Tennessee Cracks Down: Kalshi, Polymarket, and Crypto.com Ordered to Halt Sports Betting Contracts

Regulators just threw a flag on the play.

The Tennessee authorities have called an immediate timeout for three major players operating at the intersection of crypto and prediction markets. Kalshi, Polymarket, and Crypto.com have been ordered to cease offering event-based contracts tied to sports outcomes within the state. It's a sudden regulatory blitz that's left the digital asset community scrambling.

Prediction Markets Face a Hard Tackle

This isn't a warning shot—it's a direct order to shut down specific operations. The move targets contracts that allow users to speculate on real-world sports events, a gray area that has seen explosive growth alongside the crypto boom. Platforms built their reputations on letting users bet on everything from election results to the Super Bowl, but now, traditional sportsbooks are drawing a line in the sand.

The Compliance Clock is Ticking

For these companies, the directive means an instant operational pivot. It's a stark reminder that innovation often outpaces legislation, and when the law catches up, it doesn't send a memo—it sends a cease-and-desist. The order forces a rapid reassessment of product lines and geographic strategies, a costly exercise in regulatory whack-a-mole that venture capitalists never budget for.

So while decentralized finance promises to cut out the middleman, it seems the middleman still holds the rulebook—and isn't afraid to levy a penalty for unsportsmanlike conduct. Just another day where building the future of finance looks a lot like negotiating with a skeptical, spreadsheet-wielding referee.

Tennessee Regulator Accuses Prediction Markets of Unlicensed Sports Wagering

The regulator accused the platforms of operating unlicensed sports wagering products in violation of the Tennessee Sports Gaming Act.

In a letter addressed to Polymarket, SWC Executive Director Mary Beth Thomas wrote that the company’s sports event contracts fail to meet state consumer protection standards and pose “an immediate and significant threat to the public interest of Tennessee.”

Nearly identical language appeared in the letters sent to Kalshi and Crypto.com’s North American Derivatives Exchange.

All three platforms are registered with the Commodity Futures Trading Commission as designated contract markets, allowing them to list event-based derivatives nationwide.

The companies have argued that federal oversight preempts state gambling laws, though courts have issued mixed rulings on where federal authority ends and state jurisdiction begins.

C&D to Polymarket: pic.twitter.com/OuinQf8AD4

The enforcement action comes as activity on prediction markets continues to expand.

Polymarket re-entered the US market last year following its $112 million acquisition of derivatives exchange and clearinghouse QCX and began opening its US app to waitlisted users in December.

The Tennessee action appears to be the first publicly disclosed state-level cease-and-desist order specifically targeting Polymarket, which currently offers only sports-related contracts to US users.

Tennessee’s letters outline escalating penalties for noncompliance, including civil fines of up to $25,000 per violation.

More significantly, the regulator warned that continued violations could trigger criminal referrals. Under Tennessee law, gambling promotion can carry misdemeanor or felony charges, depending on severity.

State Opposition to Prediction Markets Builds Over Consumer, Tax Concerns

State opposition to prediction markets has been building for months.

In 2025, the SWC urged the CFTC to prohibit sports event contracts, arguing that such products bypass state safeguards such as age verification, responsible gaming rules and anti-money laundering requirements.

Tennessee officials have also warned that prediction markets threaten tax revenue generated by licensed sportsbooks.

The letters were copied to Tennessee Attorney General Jonathan Skrmetti, who has backed other states in legal challenges against Kalshi.

As reported, a new legislation to limit the interactions between government officials and the prediction markets is being supported by more than 30 Democrats in the US House of Representatives, including former Speaker Nancy Pelosi.

The lure behind new restrictions is a controversial Polymarket bet, which started as a bet of $32,000 but eventually became more than $400,000 shortly before the unexpected detention of Venezuelan President Nicolás Maduro.

The bill proposed by the New York Representative Ritchie Torres is the Public Integrity in Financial Prediction Markets Act of 2026.