Tennessee Targets Polymarket, Kalshi, Crypto.com in Escalating Crackdown on Event Betting

Tennessee has become the latest — and arguably the most assertive — state to crack down on the fast-growing prediction market industry, issuing sweeping cease-and-desist letters to Polymarket, Kalshi, and Crypto.com’s North American Derivatives Exchange (Nadex). 

The enforcement action escalates a nationwide clash over whether federally regulated event-contracts exchanges must obey state gambling laws.

The Tennessee Sports Wagering Council (SWC) sent the letters on Jan. 9, ordering all three platforms to immediately stop offering sports event contracts to Tennessee residents, void pending wagers, and refund customer deposits by Jan. 31, 2026. Gaming attorney Daniel Wallach published copies of the letters.

In the letter to Polymarket, SWC Executive Director Mary Beth Thomas argued that the exchange’s sports markets “are not compliant with these [Tennessee state consumer] protections (and many others) and are an immediate and significant threat to the public interest of Tennessee.” Nearly identical warnings appeared in letters to Kalshi and Crypto.com.

Beyond administrative penalties, the SWC invoked Tennessee’s criminal gambling statutes, warning that continued operations could trigger referrals to law enforcement. Offering wagers without a license can bring fines up to $25,000 and potential misdemeanor or felony charges under state law.

A Collision Between Federal and State Authority

Kalshi, Polymarket, and Crypto.com’s Nadex all operate as CFTC-regulated designated contract markets — a federal certification they argue gives them nationwide authority to offer event-based derivatives. Their core position is that federal oversight preempts conflicting state gambling restrictions.

But that argument is being challenged across the United States.

In December, Connecticut’s Department of Consumer Protection issued cease-and-desist orders to Kalshi, Crypto.com, and Robinhood. Kalshi responded by seeking a preliminary injunction, while Connecticut countered that the exchange “cannot show that it will suffer irreparable harm if it ceases its own unlawful conduct.”

Tennessee’s order marks the first publicly disclosed state enforcement move targeting Polymarket, which recently re-entered the U.S. after acquiring derivatives exchange QCX for $112 million. While the company quietly opened its U.S. app to waitlisted users in December, it has yet to fully relaunch.

Despite legal uncertainty, activity on prediction markets has climbed steadily, fueled by heightened interest in sports, geopolitical events, and election-related forecasting. In the U.S., Polymarket currently permits only sports markets, while its global platform offers political and market-moving contracts.

Growing Political and Regulatory Pressure

Tennessee’s action arrives amid accelerating scrutiny of prediction markets in Washington and beyond.

A Polymarket trader recently made $400,000 from a bet that Venezuela’s former President Nicolás Maduro would be out of office by Jan. 31 — a position that proved profitable just before U.S. officials captured him. The trade raised questions about possible insider information.

The controversy prompted Congressman Ritchie Torres to introduce the Public Integrity in Financial Prediction Markets Act, aimed at preventing political insiders from trading on privileged knowledge. 

Separately, Congresswoman Dina Titus expressed “serious concerns” about Polymarket’s compliance with CFTC rules following the Maduro-related markets, sending CEO Shayne Coplan a letter seeking clarity on the company’s safeguards against insider trading.

Legal Battles Set to Intensify

The SWC copied Tennessee Attorney General Jonathan Skrmetti, who has been a prominent voice in pushing back against federally regulated prediction markets. Skrmetti recently joined 37 other attorneys general in supporting Maryland’s lawsuit against Kalshi and had previously challenged a federal court ruling favorable to the exchange.

Kalshi confirmed it has already filed suit to block Tennessee’s “unlawful attempt” to stop its operations. 

“As other courts have recognized, Kalshi is a regulated, nationwide exchange for real-world events, and it’s subject to exclusive federal jurisdiction,” a spokesperson said. “It is very different from what state-regulated sportsbooks and casinos offer their customers.”

Wallach wrote on X that “lawsuits are imminent,” signaling that all three platforms may contest Tennessee’s order in federal court.

With multiple states targeting prediction markets and Congress weighing new restrictions, the industry is facing one of its most significant regulatory challenges yet — one that could shape the future of event-based trading in the United States.