US federal court temporarily halts Tennessee’s enforcement action against Kalshi…regulatory fight over prediction markets spreads

A US federal court has moved to rein in aggressive state-level regulation of prediction-market platforms, as legal battles between prediction markets and state governments begin to intensify.

According to court documents cited by CoinDesk on the 13th (local time), Judge Aleeta Trauger of the US District Court for the Middle District of Tennessee granted a request filed by prediction-market operator Kalshi, issuing a temporary restraining order (TRO) that prevents, for now, enforcement of a cease-and-desist order issued against Kalshi by the Tennessee Sports Wagering Council and the state attorney general.

In its order, the court found that “Kalshi is likely to succeed on the merits, and could suffer irreparable harm if the state proceeds with enforcement.” The order, however, does not determine the underlying legality of the matter; it merely pauses enforcement pending further proceedings.

The ruling came shortly after Tennessee regulators ordered Kalshi, along with Polymarket and Crypto.com, to stop offering sports event contracts, void existing contracts, refund customer deposits, and cease in-state operations by January 31. Regulators had warned that noncompliance could result in civil penalties of up to $25,000 per violation and potential criminal liability.

Kalshi promptly filed suit in federal court, arguing that as a designated contract market (DCM) regulated by the US Commodity Futures Trading Commission (CFTC), it falls under federal jurisdiction and is therefore not subject to state gambling laws under the federal preemption doctrine. While Judge Trauger’s decision did not resolve that claim on the merits, it halted Tennessee’s enforcement until a preliminary injunction hearing scheduled for January 26.

The decision comes as disputes between prediction markets and state gaming regulators spread nationwide. Federal courts in New Jersey and Nevada have sided with Kalshi and blocked state enforcement, while a Maryland court last year denied a similar request for injunctive relief, upholding state regulators’ authority.