A court blocked the ban on prediction markets in Minnesota: a victory for Kalshi and Polymarket
A federal judge in the United States has temporarily blocked a Minnesota state law that criminalized the organization and operation of prediction markets. The ruling came just days before the law was set to take effect on August 1. The temporary restraining order was issued in favor of platforms Kalshi and Polymarket US, as well as the Commodity Futures Trading Commission (CFTC), which jointly challenged the new law.
U.S. District Judge Katherine Menendez concluded that the federal Commodity Exchange Act (CEA) takes precedence over state law. This means the restrictions cannot be applied to exchanges with a Designated Contract Market (DCM) license until a final ruling on the merits of the case is made. The judge emphasized that the CEA grants the CFTC exclusive authority to regulate swap transactions conducted on such platforms.
Core of the Conflict and Arguments of the Parties
The Minnesota law (Minn. Stat. § 609.7615) criminalizes the creation and operation of prediction markets, including bets on sports, elections, legal proceedings, and pop culture events. It also provides for penalties for advertising and related services for such markets. The CFTC filed a lawsuit in May, immediately after Governor Tim Walz signed the law. Commission Chairman Michael Selig stated that the ban would even criminalize weather contracts that farmers use to hedge risks.
Judge Menendez noted that both Kalshi and Polymarket US are registered exchanges with DCM status and fall under the exclusive jurisdiction of the CFTC. "Kalshi and Polymarket US are registered exchanges with DCM status, therefore only the CFTC can regulate transactions in the specified swaps," the court's ruling stated.
Scope of the Ruling and Potential Consequences
The judge also indicated that not every event contract falls under the definition of a swap. For example, Kalshi's markets on winners of the Love Island USA show are not subject to the CEA. However, in the current dispute, the parties structured their arguments on an "all or nothing" basis, so the court suspended the law entirely.
Concerns about irreparable harm played a significant role. Kalshi reported over 90,000 verified users from Minnesota, with open interest on the platform amounting to millions of dollars. If the ban had taken effect, state immunity would have prevented the companies from recovering losses.
Analytical commentary from Cryptalist: This ruling is an important precedent for the entire prediction market industry. It confirms that federal regulation, represented by the CFTC, can effectively protect legal platforms from fragmented state initiatives. However, the final ruling on the merits may be less sweeping — the court could find that not all contracts are swaps, leaving loopholes for local bans. In any case, the battle over jurisdiction is just beginning.