The U.S. gambling and financial market is facing new tensions due to prediction platforms like Kalshi, Robinhood, and Crypto.com. These companies, initially seen as innovative alternatives to traditional betting, are now facing legal challenges. Several states, including Nevada and New Jersey, claim these platforms are operating illegal gambling schemes and demand they stop in their jurisdictions.

   Kalshi, for example, markets itself as a platform for trading predictions on future events, such as political or economic outcomes, rather than a bookmaker. It operates under federal law with approval from the Commodity Futures Trading Commission (CFTC), positioning itself as a financial instrument provider rather than a gambling service. However, some states argue that these platforms are still facilitating betting and need gambling licenses.

   This conflict highlights the clash between established gambling regulations and new tech-driven startups. Kalshi argues that it operates legally under CFTC rules, while states insist it requires local licenses. As legal battles unfold, the outcome could set important precedents for the emerging prediction industry.

Conflict with the States: Who’s Really in Charge?

The complexity of the situation surrounding Kalshi lies not only in the nature of its product but also in the fact that the platform has landed at the center of a serious jurisdictional dispute. The federal regulator says one thing, while individual state authorities say something entirely different. At its core, it’s a legal tug-of-war: who has authority over a business that operates nationwide?

It all started with Nevada. In March 2024, the Nevada Gaming Control Board (NGCB) officially demanded that Kalshi cease operations within the state. The reason: the company lacks a gambling license. The regulator gave Kalshi 10 days to voluntarily exit the market and warned of consequences — ranging from administrative fines to potential criminal charges, including sanctions for alleged violations in prior years.

New Jersey quickly followed suit. The state’s Division of Gaming Enforcement (DGE) issued a similar warning, requiring Kalshi to block access to its platform for users within the state. According to the DGE, Kalshi’s business amounts to sports betting — even if it’s packaged as futures contracts. And that, they argue, requires a gambling license.

Kalshi chose not to back down. Instead of withdrawing from these two states, the company went on the offensive — filing lawsuits against both regulators. In court documents submitted on March 28, 2024, Kalshi’s legal team argued that the actions of the NGCB and DGE violate the U.S. Constitution, undermine the principles of federal regulation, and set a dangerous precedent for all companies operating under CFTC oversight.

The lawsuit emphasizes that Kalshi cannot be expected to adjust to the requirements of 50 different jurisdictions if it already complies with federal law. The company argues: if states are allowed to ban legal activity approved by a federal agency today, they could interfere with the operations of any other federally regulated platform tomorrow — from stock exchanges to banks.

The situation is further complicated by Kalshi’s claims that exiting markets like Nevada or New Jersey would not only damage its reputation, but also result in real financial losses that could threaten the very viability of the company.

And at this point, the issue is no longer just about Kalshi. The company’s lawsuits are becoming an indicator for the entire prediction market industry. If the courts side with the states, it could mark the beginning of the end for such platforms. But if Kalshi prevails, it could set a precedent that paves the way for an entire sector that sits at the intersection of finance and gambling.

Pressure Mounts: States Demand Kalshi’s Exit One After Another

Just as Kalshi filed lawsuits against the regulators in Nevada and New Jersey, problems began to arise from all sides. Next in line was Ohio. The Ohio Casino Control Commission (OCCC) issued an official warning: Kalshi, Robinhood, and Crypto.com must cease operations within the state by April 14. Failure to comply would result in further action.

The reasons cited in the press release have become standard: the platforms allegedly provide illegal gambling disguised as “futures contracts”. Notably, Ohio was where Kalshi responded the quickest — almost immediately issuing a statement insisting that its product is a financial instrument fully compliant with CFTC regulations, and that the OCCC’s actions contradict federal law, undermining the authority of the Commodity Futures Trading Commission itself.

Ohio’s example became a litmus test. Other states soon followed suit. Illinois, through the Illinois Gaming Board (IGB), also demanded that Kalshi and its partner companies immediately halt their operations. The language was nearly identical: operating illegal gambling, circumventing existing regulations, and misleading consumers.

Then came Washington. Unlike other states, Washington has not yet issued an official ban, but an investigation has been launched. State regulators are now examining whether Kalshi’s operations on their territory are legal and if they violate local gambling laws.

In just a few weeks, Kalshi found itself under pressure from at least six jurisdictions: Nevada, New Jersey, Ohio, Illinois, Washington, and now Maryland. The latter state took an especially tough stance, giving Kalshi, Robinhood, and Crypto.com just 15 days to exit the market.

While the company formally has the right to defend itself, each new ban represents another blow to its business. Kalshi cannot continue suing every state indefinitely. And if the larger, more active states are followed by others, the platform may simply run out of market space.

Against this backdrop, Kalshi’s CEO, Tarek Mansour, continues to argue that all of this is the result of pressure from the traditional gambling lobby. His logic is simple: offline and online casino operators do not want to see competitors, especially those offering a fresh, technologically advanced betting model — without a license, but with federal backing.

Why Are Regulators So Active?

The actions of regulators against prediction and trading platforms like Kalshi, Robinhood, and Crypto.com do not happen in a vacuum. At first glance, it may seem like just another case of enforcing local laws. However, a deeper analysis reveals that these decisions are driven by broader industry and political interests.

1. Protection of Traditional Gambling

One of the main factors behind the aggressive stance of local regulators is the protection of the traditional gambling industry. In the U.S., the gambling market (including lotteries and sports betting) is a massive source of revenue for the states. Existing companies and organizations in this sector have long held licenses and pay taxes to local budgets. For them, any form of competition from new, less regulated platforms can be seen as a threat.

