Polymarket sues Massachusetts over state authority to regulate prediction markets

Polymarket has sued the state of Massachusetts in federal court, alleging that the Commodity Futures Trading Commission (CFTC) was the only agency authorized by Congress to regulate event contracts. This argument implied that states lack the authority to independently shut down prediction markets over which the CFTC holds exclusive jurisdiction.

To demonstrate the seriousness of the situation, Neal Kumar, the Polymarket Chief Legal Officer, acknowledged the filing of the lawsuit in a statement published on Monday, February 9. He asserted that the matter concerns national markets and presents significant legal questions that necessitate federal adjudication rather than state-level handling.

Meanwhile, in reference to Massachusetts and Nevada’s acts towards the prediction markets, Kumar mentioned that, “Trying to close down Polymarket US and other prediction markets in state court does not change federal law — states like Massachusetts and Nevada that pursue this will lose a great chance to develop future markets.”

Polymarket initiates a legal battle against Massachusetts

Regarding Polymarket’s recent move against Massachusetts, reports highlighted that the prediction market’s lawsuit was intended to prevent potential enforcement actions by Andrea Campbell, the Attorney General of Massachusetts. 

The company criticized certain states’ attempts to regulate prediction markets, saying these actions improperly interfere with federally regulated derivatives markets.

In the meantime, it is worth noting that this legal battle was initiated just after the Massachusetts state court issued a ruling mandating the temporary halt to Kalshi’s contract provisions for sports events within the state. 

As reported earlier by Cryptopolitan, Judge Barry-Smith said he intended to finalize the injunction requiring Kalshi to comply with the state’s sports betting law henceforth, following a hearing on January 16. According to the judge, the licensure and the consequent oversight of sports betting in Massachusetts serve both public safety and health, and the Commonwealth’s financial interests. However, he noted that he was still considering pausing his order to allow the prediction market platform to file an appeal.

Kalshi is a regulated exchange and prediction market where individuals can trade on the outcome of real-world events. When this news was linked to sources pointing to a similar case in Nevada that occurred recently. Similarly, in Nevada, a judge barred Polymarket from offering sports contracts to residents, citing conflicts with the state’s sports betting rules.

This was after the judge argued that the issuance threatens to dismantle the state’s existing sports betting rules, according to sources close to the matter who wished to remain anonymous due to the confidential nature of the matter.

While the situation intensifies, reports have admitted that Massachusetts and Nevada are not the only US states opposing prediction markets. This was after analysts conducted research and discovered that at least eight other states, such as New York, Illinois, and Ohio, have embraced measures to restrict or contest sports-related prediction markets, citing information from the prediction market Kalshi.

Analysts outline prediction markets’ recent rapid growth despite facing challenges 

In response to Polymarket’s recent legal battle with Massachusetts, analysts argued that prediction markets have experienced rapid expansion despite mounting regulatory efforts. 

To support this claim, data from Dune, a powerful, community-driven analytics platform, showed that these markets recorded an all-time high of $3.7 billion in trading volume in a single week in January, surpassing the previous peak.

Apart from this finding, additional information from Messari, a leading provider of crypto market intelligence, research, and data visualization tools, showed that the two leading prediction markets, Polymarket and Kalshi, achieved near-equal trading volume, despite using different systems. Polymarket is a decentralized platform that uses blockchain technology, while Kalshi is a traditional financial exchange for event contracts. 

Nonetheless, both firms have raised substantial capital from venture investors. Polymarket reached a $9 billion valuation, while Kalshi achieved a $11 billion valuation after closing its most recent funding rounds.