Trading on the Edge: Kalshi, Robinhood, and Crypto Face Off with State Regulators Over the Future of Betting

As Illinois joins a growing crackdown on prediction markets, a legal battle is emerging that could redefine the lines between gaming, finance, and gambling.

A Market Too Close to a Bet

In a quiet but coordinated strike, a group of U.S. states is moving to shut down what could be the next evolution of real-money gaming. In early April, the Illinois Gaming Board (IGB) ordered Kalshi, Robinhood, and Crypto.com to cease offering sports-related event contracts, accusing them of running unlicensed gambling operations under state law.

Illinois is just the latest. Nevada, New Jersey, and Ohio issued nearly identical cease-and-desist orders, each arguing that these platforms are accepting sports wagers without authorisation — regardless of whether they call them “prediction contracts.”

“Purchasing a contract based on which team a person thinks will win a sporting event is no different than placing a bet through a traditional sportsbook,” said Matthew Schuler, executive director of the Ohio Casino Control Commission.

For Kalshi, this isn’t just regulatory interference — it’s an existential legal challenge. The company claims its contracts are not gambling at all, but federally regulated financial instruments. State regulators say that’s spin.

What’s at stake isn’t just the legality of sports markets. It’s the future of gamified speculation, prediction trading, and how platforms across gaming, crypto, and finance will be allowed to monetize real-world outcomes.

Kalshi’s Vision: Prediction Markets for Everything

Founded in 2020, Kalshi is a CFTC-licensed event contract exchange, allowing users to trade on real-world outcomes: interest rate hikes, CPI numbers, election results, and now — sports.

Its contracts function like binary options: users buy “Yes” or “No” positions on outcomes, which pay out $1 if correct. Markets are fully peer-to-peer. There’s no house, no odds, no traditional sportsbook.

Kalshi’s controversial move came in early 2025, when it rolled out contracts on:

Super Bowl results
NCAA March Madness games
Team-specific win/loss outcomes

Robinhood partnered to distribute these markets in-app. Crypto.com followed suit with similar offerings. The expansion was rapid — and lucrative. Kalshi reportedly cleared $200 million in March Madness trading volume in a single week.

That success triggered the backlash.

From March Madness to Courtroom Showdowns: A Timeline

This regulatory drama didn’t unfold overnight. The escalation from product launch to legal warfare happened in just a matter of weeks.

Key Events:

February 2025 — Kalshi launches Super Bowl outcome contracts, its first public foray into sports markets. Robinhood integrates the product briefly, but removes it after early legal pressure.
Early March 2025 — As NCAA March Madness begins, Kalshi rolls out contracts on every game in both the men’s and women’s tournaments. Trading volume surges past $200 million in the opening weekend.
March 8, 2025 — The Nevada Gaming Control Board sends Kalshi a cease-and-desist letter, warning the company it may face criminal penalties if it doesn’t halt sports markets in the state.
March 26, 2025 (revealed later) — Montana’s Gaming Control Division issues a quiet cease-and-desist letter to Kalshi, ruling that event-based contracts tied to game outcomes constitute unlicensed sports wagering.
March 31, 2025 — The Ohio Casino Control Commission orders Kalshi, Robinhood, and Crypto.com to halt sports event contracts, citing underage access and lack of consumer protections.
April 1, 2025 — The Illinois Gaming Board issues formal cease-and-desist letters to all three platforms, declaring the contracts illegal sports wagering under state law.
April 7, 2025 — Maryland becomes the sixth state to issue a cease-and-desist order. The Maryland Lottery and Gaming Control Commission (MLGCC) declares Kalshi’s sports contracts “indistinguishable from wagers,” and gives all three companies 15 days to shut down operations. That same day, the CFTC confirms it will hold a public roundtable to review the legality of event-based contracts.

Maryland Joins the Crackdown — and the CFTC Steps In

On April 7, the Maryland Lottery and Gaming Control Commission (MLGCC) became the sixth U.S. state to issue formal cease-and-desist orders to Kalshi, Robinhood, and Crypto.com, accusing them of offering unlicensed sports betting under the guise of prediction markets.

