Kalshi first came on my radar when a friend of mine texted our group chat saying she had just made $1000 on Kalshi. Someone she knew was a backup dancer on the Super Bowl halftime show and had told her Bad Bunny was almost certain to open with “Tití Me Preguntó.” My friend immediately bought a “Yes” contract on Kalshi, predicting the song would appear first in the setlist. Within minutes of the opening notes playing on the TV, her phone buzzed with the payout.
This “lucky” gamble is just one small example of the new kind of betting Kalshi has made possible. From Super Bowl setlists to celebrity drama, nearly any real-world event can become a simple “Yes” or “No” wager. Kalshi’s extensive user base and substantial profits have left its popularity and success unquestioned. The platform had 5.1 million monthly users and generated $1.3 billion in revenue from sports contracts in 2026, drawing the ire of state legislatures who seek to reclaim their ability to regulate sports gambling, making Kalshi the unlikely modern-day test case for federalism.
Seven years ago, it appeared as if states had the upper hand, as the Supreme Court’s decision in Murphy v. NCAA (2018) was hailed as a victory for state legislatures. By striking down the Professional and Amateur Sports Protection Act (PASPA), which previously blocked states from authorizing and thereby regulating sports gambling, the decision now grants states the authority to regulate sports betting on their own terms. Murphy was born from former New Jersey governor Chris Christie’s wish to boost the economy of Atlantic City, causing him to repeal two New Jersey laws banning sports betting, something the NCAA accused of being a violation of PAPSA. Surprisingly, Christie’s battle made it all the way to the Supreme Court, where they found that enforcing PAPSA violated the “anti-commandeering principle” of the Tenth Amendment, which bars Congress from controlling state legislatures’ lawmaking. While Murphy v. NCAA was celebrated as a victory for state sovereignty, it was also a turning point that opened the door to the widespread legalization of sports betting. This legalization accelerated the normalization of sports gambling in the United States, paving the way for Kalshi and other prediction markets to amass popularity with little regulation.
Yet Kalshi has managed to circumvent Murphy’s ruling due to the technicality that separates prediction markets from traditional sports betting. In traditional sports betting, gamblers bet against a bookmaker who sets the odds with a built-in margin that ensures the bookmaker earns a profit over time. Prediction markets like Kalshi operate differently, with users instead wagering on “event contracts” through peer-to-peer exchanges. For example, when one participant buys a “Yes” or “No” contract, another participant is selling it, with the platform earning revenue through transaction fees.
And it is precisely this technical difference that allows Kalshi to be exempt from state oversight.
In 2020, Kalshi applied for and was approved by the Commodity Futures Trading Commission (CFTC), an independent federal regulatory agency, as a Designated Contract Maker (DCM). Kalshi’s status as DCM allows it to create and offer “event contracts,” with the CFTC having the responsibility of reviewing and prohibiting event contracts that it deems to be “contrary to the public interest,” which can include gambling.
Therefore, when it comes to sports betting through Kalshi, the federal government trumps the state government, something that has been tested repeatedly in court. After Kalshi began offering sporting event contracts in January 2025, Nevada, New Jersey and Maryland sent cease and desist letters to the company, claiming they were in violation of their state gambling laws. Kalshi sued in response, arguing that as a DCM, it falls under the exclusive regulation of the CFTC, something CFTC Commissioner Mike Selig has supported, saying, “to those who seek to challenge our authority… we will see you in court.” Federal courts in Nevada and New Jersey sided with Kalshi, while a Maryland sided against, leaving the platform’s legal status uncertain. For now, backing from the CFTC and the Trump administration (Donald Trump Jr. recently joined the company as a strategic advisor) should allow Kalshi to operate even within states opposing the platform.
In the meantime, states will be forced to sacrifice the right to regulate sports betting within their borders, a right that was supposed to be reaffirmed after Murphy. There will be financial losses, with the American Gaming Association estimating that more than $570 million in sports gambling tax revenues have been generated since prediction markets began offering sports events contracts. Across all 50 states, Kalshi has also completely restructured age limits on sports betting, essentially allowing anyone over the age of 18 to make a sports wager. The app has also failed to protect against and, in a way, almost encourages insider trading and match fixing, with proponents acknowledging that insiders making bets on the platforms using their “personal” information only heightens the markets’ predictive value. While this irony is highlighted by my friend’s $1000 win, it ultimately raises serious concerns about whether existing federal oversight is equipped to handle what is, in practice, a rapidly growing gambling industry with billions of dollars at stake.
But Kalshi is not limited to sports betting. Because it operates as a prediction market, users can also place wagers on geopolitical events. In the past month, users poured more than $54 million into a contract asking whether Iran’s Supreme Leader Ali Khamenei would leave office before March 1. When tensions in the region escalated, the contract price surged as users attempted to profit from the potential conflict brewing in the region. Here, the implications extend well beyond a potential loss of state tax revenue and control, they raise real national security concerns. Individuals with access to classified government information could theoretically exploit prediction markets, and even the perception that people might be profiting from inside information undermines public trust and warns American enemies of imminent threats. For example, in January 2026, Kalshi’s rival platform, Polymarket, which operates with a similar prediction model, faced scrutiny after an anonymous trader placed roughly $32,000 on the market “Maduro removed from office by Jan. 31, 2026.” The wager, placed just hours before U.S. forces captured Venezuelan President Nicolás Maduro, paid out more than $400,000, triggering widespread accusations of insider trading.
The events in Venezuela and Iran highlight how quickly prediction markets have spiraled beyond the CFTC’s control. For decades, states have served as the primary regulator of gambling, setting age restrictions, monitoring suspicious activity, coordinating with sports leagues to investigate potential match fixing, and more, something Murphy affirmed. By contrast, the CFTC was designed to regulate financial derivative markets, not Kalshi’s rapidly expanding ecosystem of sports and political wagers. Therefore, as prediction markets continue to expand, states’ inability to oversee Kalshi leaves behind a regulatory gap that the CFTC is either unable or choosing not to monitor.
Kalshi is nothing more than a modern-day reiteration of a persistent theme in American history, determining which level of government gets to lead decision making. Yet without clearer oversight, Kalshi and other prediction markets risk becoming a space where individuals exploit insider information for profit, and neither federal nor state regulators are ready to handle it.
Featured Image Source: Mile High Sports