though they were using the decentralized and traditional exchange models. The last rounds of funding have seen Polymarket valued at close to $9 billion and Kalshi at close to $11 Billion after institutional investments.
Federal Versus State Oversight Remains Unresolved
The core of the debate is whether event-based financial product gambling law in states has been preempted by the federal commodities law.Polymarket states that their contracts are federally supervised derivatives and this falls entirely under the jurisdiction of the Commodity Futures Trading Commission.
The company cited recent remarks by CFTC Chairman Michael Selig signalling a reassessment of how the agency approaches jurisdictional boundary cases. Massachusetts courts have countered that Congress never intended federal oversight to displace traditional state authority over gambling activities.
Industry Stakes And Broader Implications
Polymarket cautioned that state-by-state legal enforcement would disintegrate national markets and compel platforms to either comply federally or locally.Kalshi partner Robinhood, has also tried to protect itself legally in Massachusetts so as to evade state prediction contract licensing conditions.
Adherents credit the prediction markets with enhancing price discovery and crowd predictions, whereas opponents claim that they are like unregulated gambling products. A successful conclusion of the lawsuit may lead to a stronger federal regulation of the entire country or encourage the states to place more restrictions on the prediction market.
