Federal Court Blocks Tennessee’s Ban on Kalshi Prediction Markets

A federal judge has temporarily halted Tennessee’s attempt to shut down Kalshi, granting the prediction market a critical lifeline in its escalating battle against state regulators. In an order issued Monday, U.S. District Judge Aleta Trauger blocked the Tennessee Sports Wagering Council (SWC) from enforcing its cease-and-desist order, ruling that Kalshi would likely suffer "irreparable injury" without immediate judicial intervention.

The Temporary Restraining Order (TRO) bars the SWC and Attorney General Jonathan Skrmetti from taking any action against Kalshi until a preliminary injunction hearing scheduled for January 26. The regulator had previously ordered Kalshi, along with Polymarket and Crypto.com, to cease operations in the state and refund all users by January 31, threatening fines of up to $25,000 per violation.

The Federal Preemption Argument

At the core of Judge Trauger’s decision is the jurisdictional tug-of-war between state gambling commissions and the Commodity Futures Trading Commission (CFTC). Kalshi, a federally designated contract market (DCM), argues that its event contracts are derivatives under exclusive CFTC oversight, not state-regulated “gaming.”

The court finds that Kalshi is likely to succeed on the merits of its claims… and its rights will likely be violated absent a temporary restraining order.

This ruling reinforces a similar precedent set in other districts but clashes with aggressive enforcement actions rolling out nationwide. While Kalshi secured this win in Tennessee, the platform is fighting a multi-front war. Regulators in 10 states, including Arizona, Illinois, Nevada, New Jersey, New York, and Ohio, have issued similar cease-and-desist orders targeting prediction markets.

A Nationwide Crackdown

The stakes are high. Kalshi reported a record start to 2026, processing $291 million in daily volume on January 1 alone. State regulators argue these “event contracts” are functionally sports betting and must be licensed locally. The SWC’s crackdown also targeted Crypto.com’s derivatives product; the platform’s native token, Cronos (CRO), remained flat at $0.10 following the news.

Parallel litigation is unfolding in Connecticut, where a federal judge has similarly paused state enforcement actions. A pivotal hearing in that case is set for February 12, 2026. For now, Tennessee regulators must stand down, allowing Kalshi to continue operations in the state while the court prepares for the January 26 showdown.