Prediction Markets Polymarket and Kalshi Face Regulatory Crackdown Despite Growth

Prediction markets are booming amid rising volumes and new players, but regulators are hitting back hard. Polymarket relaunched in the US after securing Commodity Futures Trading Commission (CFTC) no-action relief. It has started giving waitlisted users access to contracts tied to major sports events. Meanwhile, Kalshi raised $1 billion at an $11 billion valuation, locking horns directly with Polymarket after both platforms hit record trading volumes in November.

Growth hasn’t shielded the sector from regulatory backlashes. Connecticut’s Department of Consumer Protection issued cease-and-desist orders this month to Kalshi, Robinhood, and Crypto.com. Regulators argue that their event contracts operate as unlicensed sports gambling, moving beyond what prediction markets claim to be.

Polymarket and Kalshi Race to the Top

Polymarket secured CFTC no-action relief, a rare regulatory reprieve allowing them to operate in a legal grey zone. The team started opening its US user waitlist with access to sports betting contracts—a sign of confidence after months in regulatory limbo.

Kalshi, flush with its $1 billion funding round, values itself at $11 billion, asserting dominance in the sector. Both Kalshi and Polymarket shattered volume records last November, with combined trading volumes eclipsing previous months by wide margins. The exact figures have not been publicly detailed, but sources point to exponential growth fueled by retail and institutional interest.

Regulators Crack Down on Event Contracts

Connecticut’s swift action caught several heavy hitters off guard. The state accused Kalshi, Robinhood, and Crypto.com of offering sports event contracts constituting illegal gambling under state law.

“These contracts are unlicensed sports gambling, and we will not tolerate unauthorized operations in Connecticut,” the Connecticut Department of Consumer Protection stated in its enforcement notices.

This move highlights the ongoing challenge of separating prediction markets from gambling in the eyes of regulators. While platforms argue their contracts are derivative instruments governed federally, states are pushing back with varied interpretations, creating a regulatory maze.

New Entrants and Institutional Interest

The pressure hasn’t deterred new entrants. Fanatics, the sports merchandise giant, launched Fanatics Markets in 10 states, accelerating the mainstreaming of prediction markets tied directly to sports fandom.

Institutional interest also grows. Solana Mobile announced plans to integrate prediction market features with the January 2026 launch of its SKR token. This points to a trend of embedding decentralized prediction markets within broader blockchain products, expanding their use cases beyond sports and politics.

What’s Next?

The sector must navigate intensifying regulatory scrutiny while sustaining explosive growth. Connecticut’s cease-and-desist orders foreshadow similar actions from other states. Polymarket’s CFTC no-action relief offers a patchwork approach that might not hold universally.

Meanwhile, Kalshi’s $1 billion war chest and Fanatics’ multi-state launch signal that players are doubling down despite the risks. Markets will keenly watch upcoming regulatory developments—especially as platforms push toward more mainstream integration and institutional adoption.

Kalshi’s and Polymarket’s volume records show the sector’s appetite, but the compliance squeeze may force consolidation or innovation in regulatory strategy.

Polymarket recently noted on its blog, “We’re committed to working with regulators to ensure a safe, legal environment for trading,” signaling ongoing engagement.

Read: Polymarket price $0.85, down 2.3% at press time. Kalshi remains private.