A fresh legal clash is unfolding over the future of prediction markets in the United States, with federal regulators moving swiftly against Minnesota after the state approved the country’s toughest restrictions yet on the industry.
The Commodity Futures Trading Commission filed a lawsuit Tuesday seeking to stop Minnesota from enforcing a newly signed law that would effectively outlaw platforms such as Kalshi and Polymarket within state borders.
The legislation, signed by Minnesota Governor Tim Walz, is scheduled to take effect on August 1. Once active, the law would make operating, promoting, or hosting a prediction market a criminal offense in the state — a move unlike anything attempted elsewhere in the U.S.
Prediction markets allow users to trade contracts tied to the outcomes of real-world events, ranging from elections and sports to economic indicators. Supporters describe them as financial instruments and forecasting tools; critics see them as gambling wrapped in Wall Street language.
That disagreement now sits at the center of a widening courtroom war.
Federal regulators under President Donald Trump have increasingly backed the industry’s argument that these contracts belong under federal derivatives law rather than state gambling oversight. The CFTC’s lawsuit argues Minnesota crossed a constitutional line by attempting to criminalize activity already governed at the federal level.
CFTC Chairman Michael Selig accused Minnesota of abruptly turning legal market participants into potential criminals through state legislation that conflicts with federal authority.
Minnesota officials are not backing down. Attorney General Keith Ellison said his office is reviewing the lawsuit and intends to respond in court, while also defending the state’s concerns over the social effects of prediction betting platforms.
Ellison argued that these markets disproportionately target younger users and lower-income participants, warning that they function less like financial innovation and more like addictive wagering systems that primarily benefit wealthy operators.
The fight carries enormous financial stakes. Kalshi, which recently reached a reported valuation of $22 billion, has spent months battling states that accuse it of running unlicensed gambling operations. Several regulators have also raised concerns that some platforms allow users under 21 to participate in speculative betting activity.
The Minnesota case is only one front in a growing national conflict. The CFTC has already intervened in disputes involving multiple states and recently secured a court order preventing Arizona from pursuing a criminal case against Kalshi.
Not every state challenge has failed, however. Nevada remains the lone state to successfully keep a court-backed restriction on Kalshi in place, while a separate battle continues in Massachusetts, where judges are weighing whether sports-event contracts offered through prediction markets should remain blocked.
What began as a niche corner of financial technology is rapidly turning into a broader test of who controls America’s emerging betting economy: federal market regulators or state gaming authorities.
