Key conclusions

• The federal lawsuit Polymarket v. Massachusetts may determine whether prediction markets are regulated solely by the CFTC or also by states.

• The dispute centers on whether event contracts qualify as financial derivative instruments under the Commodity Exchange Act or as gambling under state law.

• The lawsuit followed state-level actions against platforms like Kalshi, with Massachusetts and Nevada moving to restrict sports forecasting contracts.

• A ruling in Polymarket’s favor could establish uniform national oversight and prevent a patchwork of different state laws.

Prediction markets are platforms where people trade contracts based on the outcomes of future events. They have been in the news recently due to a sedate legal battle taking place in the US over regulatory power. At the center of the dispute is the federal lawsuit Polymarket v. Massachusetts. The outcome of this case could determine whether these markets are solely regulated at the federal level or whether states can also enforce their own rules.

This article discusses Polymarket’s federal lawsuit against Massachusetts. Examines the broader legal conflict over whether prediction markets fall under the exclusive authority of the U.S. Commodity Futures Trading Commission (CFTC) or are subject to state gambling laws. It also examines how this case could change regulatory scrutiny, market access, and the future of U.S. event-based trading platforms.

A federal lawsuit with wide ramifications

In February 2026, Polymarket filed a lawsuit in the United States District Court for the District of Massachusetts to prevent state regulators from enforcing the law that would require it to comply with Massachusetts gaming laws. The company argues that Congress has given the CFTC exclusive authority over “event contracts,” the core products of prediction markets. According to Polymarket, this means that state efforts to stop or restrict its activities are unlawful.

Polymarket’s chief legal officer, Neal Kumar, argues that the dispute concerns domestic markets and that therefore the relevant legal issues should be resolved in federal court. The company opposes piecemeal enforcement by states. He said restricting markets could hamper industrial development.

Where it all started: state action against Kalshi

The timing of the lawsuit was deliberate. This came shortly after Massachusetts courts took action against rival platform Kalshi, blocking sports-related deals under state gambling laws. The judge upheld a preliminary injunction requiring Kalshi to prevent residents from accessing certain markets without a gaming license. The court ordered that these markets be treated as unlicensed sports betting.

“Massachusetts” approach for forecasting markets has received support from similar state-level efforts elsewhere. In Nevada, regulators obtained a fleeting injunction to restrict Polymarket’s sports-related offerings, arguing that it violated the state’s sports betting regulatory framework.

Did you know? Corporations exploit prediction markets to forecast product launches and internal project timelines. Some companies are quietly leaning into employee-driven markets because the aggregated opinions of crowds often outpace time-honored executive forecasts.

At stake: federal power vs. state power

The lawsuit focuses on a jurisdictional dispute. Polymarket argues that event contracts, whether they relate to elections, the economy or sports, constitute derivatives under the CFTC Commodity Exchange Act. In this view, federal law supersedes state gambling laws, preventing states from independently banning or regulating these markets.

Massachusetts and other states argue that if prediction markets are akin to gambling, particularly in the context of sports, they must follow state gambling frameworks to protect consumers and maintain local licensing and age requirements.

If federal courts side with Polymarket, it could strengthen the case for uniform national oversight by preventing a “patchwork” of different regulations and prohibitions at the state level. On the other hand, maintaining state authority would allow states to apply their own gambling laws to platforms operating across the country.

Did you know? Prediction markets sometimes rival opinion polls in predicting election outcomes. Universities have been studying them for decades as tools for measuring collective intelligence and information efficiency.

Why the Polymarket lawsuit matters

Prediction markets have seen growth as trading volumes and visibility raise. Data tracked by Dune showed that market forecasts recorded trading volume of approximately $3.7 billion in a single week in January 2026, an all-time high.

As platforms like Polymarket and Kalshi gain mainstream popularity, countries are pushing for safeguards comparable to those in place for time-honored gambling. This active has prompted many countries to take action.

The CFTC’s position complicated matters. While the federal agency has long regulated derivatives markets, including some event contracts, it has come under pressure to stay away from specific disputes or restrict prediction contracts involving war or terrorism.

Did you know? Prediction markets are built using blockchain technology astute contractsautomatic settlement of transactions after verifying the result. This automation reduces counterparty risk but creates modern regulatory and Oracle challenges.

How jurisdictional disputes are changing event contracts

Polymarket’s legal action is just one element of broader legal and regulatory disputes surrounding prediction markets across the United States. Courts in jurisdictions such as Massachusetts and Nevada are currently examining the limits of state power, while federal officials and lawmakers are considering comprehensive guidelines. The results of these proceedings will likely influence the way companies structure and offer event contracts.

Whether courts ultimately uphold Polymarket’s federal argument or recognize state authority, the decision will have long-lasting consequences for the development of prediction markets. It will shape users’ access to these platforms and ensure a balance between innovation and consumer protection.