“Kalshi does not hold a sports wagering license issued by the Commission, its wagers have not been approved by the Commission, and it is not otherwise authorized under Maryland law to offer wagers on sporting events,” wrote MLGCC director John Martin.

The MLGCC determined that Kalshi's contracts — traded based on user predictions of real-world game outcomes — are “indistinguishable from the act of placing a sports wager.” Regulators emphasised that licensed sportsbooks in the state must undergo rigorous background checks, comply with responsible gaming policies, and pay wagering taxes — requirements that Kalshi and its peers currently avoid.

All three platforms were given 15 days from receipt of the order to confirm shutdown of their Maryland operations.

“The commodity traders aren’t bound by the same guardrails,” Martin told NottinghamMD. “They’re conducting sports wagering without a license and avoiding the taxes legal operators pay.”

This latest action follows similar enforcement from Nevada, New Jersey, Illinois, Ohio, and Montana — the latter of which quietly issued its order on March 26. Michigan has launched an investigation, while Arizona, North Carolina, and Kansas are actively monitoring the situation.

With pressure mounting at the state level, the issue has reached Washington. The Commodity Futures Trading Commission (CFTC) — Kalshi’s federal regulator — is preparing to hold a public roundtable in the coming weeks to debate the legality and limits of event-based contracts, particularly on sports and elections.

“This is no longer a state-level skirmish,” one legal analyst said “With the CFTC involved, this is a national reckoning on whether prediction markets are finance or gambling.”

Kalshi has welcomed the roundtable, hoping to strengthen its legal argument that federal law preempts state restrictions. But with the CFTC already having blocked Robinhood’s Super Bowl contract, the exchange may find itself battling regulators on both fronts.

What Illinois — and Other States — Are Saying

On April 1, the Illinois Gaming Board issued formal notices to Kalshi, Robinhood, and Crypto.com stating that:

“No person or entity may engage in a sports wagering operation or activity in Illinois unless licensed by the IGB. These activities constitute illegal gambling under Illinois law.”

Illinois’ definition of sports wagering includes:

“Accepting wagers on sports events or individual statistics of athletes […] by any system or method of wagering.”

The same legal rationale was used by New Jersey, Nevada, and Ohio, with each state emphasising that trading on game outcomes — even via CFTC-regulated exchanges — qualifies as gambling when the subject is a sports event.

“These contracts do not have the consumer protections required under Ohio law and are accessible to Ohioans under 21,” said Schuler. “We must ensure the integrity of sports gaming.”

The State-Federal Standoff

Kalshi’s defense hinges on federal jurisdiction. It is licensed by the Commodity Futures Trading Commission (CFTC) — the same body that oversees futures trading in oil, gold, and interest rates.

Kalshi CEO Tarek Mansour has been outspoken, calling the state orders a misunderstanding of financial law and a threat to innovation.

“Prediction markets are critical to the U.S. economy. These regulators fundamentally misunderstand them — and we are left with no choice: sue,” Mansour said in a LinkedIn post.

Kalshi has filed lawsuits against Nevada and New Jersey, and is expected to do the same in Illinois and Ohio. It is seeking temporary restraining orders to continue operating its markets while courts decide whether federal law preempts state regulation.

But the federal backing may not be as strong as Kalshi hopes. In a striking development, the CFTC recently prohibited Robinhood from offering a Super Bowl contract, suggesting even federal regulators are not aligned on whether sports markets belong on financial exchanges.

Meanwhile, Nevada has raised the stakes further — warning Kalshi that its activities could result in criminal and civil penalties, and emphasizing that only licensed sportsbooks are allowed to accept event-based wagers.

“Any unlawful attempts to circumvent Nevada’s right to regulate gaming will be met with the full force of penalties,” said Kirk Hendrick, chair of the Nevada Gaming Control Board.

Comparison Table: What’s a Bet, What’s a Trade?

