Prediction markets sued again! Wisconsin, USA sues Kalshi, Polymarket, Coinbase... for "illegal sports betting"

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Prediction markets hit a major roadblock! On April 23, the Attorney General of Wisconsin officially filed a lawsuit against crypto and fintech giants including Kalshi, Coinbase, Robinhood, Polymarket, and Crypto.com, accusing them of operating illegal sports betting businesses under the guise of "event contracts." The lawsuit points out that up to 90% of Kalshi's business relies on sports predictions, and that Coinbase and Robinhood, which facilitate the traffic, are also culpable. (Previous coverage: Polymarket adds Steam account login, over 140 million players become entry points for prediction markets) (Background: Outraged by Trump's laissez-faire approach to ethical frontiers, the governors of New York and Illinois jointly signed orders banning state employees from using insider information to bet on prediction markets) "Prediction Markets," where real-world outcomes are tokenized and wagered upon, are facing a powerful backlash from U.S. state-level regulators. According to foreign media reports, Wisconsin Attorney General Josh Kaul filed a lawsuit in the Dane County court on April 23, 2026, targeting the most active fintech and crypto platforms in the current market, including Kalshi, Robinhood, Coinbase, Polymarket, and Crypto.com. In the complaint, the Wisconsin Attorney General requests the court to issue preliminary and permanent injunctions to prevent these companies from offering sports-related markets to users in the state, and seeks a court declaration that the operations of these platforms violate Wisconsin's gambling laws and constitute a "public nuisance." The core accusation of the lawsuit is that repackaging bets as "event contracts" does not change their underlying nature as gambling. The prosecution argues that the contracts listed on these platforms pay out based on real-world outcomes and collect transaction fees; since Wisconsin has long prohibited sports betting and most forms of commercial gambling (with few exceptions), the platforms' act of generating revenue from local users is clearly in violation of the law. The lawsuit specifically focuses on the compliant prediction platform Kalshi, pointing out that sports-related contracts account for nearly 90% of the platform's business volume, with estimated annualized revenue from such products exceeding $1 billion. Even more notably, traditional finance and crypto giants Robinhood and Coinbase have been dragged into the case. The reason is that both platforms route user orders to Kalshi's market through "distribution agreements." - Robinhood: Its event trading hub has processed billions of dollars in volume, providing users with exposure to sports, macroeconomic data, and political outcomes. - Coinbase: It has also integrated prediction markets powered by Kalshi, allowing crypto users to seamlessly trade contracts linked to real-world events. For state-level regulators, this structure is concerning: large-scale gambling activities are being conducted brazenly under the legal guise of "financial instruments," outside of existing gambling licensing frameworks. Wisconsin's action deeply reflects the intensifying conflict between U.S. "state gambling laws" and "federal derivatives regulation." The U.S. Commodity Futures Trading Commission (CFTC) maintains that event contracts fall under the jurisdiction of the federal derivatives framework; however, state regulators insist on treating them as "unlicensed gambling." This serious divergence has led to extreme fragmentation in the enforcement environment across the U.S.: - State-level crackdowns: A Nevada judge recently extended an order prohibiting Kalshi from offering sports contracts in the state; Arizona has taken similar actions. In January of this year, Tennessee issued cease-and-desist orders directly to Kalshi, Polymarket, and Crypto.com, demanding the return of user funds. New York authorities are also currently conducting a rigorous review. - Federal protection: Despite being besieged by various states, Kalshi previously obtained a ruling from a federal appeals court limiting New Jersey from applying local gambling laws to certain contracts regulated by the CFTC. With the deep involvement of major brokers and exchanges, prediction markets are moving closer to mainstream financial infrastructure. This jurisdictional battle playing out in the courts will ultimately determine whether "event contracts" can continue to expand as regulated financial products or if they will face the same strict licensing restrictions as the traditional gambling industry. For platforms and investors, regulatory risk has shifted from federal agencies to unpredictable state-level enforcement actions.

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