The
federally regulated derivatives exchange Kalshi, has filed a lawsuit against
Nevada gaming regulators in a bid to continue offering sports and political
event contracts, setting the stage for a showdown between state and federal
oversight of betting activities.

This comes
shortly after the U.S. Commodity Futures Trading Commission (CFTC) took an
interest in Crypto.com for offering Kalshi’s event-based contracts that allowed
betting on the outcome of the Super Bowl. Due to this, Robinhood had withdrawn
from similar offering just a day after listing.

Kalshi Challenges Nevada
Gaming Regulators in Federal Court

The
lawsuit, filed Friday in the U.S. District Court in Las Vegas, comes after
Nevada authorities threatened penalties against Kalshi for offering contracts
that they claim violate state rules for sports pools. Kalshi argues that as a
federally regulated entity under the CFTC it should be exempt from state
gambling laws.

“Nevada’s
attempt to regulate Kalshi intrudes upon the federal regulatory framework that
Congress established for regulating futures derivatives on designated
exchanges,” Kalshi’s legal team stated in the court filing cited by
Bloomberg.

The dispute
highlights the growing tension between traditional state-regulated gambling and
the emerging market for event-based derivatives. Kalshi, which allows users to
wager on outcomes ranging from Oscar winners to Federal Reserve interest rate
decisions, began offering sports-related contracts in January.

Order to Shut Down Sports
Contracts

Earlier
this month, the Nevada Gaming Control Board warned Kalshi that its contracts
were attempting to “circumvent Nevada’s right to regulate gaming activity
within its borders.” The state maintains that such activities fall under
its purview and require proper licensing, inspection, and taxation.

Nevada
gaming authorities have yet to respond to the lawsuit. Industry experts suggest
this case could have far-reaching implications for the future of sports betting
and event-based financial products in the United States.

Especially
since, although Kalshi is CFTC -regulated, the same Commission had already been
examining the offering of the company’s event-based contracts through retail
trading service providers.

Crypto.com, Robinhood, and
Super Bowl Event Contracts

At the
beginning of February, the
CFTC launched an investigation into Super Bowl-related event contracts offered
by Crypto.com and Kalshi, questioning their compliance with derivatives
regulations.

“We are
continuing to review the contracts in accordance with our regulations,” a CFTC
spokesman stated.

As a
result, playing it safe, Robinhood decided to
withdraw from offering the same type of instruments just
a day after introducing them to its users.

While this
sparked a debate about whether the future of event-based contracts is at risk,
a little over a month later, Robinhood
went fully fledged into offering prediction trading alongside Kalshi.