Kalshi has begun restricting Washington residents from accessing certain prediction markets while challenging a court order that limits its event-contract offerings. The dispute is becoming part of a broader national battle over whether federally regulated prediction markets can be subject to state gambling laws.
- Washington’s amended injunction requires Kalshi to block residents from seven categories of event contracts.
- Kalshi is seeking reconsideration, arguing that Washington has treated rival exchange OG more favorably.
- A decision on Kalshi’s request is scheduled for Sept. 2, currently without oral arguments.
- Michigan and Nevada have also imposed restrictions as courts consider the conflict between state gambling laws and federal derivatives regulation.
- The CFTC is preparing additional rules covering consumer protection, market governance and event-contract listings.
Kalshi Implements Washington Restrictions
Under an amended preliminary injunction, Kalshi was required to introduce IP-based and residency-based controls by Aug. 19. The company says it has already blocked Washington customers from accessing the affected markets.
A broader GeoComply-based verification system using multiple location signals is expected to be in place by Sept. 2. Failure to meet that deadline could expose Kalshi to a daily penalty of up to $120,000, unless the company provides a sworn explanation for any delay.
The restrictions cover contracts tied to sports, elections, politics, entertainment, culture, technology and science, as well as certain “mentions” markets.
Washington Attorney General Nick Brown maintains that these products constitute unlicensed gambling. Kalshi disputes that position, arguing that its event contracts are federally regulated derivatives and that the Commodity Exchange Act gives the CFTC authority over contracts listed by registered exchanges.
The current injunction is preliminary, meaning it does not represent a final ruling on all of the underlying legal questions.
Kalshi Challenges Different Treatment for OG
Kalshi’s latest court filing centers on an agreement reached between Washington officials and the North American Derivatives Exchange, known as OG, on Aug. 18.
Under that arrangement, Washington agreed to temporarily refrain from civil or criminal enforcement involving OG’s federally listed event contracts while related appeals continue.
Kalshi argues that the agreement creates an uneven regulatory environment because OG can continue offering contracts that Washington has restricted on Kalshi.
The company is asking Judge John McHale to reconsider portions of the injunction or provide relief similar to the arrangement granted to OG. Kalshi describes the two exchanges as similarly situated, although that remains an argument advanced by the company rather than a determination by the court.
The judge is currently scheduled to rule on the reconsideration request on Sept. 2 without oral argument.
State Restrictions Spread Beyond Washington
Washington is not the only state challenging Kalshi’s ability to offer prediction markets.
Michigan and Nevada have also imposed restrictions involving certain event contracts, particularly those connected to sports wagering. Kalshi has challenged these measures while maintaining that state gambling regulations cannot override federal authority over derivatives traded on CFTC-regulated exchanges.
The courts have yet to establish a uniform nationwide standard.
In Minnesota, for example, a federal judge temporarily blocked the state’s prediction-market restrictions after finding that registered exchanges had a credible argument that federal law could preempt certain state rules.
Other disputes involving prediction-market platforms are underway in states including New York, Connecticut, Massachusetts, Ohio, Maryland, Utah and Arizona. The outcomes could vary depending on the type of contract involved, the specific state statutes and the legal posture of each case.
CFTC Moves Toward New Prediction-Market Rules
The regulatory fight is unfolding as the CFTC prepares additional rules for event contracts.
CFTC Chairman Michael Selig said the agency remains committed to defending federal jurisdiction over contracts listed by federally regulated exchanges, while acknowledging growing concerns about retail protection and market design.
The CFTC is preparing proposed amendments to Parts 38 and 40 of its regulations that could address areas including consumer safeguards, product governance, listing standards, market structure and promotional incentives.
The agency has already considered tighter treatment for contracts involving sensitive areas such as gaming, war, terrorism, assassination and illegal activity.
However, any new CFTC regulations would still have to go through the federal rulemaking process. They would not automatically overturn state court injunctions or settle the larger question of whether federal derivatives law preempts state gambling regulations.
The Next Test Comes in September
For Kalshi, the immediate focus is on two deadlines: the Sept. 2 court decision on its reconsideration request and the broader geofencing requirements taking effect around the same date.
Unless the court grants relief, Washington residents will continue to be blocked from the restricted markets.
The larger issue extends well beyond Kalshi: Can states regulate prediction markets as gambling when those contracts are already listed on federally regulated derivatives exchanges? The answer could determine how the rapidly expanding prediction-market industry operates across the United States.
