Kentucky Sues Polymarket and Kalshi, Challenging Trump-Era Crypto Policy

• Kentucky sues Kalshi and Polymarket over alleged unlicensed sports betting activity.
• Regulators say sports contracts dominate Kalshi trading, about 70 percent.
• Case highlights clash between state gambling laws and federal CFTC framework.

A major legal battle is unfolding in Kentucky, where Attorney General Russell Coleman has filed a lawsuit against prediction market platforms Kalshi and Polymarket. The state argues that letting users wager on sports and event outcomes constitutes illegal sports betting under Kentucky law.

But the lawsuit doesn’t stop at the betting platforms. Kentucky is also naming major crypto and fintech on-ramps, including Coinbase, Robinhood, and Webull, alleging they are facilitating illegal gambling without state consumer-protection licenses.

Kentucky Alleges Unlicensed Sports Betting Activity

The lawsuits allege that Kalshi and Polymarket are operating sports betting services in Kentucky without state licenses or regulatory approval.

Kentucky Attorney General Coleman said sports-related contracts accounted for roughly 70% of Kalshi’s trading volume during a sample period in 2025. He added that nearly $23 billion in contracts were traded on the platform last year, with about 89% tied to sports events.

The complaints also accuse Polymarket of misleading consumers by creating the impression that it is authorized to offer sports betting in Kentucky.

Coleman further alleges that Coinbase partnered with Kalshi to facilitate unlicensed sports wagering, with the companies sharing transaction fees generated from bets.

The lawsuits also claim that Kalshi, Polymarket, and their affiliated entities like Coinbase, Robinhood, and Webull fail to provide adequate gambling addiction resources required under Kentucky law.

A Pro-Trump State vs. Trump’s CFTC

The timing of Kentucky’s lawsuit has surprised parts of the crypto industry, coming from a strongly Republican state that overwhelmingly backed Donald Trump.

That context matters because the Trump-era Commodity Futures Trading Commission (CFTC) has generally treated prediction markets as federally regulated financial derivatives rather than traditional gambling, suggesting federal, not state, oversight.

Kentucky is now challenging that view, arguing platforms like Kalshi and Polymarket are effectively operating unlicensed sports betting markets under state law.

Why This Matters

If Kentucky succeeds, it could set a precedent that other states follow, potentially fragmenting the U.S. crypto regulatory landscape. Instead of a single federal framework, platforms could be forced to comply with a patchwork of 50 different state-level gambling and financial rules.

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People Also Ask:

What are prediction markets? Prediction markets are platforms where users trade contracts based on the outcome of future events, such as sports results, elections, or economic indicators.

Why are states suing prediction market platforms? Some states argue these platforms operate as unlicensed sports betting services and therefore violate local gambling laws.

How does federal regulation apply to prediction markets? In the U.S., the Commodity Futures Trading Commission (CFTC) oversees certain prediction markets as financial instruments under federal law.

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