The CFTC sued Minnesota after the state banned prediction markets like Polymarket and Kalshi, triggering a major legal fight over federal crypto betting regulations.
A major legal battle is now unfolding in the United States after Minnesota became the first state to ban prediction market platforms like Kalshi and Polymarket. Soon after the law was signed, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against the state, arguing that only federal regulators have the authority to oversee prediction markets.
Minnesota Governor Tim Walz recently signed a new law that makes operating or advertising prediction market platforms a criminal offense inside the state.
The law broadly defines prediction markets as systems where users place wagers on future outcomes. These can include sports events, elections, entertainment results, political events, and even public statements or world affairs.
Importantly, the law does not only target the platforms themselves.
It also applies to services that help users access prediction markets, including virtual private networks (VPNs), which some users rely on to hide their location and bypass restrictions.
The law is expected to officially take effect in August 2026. If enforced, platforms like Kalshi and Polymarket could face felony-related legal consequences if they continue operating inside Minnesota.
Shortly after the bill was signed, the Commodity Futures Trading Commission filed a federal lawsuit against Minnesota.
According to the Commission, the state law directly interferes with federal authority over prediction markets and event contracts. The CFTC is now seeking a preliminary injunction to stop the law before it becomes active on August 1.
The regulator described Minnesota’s legislation as the most aggressive state-level crackdown against federally regulated prediction markets seen so far.
CFTC officials argued that Congress already established a federal system for regulating futures and event-based contracts more than 50 years ago. Because of that, the Commission believes states should not independently criminalize platforms operating under federal oversight.
The lawsuit now sets up a major court fight over who truly controls the fast-growing prediction market industry in the United States.
CFTC Chairman Michael Selig strongly criticized the Minnesota law and accused Governor Walz of prioritizing political interests over innovation and financial markets.
Selig argued that many farmers in Minnesota have historically used weather and crop-related prediction contracts as a way to manage agricultural risk.
According to the Commission, banning prediction markets could also hurt legitimate hedging activity tied to farming and commodity markets.
Minnesota lawmakers, however, defended the new restrictions. Representative Emma Greenman, who introduced the bill, said the state should have the power to decide how gambling-related activity is regulated in order to protect consumers and public safety.
The law still allows certain event contracts connected to insurance protection or traditional securities trading.
Minnesota is not the only state targeting prediction markets. At least seven other U.S. states are now discussing similar legislation aimed at restricting or banning the industry. Hawaii and North Carolina are among the states currently reviewing statewide bans.
At the same time, the CFTC has already launched lawsuits against several states, including Arizona, Connecticut, Illinois, New York, and Wisconsin, after regulators attempted to crack down on prediction market platforms.
In one Arizona-related case, a federal court previously blocked state authorities from prosecuting Kalshi while the legal fight continues.
The growing number of lawsuits shows how divided regulators remain over whether prediction markets should be treated as federally regulated financial products or state-controlled gambling services.
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