- Third Circuit rules that New Jersey cannot temporarily block Kalshi’s sports event contracts, finding they fall under the federal Commodity Exchange Act
- CFTC asserts broad jurisdiction over event contracts including sports and politics, backing prediction markets against conflicting state gambling laws
A recent federal appeals court decision involving New Jersey and prediction market platform Kalshi is sharpening the regulatory lines around event-based derivatives in the U.S. crypto and digital asset ecosystem. While Kalshi itself is not a blockchain-native platform, the ruling directly affects on-chain prediction markets and event contracts, which the Commodity Futures Trading Commission (CFTC) has treated as “swaps” under the Commodity Exchange Act (CEA). The Third Circuit’s opinion adds weight to the argument that federally regulated event markets, including those tokenized or settled in crypto, fall under CFTC oversight rather than state gambling frameworks.
Third Circuit backs Kalshi and reinforces CFTC authority
In a 2–1 decision, the Third Circuit Court of Appeals held that New Jersey cannot temporarily block Kalshi’s sports-related event contracts, finding that these products are governed by the federal CEA, not state gambling law. The panel concluded that Kalshi’s contracts, offered on its designated contract market (DCM) exchange, were self-certified as compliant with federal rules and are therefore presumed lawful unless the CFTC decides otherwise.
The majority opinion emphasized that the CFTC has not found Kalshi’s sports contracts to be against the public interest and has not initiated any enforcement actions targeting these specific products. That absence of federal enforcement, combined with the CEA’s framework for self-certification, was central to the court’s determination that New Jersey could not independently classify the contracts as unlawful gambling and shut them down.
New Jersey’s argument hinged on a narrow reading of what constitutes a swap under the CEA. The state claimed a sports outcome is not “joined or connected” to a financial, economic, or commercial measure and therefore falls outside the statute. The court rejected this stricter standard, concluding that New Jersey was effectively trying to raise the definitional bar beyond what Congress wrote into the CEA. This interpretation matters for crypto markets because many decentralized prediction platforms rely on broad CEA commodity definitions to justify their status as federally preempted derivatives markets rather than state-regulated betting operations.
Diverging court decisions and implications for New Jersey and beyond
The New Jersey case is part of a larger wave of state-level actions against prediction markets, including both centralized players like Kalshi and blockchain-based platforms such as Polymarket. State authorities across the U.S. have filed lawsuits or issued cease-and-desist orders, particularly against sports-related contracts, arguing these products breach local gambling laws. At the same time, the CFTC has consistently maintained that event contracts, including those related to sports, politics, and other outcomes, are swaps under the CEA and therefore under its exclusive jurisdiction.
Recent rulings show a fragmented legal landscape. Some state courts have granted temporary restraining orders and preliminary injunctions in favor of state regulators. Federal district courts have produced mixed outcomes, and the appeals level is now equally divided. The Third Circuit’s ruling benefits Kalshi in New Jersey and provides a favorable precedent for prediction markets that frame their products as CFTC-regulated derivatives. However, the Ninth Circuit has taken a different approach, declining last month to halt a Nevada enforcement action, which allowed that state to move forward with a temporary restraining order and preliminary injunction against Kalshi.
For crypto-linked prediction markets accessible to users in New Jersey and other states, this split raises practical compliance questions. Platforms may face dramatically different legal risks depending on where users are located and how local regulators interpret the CEA’s preemptive effect. A further Ninth Circuit hearing is scheduled later this month involving multiple companies, and its outcome will be closely watched by teams building on-chain prediction protocols and tokenized event contracts that rely on CFTC jurisdiction to avoid classification as unlicensed gambling.
CFTC’s stance on prediction markets and digital assets
CFTC Chairman Michael Selig, speaking at a Vanderbilt University and Blockchain Association event on Monday, underscored the agency’s view that it holds exclusive authority over these markets. He highlighted the breadth of the CEA’s commodity definition, explicitly noting that it covers sports and political events alongside traditional assets such as corn and grains. From the CFTC’s perspective, an event contract tied to a sporting outcome should not be treated differently, in regulatory terms, from one referencing agricultural prices.
The CFTC filed an amicus brief with the Ninth Circuit ahead of its upcoming hearing, reinforcing its stance that federal law preempts conflicting state rules in the event contract space. For crypto-native platforms, particularly DeFi protocols that tokenize these contracts as on-chain derivatives, this federal position is critical. It supports a regulatory narrative in which properly structured prediction tokens are derivatives under the CEA rather than state-governed gambling products, even when users speculate on sports or political outcomes.
At the same time, the dissent in the Third Circuit’s New Jersey ruling signals continued resistance. Judge Jane Roth argued that Kalshi’s offerings are essentially sports gambling and that state rules do not conflict with congressional objectives under the CEA. This line of reasoning mirrors concerns often raised about decentralized prediction markets and could fuel further attempts by states to regulate or restrict access to such platforms, whether centralized or blockchain-based.
Conclusion
The Third Circuit’s decision limiting New Jersey’s ability to act against Kalshi marks a significant win for event-based derivatives and prediction markets, including those intersecting with crypto. It reinforces the CFTC’s broad jurisdictional claim over event contracts and bolsters arguments that federal derivatives law preempts state gambling regimes. Yet the conflicting Ninth Circuit posture and ongoing state enforcement campaigns leave the regulatory outlook unsettled. For crypto developers building prediction products, particularly in or serving users from New Jersey and other active states, the path forward still runs through evolving federal court interpretations of the Commodity Exchange Act and the CFTC’s expanding role in overseeing event-driven markets. Broader debates over U.S. oversight are also unfolding in areas such as crypto oversight under CFTC, clear rules for crypto and stablecoins, whether crypto regulation can move stablecoins into finance, how the Clarity Act reshapes US crypto law, delays around crypto legislation, and the market structure bill’s Senate prospects.
Disclaimer
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