U.S. CFTC drafts prediction market rules as judge blocks Minnesota ban

A federal judge in Minnesota has preliminarily blocked the state’s new prediction-market ban from taking effect against CFTC-registered designated contract markets, finding the Commodity Exchange Act likely preempts the statute for many swap-like event contracts traded by Kalshi and QCX LLC, which operates as Polymarket US. Judge Katherine Menendez said the plaintiffs are likely to succeed in arguing that federal law overrides much of the state measure and found that letting the ban take effect would cause irreparable harm, citing Kalshi’s more than 90,000 verified Minnesota users and millions of dollars in open positions as of late May. The order leaves unresolved whether all event contracts qualify for federal protection, with Menendez indicating that contracts tied to events with clear economic, financial or commercial consequences are more likely to fall within federal jurisdiction, while markets such as reality television outcomes may not. She did not decide the plaintiffs’ First Amendment or implied-preemption claims and signaled any permanent relief could be narrower than the current injunction. Separately, the CFTC’s rulemaking on event contracts tied to gaming, war, terrorism, assassination or unlawful conduct drew support from industry commenters including the Coalition for Prediction Markets, Coinbase, Hyperliquid Policy Center and Multicoin Capital, and Paradigm, which filed on July 27 as the 90-day comment period closed, while urging narrower definitions and clearer contract-by-contract public-interest review standards. The latest developments also underscore the scale of the market and its crypto links: Polymarket settles margin onchain using USDC, digital asset contracts have accounted for roughly 20% of Polymarket’s trading volume and about 7% of Kalshi’s since July 2024, and industry volume reached record levels in June, even as the CFTC tightened scrutiny of template-style self-certifications on July 24.