Imagine placing a bet on whether the Patriots cover the spread this Sunday, except you’re doing it on a sleek trading app that insists it’s not gambling—it’s just “event contracts.” Sounds clever, right? For the past year that gray area has been one of the hottest corners of fintech. Then Connecticut woke up, looked around, and basically said: nice try, but no.
On December 3, 2025, the Connecticut Department of Consumer Protection dropped a cease-and-desist order that feels like a bucket of ice water on the entire prediction-market-meets-sports-betting party. Kalshi, Robinhood Derivatives, and Crypto.com were told—in no uncertain terms—to stop offering sports-related contracts to anyone in the state. Immediately.
The Core Issue: Where Does Trading End and Gambling Begin?
Let’s be honest: the line has always been blurry. Traditional sportsbooks like DraftKings and FanDuel pay millions for licenses, run geofencing, check IDs, hook into self-exclusion lists, and basically jump through every hoop the state throws at them. Meanwhile, CFTC-regulated prediction platforms have been operating under the comforting banner of “event contracts,” arguing they’re sophisticated derivatives, not bets.
Connecticut just drew its own line in very thick marker: if the outcome is a sporting event, it’s gambling. Full stop. No license? Then get out.
What the Cease-and-Desist Actually Says
The order is surprisingly blunt. Regulators claim the platforms:
- Lack proper age verification (people under 21 could theoretically participate)
- Don’t honor the state’s voluntary self-exclusion list
- Offer contracts on events where insider information could exist
- Fail to meet technical and security standards required of licensed operators
- Expose consumers to risks without the consumer-protection framework the big three (DraftKings, FanDuel, Fanatics) provide
In plain English: the state thinks these apps are letting anyone, including problem gamblers and kids, wager on sports with zero oversight. That’s a serious accusation in a post-PASPA world where states treat sports betting revenue like the new tobacco tax.
Kalshi Fires Back—Fast
Kalshi didn’t waste a single day. By the afternoon of December 3 they were already in federal court asking for an emergency injunction. Their argument is fascinating: the state is trying to regulate a federally overseen Designated Contract Market (DCM). In other words, Connecticut can’t just declare a CFTC-approved product illegal because it smells like gambling.
“If Connecticut prevails, every single Kalshi market—election outcomes, economic indicators, even Oscar winners—could be deemed gambling under their sweeping definition.”
— excerpt paraphrased from Kalshi’s federal filing
That’s the nuclear option. Kalshi is basically saying: touch our sports markets and you collapse the entire prediction market industry overnight.
Robinhood Plays the Regulated Card
Robinhood took a calmer, almost corporate tone. A spokesperson reminded everyone that their event contracts live inside a CFTC-regulated futures commission merchant. Translation: “We’re not some offshore sportsbook; the grown-up federal regulator is already watching us.”
It’s a solid defense on paper, but states have been surprisingly willing to ignore federal oversight when gaming dollars are at stake. Just ask daily fantasy sports circa 2015.
Crypto.com Stays Quiet (For Now)
Crypto.com hasn’t commented publicly yet, which makes sense. They recently paused similar offerings in Nevada after a federal judge there sided with state regulators. Déjà vu much?
In my view, the exchange is probably waiting to see which way the Connecticut wind blows before spending legal dollars on what might become a multi-state fight.
Why Connecticut Is Drawing a Hard Line
Let’s zoom out for a second. Connecticut isn’t exactly Vegas. The state has exactly three authorized sports-betting operators, and they’re all tied to the tribal gaming compacts with Mohegan and Mashantucket Pequot. That’s a tiny, tightly controlled market.
When unlicensed platforms start siphoning even a sliver of action—especially from younger, crypto-native users—the state notices. Fast. Tax revenue, responsible-gaming funding, and political relationships with the tribes are all on the line.
Plus, regulators have a point about consumer protection. I’ve seen screenshots of some of these sports contracts trading at 99 cents minutes after games ended—classic “news trading” that screams insider edge. That kind of thing would get a licensed sportsbook fined into oblivion.
The Bigger National Picture
Connecticut isn’t alone. New York, New Jersey, Massachusetts, and others have sent letters or opened investigations. Nevada actually won a court case forcing one platform to shut down sports markets earlier this year.
But the industry has wins too. Montana and a couple of federal rulings have leaned toward the CFTC having ultimate authority. It feels like 2015 DFS all over again—state-by-state trench warfare until either Congress steps in or the Supreme Court finally draws the line.
What Happens to Users Right Now?
If you’re in Connecticut and you had open positions on these platforms, the order requires the companies to let you close or cash out without penalty. Most users I’ve spoken with say withdrawals are still processing normally—for now.
But trading new sports contracts? Dead in the water until (or unless) a judge grants an injunction.
Where This Could Go: Three Scenarios
- Quick Federal Injunction — Kalshi gets emergency relief, sports markets reopen in days, and we’re back to the Wild West while courts sort it out.
- State-by-State Crackdown — More states follow Connecticut’s lead, platforms geo-block half the country, and prediction markets pivot hard to elections and macro events only.
- Congress Finally Acts — Lawmakers (spurred by election betting controversies or simple exhaustion) create a clear federal framework. Don’t hold your breath.
My money is on scenario 2 for the next 6–12 months. The political will to protect state gaming monopolies is just too strong.
The Bottom Line
Prediction markets aren’t going away. The tech is too good, the user demand too real. But the sports-betting slice of the pie was always the most legally radioactive. Connecticut just proved that states are willing to drop the hammer, CFTC blessing or not.
For traders, the message is clear: enjoy election markets, weather derivatives, and Oscar pools. When it comes to Sunday’s NFL slate, you might have to go back to the old-fashioned (and heavily taxed) sportsbooks—at least until the courts or Congress figure this mess out.
Either way, buckle up. The clash between federal commodity regulation and state gambling authority is officially on, and Connecticut just fired the latest—and loudest—shot.
