Kalshi, Polymarket US, and the Commodity Futures Trading Commission scored a legal win Monday as a federal judge paused Minnesota's new ban on prediction markets just days before it was set to go into force. US District Judge Katherine Menendez issued a preliminary injunction stopping the law’s enforcement, citing the Commodity Exchange Act’s likely preemption of the state statute.

The Minnesota law, making market creation or operation a felony with added penalties for advertising or data provision, threatened platforms offering prediction contracts on everything from elections to sports and pop culture. The CFTC, worried the ban would criminalize important weather contracts used by local farmers to hedge risk, stepped in with a lawsuit after Governor Tim Walz signed the legislation in May.

Menendez ruled that the CFTC holds exclusive jurisdiction over swaps traded on designated contract markets like Kalshi and Polymarket US. Many contracts offered by both platforms, especially those linked to elections and geopolitical events, likely classify as swaps, placing them under federal oversight rather than Minnesota’s reach. "Kalshi and Polymarket US are designated contract markets, so the CFTC has exclusive jurisdiction to regulate transactions involving those swaps," the judge declared.

Still, the ruling acknowledged not all event contracts meet the swap definition. Markets on topics such as "Love Island USA" winners and World Cup announcer mentions likely fall outside federal jurisdiction. Menendez noted that the current litigation presented an all-or-nothing approach, limiting the court’s ability to issue a more tailored decision, hence the full freeze on the law for now.

The court also highlighted the potential irreparable harm to Kalshi, which had over 90,000 verified Minnesota users and millions of dollars in active positions by late May. Moving forward with enforcement could lead to damages that the state couldn’t recover due to sovereign immunity protections.

This material is informational and does not constitute financial advice.