Feature	Kalshi	Traditional Sportsbook	Robinhood	Crypto.com
Subject Matter	Sports, elections, econ	Sports only	Stocks, ETFs	Sports, crypto, events
Regulation	CFTC (Federal)	State Gaming Commissions	SEC / FINRA	Varies / often none
Tradable contracts	✅ Yes	❌ No	✅ Yes	✅ Yes
Age Requirement	18+	21+	18+	18+
Consumer protections	Basic CFTC standards	Strict state-level rules	Investor disclosures	Minimal
Outcome payout style	$1 binary contract	Variable odds payout	Varies (stocks/options)	Varies

State regulators argue the subject matter — sports outcomes — overrides the format. If it’s about who wins the game, and money’s on the line, it’s gambling.

Kalshi argues the format — regulated contracts, market-based pricing — means it's not.

Robinhood's Retreat: A Risky Bet on "Financial Innovation"

Robinhood’s decision to integrate Kalshi contracts briefly brought sports wagering into a platform known for meme stocks, options trading, and a user base under age 25.

The move drew backlash not just from regulators, but from users and industry observers who accused Robinhood of pushing gambling to a younger audience — again.

“They’re offering March Madness bets to 18-year-olds inside a stock app. This was never going to end well,” said one Redditor on r/investing.

After receiving legal notices from New Jersey, Ohio, and Illinois, Robinhood quietly geofenced the affected states and stopped promoting the partnership. It has not announced whether it will continue in markets without active bans.

Gaming & Esports: The Next Frontier — or Casualty

Kalshi's model — and the aggressive state response — has major implications for gaming-adjacent products, especially in esports, fantasy leagues, and live-event prediction mechanics.

If regulators are willing to classify any real-money outcome tied to a competition as gambling, then platforms offering:

Real-money esports prop bets
Fantasy outcomes tied to Twitch stream stats
Player milestone contracts (e.g. “Will TenZ top-frag in the final?”)...could find themselves in legal hot water.

And that matters. Because gaming startups — especially in Web3 and prediction tooling — are already exploring these spaces.

“This fight isn’t just about sports. It’s about what happens when interactivity, money, and outcomes blend — and regulators aren’t ready,” said a gaming policy analyst on Discord.

For the Gaming Eminence audience, that’s a red flag worth watching. If Kalshi loses, the precedent could hit gaming innovation hard. If Kalshi wins, a new class of game-integrated prediction systems might explode into the mainstream.

Public Sentiment: Division, Distrust, and Defiance

Across Reddit, Discord, and X, opinion is split.

Supporters praise Kalshi for democratising access to risk markets and argue that prediction contracts are more transparent and efficient than sportsbooks.

Critics accuse the platform of cloaking gambling in financial language and exploiting regulatory ambiguity.

“Kalshi literally said a year ago they avoid sports because of gambling laws. Now they’re calling the same thing ‘critical to markets’?” — X user @DerivativeBro

Kalshi’s attempt to draw a clean line between prediction and wagering has not convinced everyone — especially when public perception, not technical structure, is increasingly defining the regulatory outcome.

The Outcome Is Still in Play

This isn’t just a regulatory showdown. It’s a battle over definitions — and territory.

If Kalshi and its allies win in court, we could see a new wave of CFTC-regulated, peer-to-peer markets — from sports to elections to streaming milestones. If they lose, the U.S. will double down on state-by-state gambling regimes, tightening restrictions not just on sportsbooks, but on any gamified real-money mechanics.

With Maryland’s entry, six states have now issued formal cease-and-desist orders. Montana’s quiet enforcement, Michigan’s active investigation, and surveillance from Arizona, North Carolina, and Kansas suggest this crackdown is far from over.

Meanwhile, the CFTC’s upcoming public roundtable marks a pivotal moment — the first time federal regulators will openly debate the future of sports event contracts. Kalshi may have welcomed the fight, but it’s now facing pressure from both state gaming commissions and its own federal overseer.

As regulators, courts, and platforms spar over whether a contract is a bet or a financial tool, one thing is clear: the future of real-money interactivity — across games, crypto, and finance — is on trial.