Imagine pouring a few hundred bucks into a bet on who wins the next Super Bowl — or the next presidency — only to wake up and discover your state just declared the entire platform illegal overnight.
That’s exactly what’s happening right now to thousands of users in Connecticut.
In a move that caught a lot of people off guard, the Connecticut Department of Consumer Protection dropped cease-and-desist orders on three major players offering “event contracts” — basically prediction markets where you can trade on real-world outcomes. The platforms hit: Kalshi, Robinhood, and Crypto.com. And the state isn’t mincing words: they’re calling it unlicensed online gambling, plain and simple.
Why Connecticut Drew the Line in the Sand
The core argument from Connecticut officials is pretty straightforward. In their view, betting on whether Trump will pardon someone or whether the Lakers will cover the spread is no different from putting money on blackjack or slots. Only three companies — DraftKings, FanDuel, and Fanatics — have the legal green light to offer sports wagering in the state, and all of them have strict age limits (21+) and a mountain of consumer protections baked in.
These newer prediction-market platforms? None of that.
According to the state, they let underage users slip through, advertise aggressively (sometimes on college campuses), lack proper data-security standards, and have zero safeguards against insider trading or outcome manipulation. One official even accused them of “deceptively advertising that their services are legal.” Ouch.
“Only licensed entities may offer sports wagering in the state of Connecticut. None of these entities possess a license to offer wagering in our state, and even if they did, their contracts violate numerous other state laws and policies.”
– Connecticut DCP Commissioner Bryan T. Cafferelli
The Platforms Push Back — Hard
Within hours, the counterattack began.
Kalshi, arguably the most exposed because they’ve gone all-in on sports and political events, filed suit in federal court the same day. Their argument is elegant in its simplicity: we’re not a gambling site, we’re a federally regulated derivatives exchange overseen by the Commodity Futures Trading Commission (CFTC). Congress gave the CFTC exclusive jurisdiction over this stuff, so Connecticut can’t touch us.
Robinhood echoed the same line, pointing out that their event contracts are offered through Robinhood Derivatives, LLC — a fully registered CFTC entity. Crypto.com stayed quiet publicly, but you can bet (pun intended) they’re watching the litigation very closely.
In my view, this federal-vs-state showdown has been brewing for months. Ever since the 2024 election cycle turned prediction platforms into billion-dollar juggernauts, regulators have been circling.
It’s Not Just Connecticut — At Least 10 States Are Moving
Connecticut is late to the party, actually.
New York sent Kalshi a cease-and-desist in October. Massachusetts sued them in September. Arizona, Illinois, Montana, Ohio, New Jersey, Maryland, and Nevada have all taken similar actions or have ongoing cases. That’s a pretty big chunk of the U.S. population suddenly cut off from these markets.
- New York — cease-and-desist + ongoing lawsuit
- Massachusetts — direct lawsuit in state court
- New Jersey — active litigation
- Nevada — regulatory action pending
- Connecticut — fresh cease-and-desist (Dec 2025)
The pattern is clear: states that spent years negotiating exclusive deals with traditional sports-betting giants are not thrilled about upstart prediction markets eating their lunch — especially when those markets attract younger users and massive election-year volume.
Why Prediction Markets Exploded in 2024–2025
Let’s be honest — most of us had never heard of “event contracts” two years ago.
Now Kalshi alone just closed a $1 billion funding round at an $11 billion valuation after posting its best month ever in November 2025. Volumes across the sector hit tens of billions during the election run-up. Retail traders love the transparency: prices reflect crowd wisdom in real time, often more accurately than polls or pundits.
But that very popularity is what put a target on their back. When grandma starts asking you about “Kalshi odds” at Thanksgiving, regulators take notice.
Gambling or Legitimate Hedging Instrument?
Here’s where it gets philosophically interesting.
The CFTC spent years deliberating whether event contracts on elections even belong under their umbrella. In 2024 they finally said yes — with strict limits — declaring them a legitimate way for people to hedge political and economic risk. Think journalists covering campaigns, campaign staffers, or businesses affected by policy changes.
States, on the other hand, look at the same contract and see “Will Taylor Swift endorse a candidate before November?” and think: that’s a prop bet, not a derivative.
“It’s very different from what state-regulated sportsbooks and casinos offer their customers. We are confident in our legal arguments and have filed suit in federal court.”
– Kalshi spokesperson
What Happens to Users in Restricted States?
Right now, accounts are being geo-blocked almost in real time. If you’re physically in Connecticut, New York, or several other states, you’ll likely see a message saying the markets are unavailable.
Existing positions? Most platforms are allowing users to close out but not open new ones. Cash balances remain accessible, but the writing is on the wall: if the states win, entire product lines could disappear for huge swaths of the country.
Bigger Picture: Federal Preemption vs. State Rights
This fight is really about who gets to decide what counts as gambling versus investing.
If the federal courts side with Kalshi and company, we’ll likely see a wave of innovation — weather derivatives for farmers, inflation contracts for retirees, maybe even Oscar or Grammy markets. If the states win, prediction markets could be forced to get 50 different licenses or simply retreat to crypto-only offshore versions.
Personally, I lean toward the federal argument. Once the CFTC blesses a product and oversees anti-manipulation rules, it feels heavy-handed for states to override that framework just because the underlying asset is an “event” rather than corn or crude oil.
But I also understand the consumer-protection angle. Traditional sportsbooks have problem-gambling hotlines, self-exclusion lists synced statewide, and geofencing that actually works. Some of the newer platforms have been a bit cowboy about compliance.
Where This Goes From Here
Expect fast-tracked federal litigation. Kalshi has deep pockets now and every incentive to make this a landmark case. A favorable ruling could preempt most state actions under the Commodity Exchange Act.
Meanwhile, platforms will probably self-restrict even more states voluntarily to avoid contempt charges while the courts sort it out — meaning retail access could shrink dramatically in 2026.
And don’t be surprised if Congress eventually steps in. Lawmakers love nothing more than a juicy hearing about gambling, elections, and Wall Street all wrapped into one.
Bottom line: the golden age of easy, nationwide prediction-market access might be pausing for a reality check. Whether it resumes bigger than ever or gets regulated into oblivion depends on how the next few court battles play out.
Either way, the crowd wisdom engine we saw outperform polls in 2024 isn’t going quietly.
Stay tuned — because the odds on the outcome just shifted again.
