Crypto: Tennessee Orders Shutdown of Sports Predictive Markets on Polymarket

Barely relaunched in the United States, Polymarket is already coming up against local regulation. Tennessee has just sent him an official injunction, accusing him of illegally offering contracts on sporting events. This decision, a first at the state level, could mark a turning point in the legal battle between blockchain platforms and state authorities. At the heart of the matter is the legitimacy of federally regulated prediction markets in the face of strict local gambling laws.

A firm injunction: Tennessee demands the immediate end of sports contracts

While Polymarket obtained an exemption from the CFTC, on January 9, 2026, the Tennessee Sports Wagering Council (SWC) sent a cease and desist letter to three major prediction market platforms.

These documents, made public by specialist lawyer Daniel Wallach, demand the immediate cessation of the offering of contracts on sporting events to residents of Tennessee by the Polymarket, Kalshi and Crypto.com platforms. The regulator also requires the cancellation of all current contracts involving local users, as well as the reimbursement of customer deposits before January 31, 2026, under penalty of sanctions.

In the letter to Polymarket, SWC Executive Director Mary Beth Thomas said declared unequivocally: “the sporting event contracts offered on the Polymarket platform do not respect the consumer protections of the State of Tennessee (and many others), and represent an immediate and significant threat to the public interest of Tennessee”.

The legal framework invoked by Tennessee draws on both gambling regulations and the state's penal code. The SWC clearly details the consequences in the event of non-compliance with this injunction:

• Progressive fines: $10,000 for a first offense, $15,000 for a second, and up to $25,000 for subsequent offenses;

• Possible legal action: recourse to injunctive measures in state courts;

• Criminal prosecution: promotion of gambling is punishable as a class B misdemeanor, while aggravated promotion may be a class E felony;

• Violation of consumer protection rules: the SWC accuses Polymarket of not complying with local requirements such as age restrictions, anti-money laundering controls and responsible gaming obligations.

For the regulator and based on on-chain data, these platforms operate outside any state legal framework and constitute both an economic and social threat. This offensive marks a clear hardening of the posture of the State of Tennessee in the face of predictive markets, particularly in the sports field, considered particularly sensitive.

A questioning of legality

In response to this injunction, Kalshi announced that it had filed a complaint in federal court, challenging what it describes as a “Tennessee's illegal attempt to ban predictive markets in the state”.

A spokesperson for the platform said: “As other jurisdictions have recognized, Kalshi is a federally regulated exchange for real-world events, under the exclusive jurisdiction of the federal authority. It is fundamentally different from state-regulated bookmakers and casinos”.

If Polymarket and Crypto.com have not yet officially reacted, lawyer Daniel Wallach indicated on X that legal proceedings are imminent, suggesting that these platforms could follow the legal path opened by Kalshi.

The central issue in this battle is the legitimacy of the federal approval granted by the CFTC. Polymarket, Kalshi and NADEX are all registered as Designated Contract Markets (DCM) with the Commodity Futures Trading Commission, which theoretically allows them to operate nationally.

They argue that this federal regulation takes precedence over local laws, a position already tested in several cases in federal courts. Tennessee, for its part, argues that these platforms offer disguised forms of illegal sports betting, and that they do not comply with state rules on the protection of minors, the fight against money laundering or responsible gaming.

Beyond the legal wrangling, Tennessee's action reflects growing concern among state regulators about emerging platforms that could circumvent local betting monopolies and reduce associated tax revenue. This is not the first alert. In April 2025, the SWC had already expressed its opposition to predictive markets in a letter addressed to the CFTC, and in November, its director had warned of the threat that these platforms pose to licensed sports betting operators and their contributions to education through local taxation.

This injunction adds to an already tense climate for Polymarket, weakened by a security breach that exposed user data. Between growing regulatory pressure and technical vulnerabilities, the platform will need to clarify its model and strengthen its compliance if it wants to avoid being excluded from an increasingly demanding American market.