A federal judge blocked Minnesota from enforcing a first-in-the-nation ban on prediction markets on July 27, 2026, ruling that federal law likely preempts the state’s restrictions on platforms including Kalshi and Polymarket.
Key Takeaways
- Judge Katherine Menendez granted a preliminary injunction blocking Minnesota’s prediction-market ban just days before it was due to take effect Saturday.
- Minnesota would have become the first U.S. state to criminalize operating, hosting, or promoting prediction-market platforms.
- The CFTC, the Justice Department (DOJ), Kalshi, and Polymarket jointly sued Minnesota, arguing the Commodity Exchange Act preempts the state’s gambling law.
- Kalshi’s own court filings show more than 90,000 Minnesota users had traded on the platform by the end of May.
- More than a dozen U.S. states have tried restricting prediction markets under existing anti-gambling laws, with mixed results in court.
What Happened?
U.S. District Judge Katherine Menendez granted a preliminary injunction sought by the Commodity Futures Trading Commission (CFTC), Kalshi, and Polymarket, halting a Minnesota law signed by Governor Tim Walz in May.
Kalshi is a CFTC-registered prediction market exchange, and Polymarket is its blockchain based rival. The Justice Department joined the Commodity Futures Trading Commission, Kalshi, and Polymarket in the suit, arguing the Commodity Exchange Act preempts Minnesota’s gambling restrictions.
The measure would have made Minnesota the first U.S. state to explicitly outlaw prediction markets, making it a crime to operate, host, or promote the platforms there. Judge Menendez ruled the plaintiffs have met their burden to show they are likely to succeed, at least in part on their preemption claim, and found they would suffer irreparable harm if the ban took effect.
LATEST: 🇺🇸 A federal judge temporarily blocked Minnesota’s prediction market ban days before its Aug. 1 start, finding it likely preempted by federal law. pic.twitter.com/ntlEBQkKsp
— CoinMarketCap (@CoinMarketCap) July 28, 2026
Why the “Swaps” Ruling Matters?
Menendez found that certain event contracts offered by CFTC regulated platforms likely qualify as “swaps” under federal law, meaning they fall under the agency’s jurisdiction rather than a state regulator’s. The injunction lets Kalshi and Polymarket keep offering event contracts to Minnesota residents while the case proceeds, though the judge said she could later narrow it if some contracts turn out not to meet the legal definition of swaps.
The “swaps” label reaching Polymarket, whose contracts settle on-chain in USDC rather than through a centralized order book, is the detail crypto-native traders should note: a blockchain settled platform now gets the same federal cover as a CFTC-registered exchange, cover regulators rarely extend to on-chain decentralized finance markets.
Kalshi welcomed the ruling. Today’s decision makes it clear: States cannot ban things that they don’t have jurisdiction over, said Elisabeth Diana, a Kalshi spokesperson, in a statement. Polymarket’s chief legal officer, Neal Kumar, said the company looked forward to continuing to operate in Minnesota.
State-vs-Federal Battle Widens
Minnesota Attorney General Keith Ellison said the state would keep defending the law, arguing prediction markets amount to gambling. Prediction markets are gambling, plain and simple, and Minnesota has every right to keep predatory gambling out of our communities, Ellison said in a statement. Minnesota lawmakers have defended the ban as necessary to protect public health and safety in a state where sports betting remains illegal.
Under President Donald Trump’s administration, the CFTC has argued that event contracts traded on prediction-market platforms fall exclusively under its authority to regulate derivatives, preempting state regulation. Massachusetts, Michigan, Nevada, and Washington have already secured court orders restricting Kalshi’s operations under their own anti-gambling laws, while Arizona temporarily sided with the CFTC by halting a criminal case against the company.
Implications for Prediction Markets
The ruling does not resolve the jurisdictional fight, but it sets the working assumption: keep offering event contracts and let federal preemption defend against each state that pushes back. Menendez left room for a partial retreat, noting she could narrow the injunction later if some event contracts do not meet the legal definition of swaps.
The case lands mid-arc of a broader Trump-era CFTC campaign for exclusive federal authority, so it functions as a test of that campaign, not an isolated Minnesota dispute, echoing growth CoinLaw has tracked in other retail investing data.
CoinLaw’s Takeaway
This ruling reads as a jurisdictional stress test, not a final verdict. The CEA preemption theory now has one federal judge behind it, which gives Kalshi and Polymarket a legal template to raise in every other state fight, and gives Polymarket’s on-chain contracts the same shield as Kalshi’s centralized book. Minnesota’s law was the most aggressive of the state-level attempts because it criminalized the activity outright rather than relying on existing gambling statutes, so a loss here for the state signals that criminal bans face a steeper preemption hurdle than the civil restrictions other states have used.
The open question is whether the “swaps” finding survives full merits review, since Menendez explicitly reserved the right to narrow the injunction if some contracts fall outside that definition. Kalshi’s disclosed Minnesota user base shows real commercial stakes riding on that eventual answer, and Ellison’s continued defense of the law means the state-versus-federal fight is not over even though the immediate ban is on hold.
