CFTC Order Keeps Kalshi Running as $36B Lawsuit Escalates

Kalshi, a federally regulated prediction market exchange, is at the center of a high-stakes legal battle after the Commodity Futures Trading Commission (CFTC) ordered the platform to continue operations despite a $36 billion lawsuit from New York authorities. The dispute has rapidly escalated into a test of whether state gambling laws can override federal oversight of event contracts, with potential consequences for the entire U.S. derivatives market.

Federal-State Clash Intensifies

The CFTC's emergency directive came after Kalshi reported that New York's enforcement campaign had created a "market emergency." New York Attorney General Letitia James filed suit on July 31, alleging Kalshi was offering sports prediction markets without a state gaming license, effectively operating as an unlicensed gambling business. The state is seeking damages, restitution, and penalties that could total more than $36 billion, and is asking the court to force Kalshi to surrender gains tied to the alleged violations.

In response, the CFTC argued that New York's attempt to block Kalshi's event contracts threatens the integrity of the national derivatives market. CFTC Chairman Michael Selig stated that Congress did not intend for federally regulated exchanges to be subject to a patchwork of state gambling laws, emphasizing that Kalshi matches bids and offers from users across state lines before clearing trades nationwide. The agency has also filed lawsuits against several other states and submitted amicus briefs in related federal and state court cases, underscoring the broader regulatory conflict.

New York Expands Scrutiny

New York's pressure on prediction markets is not limited to the attorney general's lawsuit. On August 12, New York City Council Speaker Julie Menin announced that the Council had been investigating the industry's marketing practices, focusing on allegations of misleading promotions and advertising targeting younger consumers. The Council sent information requests to Kalshi, Polymarket, Coinbase, and Gemini Titan, seeking details on how they promote contracts tied to sports, politics, and other events.

The Council is considering whether new consumer-protection rules, legislation, or enforcement measures are needed to address potential risks. Lawmakers are particularly concerned that prediction markets may use influencer promotions and fabricated trade depictions to entice participation, while not being subject to the same marketing restrictions as casinos or sportsbooks. This city-level inquiry adds a second layer of regulatory scrutiny for Kalshi in New York, alongside the state's legal challenge to its business model.

Kalshi's Growth Amid Legal Uncertainty

Despite mounting regulatory pressure, Kalshi's business continues to expand. The company is reportedly in advanced talks to raise a Series G funding round at a valuation near $40 billion, nearly doubling its $22 billion valuation from May. According to The Information, Kalshi's annualized revenue surpassed $4 billion in July, up from $2 billion just two months earlier, with major sports events like the World Cup driving trading activity. The platform processed about $27 billion in trading during the World Cup and attracted roughly 3 million users, while recent 30-day trading volume reached $11 billion, based on DefiLlama data.

This rapid growth stands in contrast to the regulatory headwinds facing Kalshi. As New York seeks to bring prediction markets under state gambling and consumer-protection rules, the CFTC is using its federal authority to prevent disruption of a nationally regulated derivatives exchange. The outcome of this legal standoff could determine whether Kalshi's expansion continues or faces new barriers if courts ultimately side with state regulators.

Broader Market Impact

The CFTC maintains that keeping Kalshi operational is essential for market resilience, orderly trading, and price discovery in the U.S. derivatives market. The agency warns that disruption of a federally regulated exchange could undermine its mandate to maintain a uniform national market. Yet the emergency order does not resolve the core legal question of whether federal derivatives law preempts state gambling statutes-a question that remains before the courts.

For context, other crypto companies have faced similar regulatory uncertainty. For example, La Rosa Holdings recently encountered liquidity restrictions and mounting liabilities after a major loss, highlighting how regulatory and legal actions can quickly reshape access to digital assets and market participation.

Kalshi's situation is being closely watched by exchanges, traders, and regulators nationwide, as the outcome could set a precedent for how event contracts and prediction markets are treated under U.S. law. The unresolved legal boundaries between state and federal oversight continue to create uncertainty for platforms operating at the intersection of finance, technology, and gaming regulation.

According to The Information and DefiLlama, Kalshi's annualized revenue exceeded $4 billion in July 2026, with trading volume during the World Cup reaching $27 billion and recent 30-day volume at $11 billion. The company's reported user base grew to approximately 3 million during the tournament period. These figures underscore the scale of Kalshi's operations and the potential market impact of any regulatory outcome.

Prediction markets like Kalshi operate by allowing users to buy and sell contracts based on the outcome of future events, such as sports results or political elections. While these platforms are regulated as derivatives exchanges at the federal level, states may classify certain event contracts as gambling, triggering additional licensing, tax, and consumer-protection requirements. The legal distinction between a federally regulated derivative and a state-regulated wager remains unsettled, and the outcome of the Kalshi case could clarify-or further complicate-how these products are treated across the U.S.