In the traditional view, if a platform accepts bets on events, whether sports, politics, or economics, it should operate under the same rules as casinos, bookmakers, or other forms of gambling. Otherwise, it effectively breaks the rules of fair competition by drawing funds away from the regulated sector.

2. Legalization of Online Betting and Political Lobbying

On the other hand, in recent years, there has been an active push for the legalization of online betting across the country, particularly for sports events. This movement is supported by a powerful lobby, including large gambling corporations and traditional bookmakers. These players are not interested in allowing new platforms like Kalshi to grow without proper oversight. It especially frustrates them when such platforms operate not under gambling regulations but under the guise of financial instruments, thereby bypassing the tax and licensing requirements imposed on traditional gambling operators.

In this case, state regulators are simply “taking sides” with these major players. After all, if a prediction platform is not burdened by the standards and taxes applied to gambling companies, it creates an unfair advantage for its owners.

3. Consumer Risks

However, not everything comes down to the battle for money and power. An important aspect is consumer protection. Regulators, acting in the interest of citizens, are concerned that platforms like Kalshi, despite being legal at the federal level, may subtly be using gambling principles. Betting on political events or economic forecasts is, of course, not the same type of risk as, say, playing on slot machines. However, there is still the danger that users may perceive these platforms as a legal alternative to gambling, without fully understanding the risks and the lack of guaranteed protection.

Moreover, there is no doubt that many users do not realize that such platforms might exploit regulatory gaps, providing access to bets on events that could be legally problematic, such as elections or political processes. Regulators see this as a threat not only to the players themselves but also to public order.

4. The Future of Technology and Concerns About Lack of Oversight

Finally, technological innovations also play a role in these disputes. Amid the rapid growth of financial technologies and the spread of Web3 (decentralized financial platforms), government and legislative bodies are increasingly concerned about any new financial instruments. Specifically, they are worried about the potential lack of control over platforms like Kalshi, which use innovative methods such as derivatives or blockchain, making their operations even more unclear and potentially risky in the eyes of regulators.

Recognizing the speed of technological change, regulators are eager to keep the situation under control and prevent platforms from bypassing existing laws designed for more traditional financial instruments. In their view, leaving such platforms without proper oversight could lead to serious consequences for financial stability and violate the principles of fair play.

Possible Consequences for Kalshi and the Prediction Industry

The situation Kalshi finds itself in will undoubtedly affect the entire prediction and trading platform industry, especially since this market has been experiencing rapid growth in recent years. If states continue to exert pressure on platforms like Kalshi, the consequences could be both short-term and long-term.

1. Threats to Kalshi’s Existence in the U.S.

First and foremost, the most obvious threat to Kalshi is the restriction or complete closure of operations in certain markets. If courts side with local regulators, the company risks losing access to markets in several states where it is currently operating. This could lead to significant financial losses, including a decrease in audience and loss of investor trust.

It is important to note that for platforms like Kalshi, the U.S. market is one of the largest and most important. Losing major states like New Jersey, Nevada, Ohio, and others could undermine its position in the domestic market, creating a precedent that could affect its international reputation. For example, investors and potential partners, seeing that the company cannot handle such pressure, might refuse to collaborate.

2. Erosion of Trust in the Prediction Industry

The conflict with regulators could also create problems for the entire prediction industry. While platforms like Kalshi have always tried to position their services as legitimate financial instruments, with each ban and legal dispute, their image may increasingly be associated with illegal gambling. This undermines trust both from users and investors, making further development difficult.

If several major platforms are forced to exit the U.S. market or significantly limit their operations, it could impact the business model itself. Event prediction, which was originally seen as an innovative financial tool, might be redirected into a more traditional and less attractive form of gambling.

3. Increased Regulation Across the Industry

Notably, the fight against prediction platforms could lead to tighter legislation not only in the U.S. but also in other countries. If state regulators win their legal battles, it may inspire other countries to introduce similar bans or restrictions. In particular, countries with emerging markets or stricter gambling regulations could follow the example of U.S. states and begin pressuring such platforms.

This could lead to the creation of clear laws that separate financial instruments from gambling and define which platforms can operate in the market and which need special licenses. This would increase risks for those working in the gray area and call into question the existence of many similar startups.

4. Market Redistribution and the Emergence of New Players

However, despite all the challenges, a new wave of startups and innovative solutions may emerge from this situation. If large players like Kalshi are forced to limit their operations, it will open opportunities for other platforms that can operate within existing laws or offer new models that satisfy both regulators and users.

Interestingly, blockchain technologies and decentralized financial platforms (DeFi) may become important tools for circumventing existing restrictions. These solutions, if they can undergo legal testing and obtain the necessary licenses, could move ahead and fill the gaps left in the market.

Conclusion

The dramatic events surrounding Kalshi and other prediction platforms primarily raise an important question about the legal status of new financial instruments. Overall, the situation with Kalshi serves as an excellent example of how rapidly changing technologies collide with established legal frameworks and how conflicts arise at these intersections, where not only the fate of one company but the fate of an entire industry is at stake.

On one hand, states must protect the interests of their citizens by establishing clear rules for platforms operating in the gambling sector, and on the other hand, they should not hinder innovations that could benefit the economy. From the perspective of platforms like Kalshi, continuing operations under constant pressure from local regulators is not only a matter of survival but also an opportunity to reform the entire industry and create a new type of prediction platform that could form the foundation for new financial models.

The outcome of this conflict will determine the future of the prediction industry not only in the U.S. but worldwide. This is a challenge not only for lawmakers and regulators but also for the technology companies themselves, who will need to find the right balance between innovation and legal compliance. Who will emerge victorious in this showdown — only time will tell, but one thing is clear: the future of financial platforms will be inextricably linked to global changes in regulation and technology.