Polymarket lawsuit could decide who regulates prediction markets in the United States

Key takeaways

• Polymarket’s federal lawsuit against Massachusetts could determine whether prediction markets are regulated only by the CFTC or also by states.

• The dispute centers on whether event contracts are considered financial derivatives under the Commodity Exchange Act or games of chance under state laws.

• The lawsuit follows state-level actions against platforms like Kalshi, with Massachusetts and Nevada moving to restrict sports-related prediction contracts.

• A ruling in favor of Polymarket could establish uniform national oversight and avoid a patchwork of different national regulations.

Prediction markets are platforms where people trade contracts based on the outcomes of future events. Recently, they have been in the news due to a major legal battle in the United States over regulatory authority. At the heart of the dispute is Polymarket’s federal lawsuit against Massachusetts. The outcome of this case could determine whether these markets are regulated exclusively at the federal level or whether states can also enforce their own rules.

This article explores Polymarket’s federal lawsuit against Massachusetts. It examines the broader legal conflict over whether prediction markets fall under the exclusive authority of the U.S. Commodity Futures Trading Commission (CFTC) or state gambling laws. It also analyzes how this case could reshape regulatory oversight, market access, and the future of event-driven trading platforms in the United States.

A federal lawsuit with far-reaching implications

In February 2026, Polymarket filed suit in the U.S. District Court for the District of Massachusetts seeking to block enforcement by state regulators that would require it to comply with Massachusetts gambling laws. The company claims that Congress granted the CFTC exclusive authority over “event contracts,” the core products of prediction markets. According to Polymarket, this makes the state’s efforts to shut down or limit its operations illegal.

Neal Kumar, Polymarket’s legal director, says the dispute concerns domestic markets and therefore the relevant legal questions should be resolved in federal court. The company opposes piecemeal enforcement by individual states. He said restricting markets could hamper the development of the industry.

Where it all began: State actions against Kalshi

The timing of the trial was deliberate. This came shortly after Massachusetts courts acted against rival platform Kalshi, blocking sports-related contracts under the state’s gambling laws. A judge upheld a preliminary injunction requiring Kalshi to prevent residents from entering certain markets without a gaming license. The court ordered those markets to be treated as unlicensed sports betting.

Massachusetts’ approach to forecasting markets has received support from similar state-level actions elsewhere. In Nevada, regulators obtained a temporary restraining order against Polymarket’s sports offerings, arguing that they violated the state’s sports betting regulatory framework.

Did you know? Companies have used prediction markets to predict product launches and internal project timelines. Some companies quietly rely on employee-based markets because the public’s overall opinions often exceed executives’ traditional predictions.

The issues: federal authority versus state authority

The lawsuit concerns a jurisdictional dispute. Polymarket claims that its event contracts, whether they cover elections, economics or sports, are financial derivatives within the meaning of the CFTC’s Commodity Exchange Act. In this view, federal law supersedes state gambling laws, preventing states from banning or regulating these markets independently.

Massachusetts and other states argue that when prediction markets resemble games of chance, particularly in the context of sports, they must comply with state gaming frameworks to protect consumers and maintain local licensing and age requirements.

If federal courts side with Polymarket, it could strengthen the case for uniform national oversight, preventing a “patchwork” of varying rules or prohibitions at the state level. Conversely, respecting state authority would allow states to apply their own gambling laws to platforms operating domestically.

Did you know? Prediction markets sometimes compete with opinion polls to predict election outcomes. Universities have studied them for decades as tools for measuring collective intelligence and information efficiency.

Why the Polymarket lawsuit matters

Prediction markets have seen growth, with increasing trading volumes and visibility. Data tracked by Dune showed that prediction markets recorded around $3.7 billion in trading volume in a single week in January 2026, an all-time high.

As platforms like Polymarket and Kalshi gain traction, states are scrambling to implement protections comparable to those governing traditional gambling. This dynamic has prompted several states to act.

The CFTC’s position has added to the complexity of the issue. Although the federal agency has long regulated derivatives markets, including some event-driven contracts, it has faced pressure to stay away from specific disputes or to restrict forecast contracts involving war or terrorism.

Did you know? Prediction markets are structured using blockchain smart contractsautomatically settling transactions once a result is verified. This automation reduces counterparty risk but raises new regulatory and Oracle challenges.

How jurisdictional conflicts are reshaping event contracts

Polymarket’s lawsuit represents only one element of the broader legal and regulatory disputes surrounding prediction markets in the United States. Courts in jurisdictions such as Massachusetts and Nevada are currently considering the limits of state authority, while federal officials and lawmakers deliberate over overall guidelines. The results of these procedures will likely influence how companies structure and deliver event contracts.

Whether the courts ultimately uphold Polymarket’s federal argument or affirm state authority, the decision will have long-term implications for the growth of prediction markets. This will shape user access to these platforms and the balance regulators strike between innovation and consumer protection.